Investors, good afternoon. Welcome to the AAC Technologies' 2022 full year results announcement conference. I'm Wang Junqing, host today, and the Director of AAC Tech IR team. On behalf of the company, I would like to thank you for your attention in AAC. Please allow me to introduce the management. They are Mr. Kelvin Pan, Executive Vice President of AAC Tech, Ms. Dan Guo, Chief Financial Officer of AAC Tech, Mr. Jack Duan, CEO of AAC Optics, Mr. Tingjia Shi, Vice President of Strategy of AAC. Thanks management's attendance. Today's meeting includes two parts, starting with my presentation of AAC 2022 full year and Q4 financial performance. This will be followed by an open management QA session about the company's strategic developments.
You are welcome to communicate with the management and ask your questions by pressing the Raise Hand button or typing a message in the Zoom chat box, or by contacting our IR team. You may remain the hand-raising status to remind host. Please introduce your organization and the name before questions. We also have simultaneous interpreting channel today. Please click the interpretation button if you need. Thank you. Let's take a look at the 2022 full year and the Q4 results. In Q4, the group achieved a revenue of RMB 5.84 billion, up 21.4% YoY. The increase in revenue was mainly attributed to the strong demand of overseas customers, an increase in combined revenue contribution from Electromagnetic Drives, and a Precision Mechanics business.
GP margin was 16.6%, down 3.9 percentage points year-on-year because of the product mix change and the more fierce competition in optics markets. Net profits of Q4 is RMB 237 million, up 12% year-on-year. The group achieved a revenue of RMB 20.63 billion, up 16.7% year-on-year. The increase was mainly due to the increase in combined revenue contribution from Electromagnetic Drives and the Precision Mechanics business. Gross profit margin of 18.3%, down 6.4 percentage points year-on-year because of the increase in low GP margin business and the more fierce competition in optics market. Net profit was RMB 820 million, down 37.6% year-on-year. In 2022, the group continued its prudent financial management on CapEx and R&D during this reporting period.
The group's operating cash inflow was RMB 2.52 billion, main capital expenditure was RMB 1.85 billion. As of December 31st, 2022, net gearing ratio was 6.2%. Cash and the cash equivalents was RMB 7.16 billion. We believe that sound financial position is essential to the sustainability of the group's growth and ensures group's ability to continue to innovate and develop in the future. Acoustics. In the Q4, the group's acoustics business revenue was RMB 2.39 billion, 41% of the total revenue, up 5.6% YoY. Gross profit margin was 31.2%, up 4.4 percentage points YoY, driven by the overseas customers' revenue contribution.
The group's acoustics business revenue was RMB 8.85 billion, up 3.1% year-on-year. GP margin was 28.1%, which was mainly due to the Android market demand decline and Android acoustics products drop. In 2022, the group continued to work closely with overseas customers and has supported their expansion into emerging business fields by constantly enhancing products, competitiveness, and the market share increased steadily. Currently, the group has built up an integrated solution for mobile audio devices, including high-performance linear speakers, multi-speaker arrays, and also the proprietary algorithm, which will actively be promoted to the market. The group will continue to keep abreast its customers' needs, launch new products and technologies, and increase its revenue. Optics.
In Q4, the group's optics business revenue was RMB 798 million, 14% of the total revenue, up 15.6% YoY. Weakened market demand affected the shipment volume and the utilization of plastic lens and the camera modules, resulting in a decline in the overall gross profit margin of the optics business. The group's optics business revenue was RMB 3.22 billion, up 34.7% year-on-year, mainly due to the increased market share of the camera modules. Plastic lens product mix has been continuously improving and the proportion of 6P and the above increased. Camera module business grew steadily and annual shipment volume delivered was 149 million, a year-on-year increase of 121.5%. OIS products have started a small scale mass production.
The group will continue to enhance its vertical integration capability by integrating plastic lenses, camera modules, and a VCM business. The next focus is on the Electromagnetic Drives, EMD, and the Precision Mechanics business segment. In Q4, given the shipment increase Our drives and the PM products, as well as the synergy and the new business driven by the Toyo Precision. Revenue was RMB 2.29 billion, up 27.5% YoY and up 11.5% QoQ. Our GP margin was 22.0%, up 2.5 percentage points YoY and 0.7 percentage points QoQ. For the full year 2022, revenue for this combined segments amounted to RMB 7.28 billion, up 29% and remaining steady.
The shipment volume of X-axis haptic motor for Android customers was up 14.9% year-on-year. Market share is further improved. With respect to Precision Mechanics business, leveraging years of manufacturing experience and in-depth cooperation with customers, the group has continued to expand its high value business and Optics and the product mix. The group will continue to improve its product mix and increase the utilization rates and the GP margin. The synergies between Toyo Precision and existing metal casing business have been fully substantiated by the smooth expansion into the notebook and other markets. We will increase the revenue of Toyo Precision and also the total revenue. Last one, at least we would like to pay more attention to the sensor and the semiconductor business.
The revenue was about this coins of a point. The GP margin is 13.9%. This is mainly due to the product mix. In 2022, the sensor and semiconductor business revenue was RMB 1.246 billion and 24% year-on-year. The GP margin is 11.6% and year-on-year decline is 3.5 percentage points. In Q4 of 2022, the manufacturer, the factory of Malaysia, started its production. The group continued to promote the proprietary MEMS microphone by improving the structural and optimization, and the group increased the reliability of the products.
We also formed a partnership with the Soundskrit and expand the business to the consumer electronics and the smart automotives, and have promoted high performance MEMS microphone products. We think with the AI and the smart home appliances and automotive improvements, and we think this will improve the MEMS business in the future. In 2022, the group insisted on both internal and external improvements and introduced these digital management and control the CapEx and increased inventory turnover . In 2022, group at the same time solidify the smartphone market and at the same time seize the opportunity and continue to explore the emerging markets. They will also provide the precise and haptics experience.
Yeah, they will provide different systems like the haptics and also the new capital expenditures and the better experience to our customers. We will also continue to our lean management. Based on the customers' demands, and we will provide the customers with diversified products. In the NEV and in the traditional automotives continue to its exploration, and the MEMS delivery has already commenced. In the automotive optics in 2022, the relevant products have already passed the certification of the top clients. The government has already covered this in-cabin cameras and also the ARHUD optics components and then LIDAR components have already received the acceptance and the recognition of the top clients. Those are the introduction of the 2020 full year results and the Q4.
We will come to Q&A session. Please press raise hand button in Zoom or remain your hand raising status. Please introduce your organization and the name before questions. Thank you.
The first question is from CICC. Huang Tianqing, please go ahead.
Good afternoon, management. My name is Huang Tianqing from CICC. I have two questions. The first question is related to the demand at the beginning of this year. We saw a rebound at the beginning of this year and in our Chinese New Year. Recently, the demand of the smartphone was fluctuated. My question is about your view on the annual demand of our smartphone. Do you have any year-on-year change and a quarter-on-quarter change? From the full year statistics, the shipment volume of the smartphone was maintained steady. It...
We think this change is very limited for the first half and the second half of the year. We think there will be some improvement after the Chinese New Year. The shipments will be similar to the second half of last year. In the second half of this year, there will be new models launched. The shipment will be further improved in Q3 and Q4. For the full year, the percentage is about 44% versus 55%. The smartphone shipment will be maintained similar. In March, there were new models of Android launched. We also think this kind of launch will drive the demand of our customers.
Compared with the model launched in the second half of the year, we believe there will be more new models. The consumption driver will be stronger than the first half of the year. Okay, understood. Very clear. My second question is about the CapEx. Last year, the CapEx was shrunk. I'd like to know the CapEx, the breakdown of the CapEx by segment. Because, you know, there are overseas production expansion, and also we have commenced on our production in the Malaysia factory. What kind of a percentage of the CapEx will be allocated to the overseas market? Okay, I will answer the question first, and welcome other management supplements. We are facing an uncertain macro environment, we conducted a prudent management. Also it's a kind of lean management.
The CapEx last year is about RMB 3.5 billion. It was declined to about RMB 1.8 billion. It's almost half of the last year. Less than 30% was in optics. For lens it's less than one-fourth. We also allocate those CapEx to motor and Precision Mechanics. The Precision Mechanics accounted for about 15%. Last year, the number was lower. If you see the CapEx of 2023, with the lower base of 2022, our CapEx will be targeted in some projects, and we will make adjustments of 10%-15% control, which is 10%-15% down. Of course, this is in line with the overseas strategy and other strategies.
We want to reserve our resources, and we will allocate and distribute the CapEx according to the new business and the traditional business and the different projects. Yes. For the traditional projects, we continue to control and optimize our CapEx. For the new projects, for example, the key functions and new products, we accelerate The CapEx spend. Of course, the CapEx spend is compliant with the customer's demand. This is also in line with the launch of the new models and the customers' strategies. In the future, our focus will be on the new products and their new functions.
Thank you. Thank you management's answer is very clear. Thank you, Tingjia's question, and thank you management's answers. Cherry, next few questions. Please go ahead.
Good afternoon management. My first question is about the smartphones. I have a follow-up question on the market. Acoustics, Optics, and the PM, do you have any outlook on their revenues? What about the revenue target on the non-smartphone market?
Okay. I will talk about the Android market first. The shipment volume on our smartphone last year was not increased. There were product change, product mixture change. Those kind of a change and its influence will be reduced in the first half and the second half of 2023. In Optics and Acoustics and the PM, there will be new products and the projects in the second half of the year. This will help us to build a sound development of Android business.
In the first half and the beginning of the second half of the year, and we have been influenced by the fierce competition of the market. Of course, the shipment volume. With introduction of the new products and the mid and high-end products, we think the loads and the revenue and the shipment and the revenue will also be increased with the shipment volume. Toyo Precision and its business is smooth, and we expand our business to the notebook market and other new projects. We are also developing the metal casing products of notebooks. In the middle of this year, and the production will be wrapped up. The mass production will be commenced.
With this kind of pace, we believe that the revenue will be an increase this year and next year and the year after next year. We think the revenue will be more promising in terms of the notebook and laptops.
Okay, understood. In terms of automotive, what's the revenue of 2022 on this regard? This year, how many new products? How many products you will be finalized? Do you have any guidance on this regard?
Thank you for your question. Automotive acoustics, we think the revenue will be over RMB 100 million, and it's quite sizable. Our focus is on the end user's experience, the integrated experience and also these experience in the cockpit. For example, these microspeaker, we made some innovation on those microspeakers.
We will also increase the in-cabin experience of the customers. We also build the commercial partnership with a luxury brand. We also forged our partnership with the NEVs. The third, we will leverage our algorithm. To improve more functions and the customer experience. Those are our focuses. AAC hasn't entered in the automotives for a long time, but we have already received tremendous orders. We hope to triple this development this year.
Okay. Thank you. Cherry's questions, and thank you, management's answer. Next question is from Jack Liu. Hi, Jack. Can you hear me? Jack? Can you hear me? Yes, very clearly. You may proceed. Thank you.
Hello. I'm from Guojun Electronics, Jack. My name is Jack Liu from Guojun Electronics. Thank management for your answers. My question is about the three to five-year mid and long-term strategy. Some people ask about the automotive acoustics. What's your mid and long-term target on this regard?
For the overall strategies of the company for the next three to five years. We have one of foundations and also two drivers. The first foundation is based on this consumer electronics. The two drivers, and there are two dimensions, the first one is the emerging market. It's also includes the automotives. Of course, in terms of the automotives, it's not only limited to acoustics and optics.
Optics and AI, also, PM and other segments will attach upon this segment. This is the first dimension for our growth driver. The second, we want to accelerate our business to a higher value chain positioning. This will drive us to integrate the overall value chain. We will leverage the algorithm and other strengths to achieve this goal. This is the targets of next three to five years of AAC Tech. In terms of the acoustics in the automotive segments, this revenue was about RMB 200 million. We hope that in this automotive field the revenue won't be below in our traditional consumer electronics. Those are the clear target of the acoustics.
Thank you.
Thank you, Jack's answers and management answers. Next question is from Xin Chenyu, Credit Suisse.
I have a question about optics. In Q4, the GP margin was lower, and the inventory was lower as well. I'd like to ask, was the percentage drop driven by the inventory decline? The camera decline has reached to its bottom or it still has the potential to drop.
Okay, in terms of the inventory, I'd like to answer this part. In Q4 and also in Q3, the management deleveraged the inventory to improve our cash flow and the fierce competition in the market. In the second half of last year, we actively de-leveraged our inventory.
This is the inventory of nowadays, and it decreased from the six to seven months to four to five months.
In the first half of the year, the GP margin will be improved permanently. We will make the product mix change and the product mix structure, so the ASP will be going up sharply. This will have the positive impact on the GP margin. We think this kind of price increase is about two digits. Okay, thank you. The second question is about the order increase in Android market. In the recent months, the optics, the volume is similar to the last year's, and is better than Q4. We relocate our production because you know our production is over than the demand before. After the Chinese New Year, we see this trend.
Of course, we maintained our prudent, optimistic attitude because we are not sure whether this kind of a trend will be continued. Okay. Thank you. A question from Felix on the chat box. We'd like to ask about the unit price of the notebook and whether the potential for its increase in the future. The unit price is about $50 , $50 , and the first factory is in Yangzhou, and the daily production capacity is about 10,000. For a month, it's about 260,000. With the new products and projects introduction, we hope that the production will be ramped up. This metal products for notebooks, we think the market is very sound. Thank you, management answer.
Other two questions from the chat box. First question is about the cash flow improvement. Second question. ASP trend for each segment. Thank you.
In terms of the cash flow, we have already discussed it. We actively manage the cash flow and also adopted management. The free cash flow, together with the inventory turnover as well as the CapEx, are well under control. The CapEx, as mentioned before, was declined by almost 15% year- on- year. The inventory is decreased by over 20%. Optics, as mentioned by Jack, we also conducted a lot of optimizations. Next step, we will do more measures on the process.
In terms of the cash flow for the full year of 2022, next year is negative RMB 1.3 billion, this year was positive RMB 2.5 billion. This is a big improvement. In the future, we will strengthen this kind of management and to further increase free cash flow level. By the end of 2022, the cash and cash equivalent is about RMB 7.6 billion. The net gearing ratio is also very sound, and all the financial positions are stable. In terms of the ASP trend, the ASP trend of this year is similar to ASP trends of 2022. The first half will be lower than the second half because of the demand.
For the Precision Mechanics. This will be improved because of the new introduction of the notebooks business. This will increase the ASP on this regard for the next one or two years, and this kind of a trend will be maintained. With respect to the big customers, we think their ASP is stable, with new products and projects, we think there will be more production. Those are the clear trends. On Android and in Android market, they're starting from the second half of 2022 to the first half of 2023. The ASP has been a little declined, and this is also because of the competition in the market.
With the new products and the products introduced in the second half of 2023, the ASP will be improved at that time. We think the market of the smartphone is stable. With the introduction of the new functions and the products. This kind of on each smartphone and ASP will also maintained as stable.
Okay. Thank you for your answer. Next question is from Huatai.
I have two questions. The first question. With the decoupling relations and as well as the supply chain relocation of phenomenon worldwide. As far as I know, our strategy on this regard is very efficient. For the next two to three years, what's your plan on your production? What kind of production relocation of your business?
Yes. We continue to discuss this question with our big overseas customers. Most of the production nowadays is within Chinese market, is in China. We will have a better match with the customers production and the products. This year, we will expand our production capacity to ASEAN countries. Of course, this is in line with the supply chain strategy of the customers. Some traditional products will be relocated to the overseas production, but now some new projects and products production will also be relocated to overseas. For the high-end development and the technology demand. We will still maintain this production landscape. Maybe in the next two to three years, domestic and overseas production capacity percentage is about 70% versus 30%. Seven versus three.
Okay. I'd like to ask a question about AAC Optics. I saw the listing process on Star. Whether its development will be more independent or will be more combined with AAC Technologies. What's its positioning change in the market?
In terms of the product strategy, we insisted that different dimensions. The first of all is the cameras and the lens. Our lens is the number three, is the top three worldwide, we will adjust our products this year. To expand and develop our business to the high-end lens. Our technology is mature, we will pay more attention to the high-end lens development this year. The second is about WLG.
Last year, since the second quarter, the new factory was commenced, and we delivered our products after that. Yeah, the quality will be further improved this year. With the technology and upgrade, the WLG will have a more promising development next year. For the non-smartphone market, for example, the automotives and drones and industrial cameras, we also expand our business. With doors into those business. In industrial cameras, we entered in this new end area. In the future, we will expand our business to those emerging end markets. Last year, you know that we withdrew the listing. We think with the solid development of those diversified dimensions, we may reconsider the listing procedure. With respect to the overall strategy, we think the smartphone market is relatively stable.
We will carry on more integrated business. Optics strategy is in line with the group. We have VCM and motor and modules. Our proprietary algorithm and the softwares. Which will help our customer to improve and upgrade customer's experience. Of course, all this are within the budget of the customers. With the interaction with our big customers and the business communication, we will make our strategies together with Optics business. We will empower the Optics business and support their development. The development in automotive. In the future, the automotive lens will be further improved. Next three to five-year plan, we will match our group strategy with the development strategy of Optics to achieve better operation.
Okay. Thank you, management's answers. Thank you, Wang Huang's question as well. Next question is from Frank He from HSBC.
Thank you. I have two questions. The first question is about the breakdown of our optics. For example, lens and modules, what's the revenue distribution and the breakdown on the two sections? We have a rapid growth in the modules. Do you have any revenue guideline?
The modules revenue and lens revenue percentage is two versus one. For this year, our production is the same. We won't have a very large improvement on this regard. Our focus is to develop into a higher-end product.
Okay.
For the motor, we will introduce the virtual functions. We also see the trend in the Android market. I would like to know more information on this regard. We also see some information on the social media.
We think those new functions are the trends of the industry. This will create new attractions to customers. This is still in line with the new model launch in the market. Many customers are interested in the information, but the official disclosure and announcement will be dependent on the feedback of the customers. Of course, we are doing preparation work. For example, the production capacity and the follow up of the key customers. We are proactively support our key customers. Generally speaking, we think those new functions are very good innovations in smartphone market.
Okay. Thank you.
Thank you, Mr. He. Thank you, management. Time is ticking. We would like to invite last question. Tina, please go ahead.
Thank you. Thank you, management to allow me to ask the last question. My question is about the North American customers development. This is an important driver in a company's future development, and there are new projects. How do you seize the opportunities there, and do you have any new CapEx plan on the North American market?
I'd like to answer the question. Our partnership with the key customers are smooth. This year, we think there will be new function introduced to the market and the business, and we will also work closely with them. This is in line with the general trend of the smartphone market. We also want to upgrade our competitive edge. With the precision mechanics and the core components upgrade, we will also pay more attention and to more business. For example, our precision modules. This will better show our competitive edge. Second, in terms of the supply chain, global supply chain, we know that there will be new products in Vietnam and in Android. We produced our products in Vietnam for a period of time, and we have two to three factories there.
I think, we can work closely with our key customers with those capacity and stable capacity. For example, for the traditional products, we will optimize our CapEx. For the new products, the CapEx will be continued on the factories and the new products platforms. The smartphones and volume market size still there. For example, it is still 1 billion per year, so we can increase our units return. This will be introduced in all the Android customers and other customers. Thank you. The last question, because we still have several minutes, so we will ask the last question. The question is about the 2023 guidance, the GP margin and the revenue and the new business strategy.
The shipment volume, compared with the 2022 will be increased. We hope in terms of the revenue and the improvement of the production capacity and the utilization, and as well as the optimization of the operation. We think the GP margin and the revenue will be further improved. Secondly, we insist the integration strategy, and we can explore new products and functions and in smartphone units, in a single smartphone unit. We also believe new products. New products this year will be more clear, and these new products are targeting the consumer electronics. In the automotive market, this is a long-term development market. We also use our competitive edge and our traditional strengths to enter the market. In the next two to three years, this will be the faster growth track.
By leveraging the consumer electronics and ARVR and the laptops and the notebooks, we will increase our unit return. We will also enter the automotive to increase our revenue and the GP margin.
Thank you.
Thank you for your attention. Due to the time limits, this is the end of the 2022 annual results announcement. If you have any questions, you are more welcome to contact our IR team. Thank you for your attention to AAC Technologies. Thank you very much.