Ladies and gentlemen, thank you for standing by, and welcome to AAC Technologies 2019 Annual Results Investor Webcast and Conference Call. At this time, all participants are in listen-only mode. There will be a presentation followed by question and answer session. At this time, if you wish to ask question, you will need to press star one on your telephone. I would now like to hand the conference over to [Joyce Kwock ]. Please go ahead.
Thank you. Good afternoon. Welcome to our 2019 Annual Results Conference Call. My name is Joyce Kwock, and I'm the Head of Investor Relations at AAC Technologies. I'm glad to have our senior management team join this call today with Mr. Benjamin Pan, our Chief Executive Officer, Mr. Richard Mok, our Managing Director, and Ms. Guo Dan, the Special Assistant to CEO office. Before we start, we would like to remind you that the copies of our result announcement and presentation are all available on our website. We would also like to draw attention to the disclaimer on the last page of this presentation slides. Some information we discuss today may contain forward-looking statements. I will now present the results. Full-year revenue was down 1.4% to RMB 17.9 billion, as the year-on-year decline was mainly reflecting the decline in the first half.
If we focus on the fourth quarter revenue, it's actually up 5.9% quarter-on-quarter or 9.6% year-on-year to RMB 5.3 billion. The gross margin for the full year is 28.6% for this full quarter gross margin at 29.0%, which is similar to what we've seen in the third quarter at 29.6%, or it's higher than what we've seen in the first half. The net profit for the year was down 41.5%, mainly because of the reduced gross profit and the higher R&D. The R&D expenses is now accounting for 9.6% of the full-year revenue. At this unusual moment, our management strongly believes in the strict discipline in the financial management. In 2019, we have CapEx of RMB 3 billion, a drop of over 20% from last year, of which 1/3 was in Optics, around 20% on acoustics.
The CapEx projection for FY 2020 is currently unrevealed again by the top management given the current separate situation all over the world. We are happy that in November last year, we successfully completed our first bond issuance and raised $388 million at 3% coupon rate, which has strengthened our capital resources. As at the end of 2019, we have over RMB 4.6 billion cash on hand or RMB 5.5 billion if we include the time deposit with over three months maturity. Our net gearing is at 10.5%, which we consider as healthy. In order to further preserve our cash at this very unusual moment, the board did not declare a final dividend for FY 2019. For the Optics that we would very much like to highlight here, it's been doing well financially, whether on full-year basis or only on fourth quarter.
FY 2019 revenue is up 97% year-on-year to over RMB 1 billion. Fourth quarter top line was up 100% year-on-year or up 9% from the third quarter. Both ASP and yield have been improved further in fourth quarter as compared with the previous quarters. We are happy to report a much better gross margin for the fourth quarter 2019. For the plastic lens, we have already started the shipment of 6P lenses in fourth quarter. We expect to send the 7P samples in second quarter this year and to ship our third quarter this year. We are targeting at 100 million shipment by July this year. For WLG, we remain confident of it given its competitive advantages over the conventional plastic lens in the market.
Our progress is as scheduled, and we are looking for shipment to happen in 2020 and with up to 30 million shipments for this year. For camera module, we are working hard on the preparation and expect to start mass production by May this year. Hopefully, with camera modules' production capacity, we can further strengthen our capability in the vertical integration in Optics and to provide more complicated solutions and more value proposition in this segment. For the acoustics, full-year revenue is down 5.8%, but if we focus on just the fourth quarter revenue, it's sluggish from the previous quarter or up 19% year-on-year. The margin for fourth quarter is 31.3%. The revenue trend is largely driven by the volume, which has been up both year-on-year and quarter-on-quarter. ASP is still on a declining year-on-year trend in both quarters, although that magnitude has narrowed from the rest of the year.
We're happy to report that SLS penetration has reached our 65% target by the end of 2019, and we are looking for further increasing such penetration rates to 80% by end of 2020. Also, we will continue to expand the upgrade roadmap of SLS by launching more advanced versions in the future. We also look for module speaker products to be in the high-end smartphone models, further motivated by better user experience and also the DXOMARK assessment and ranking in smartphone acoustic performance in October last year. For this combined segment, full-year revenue was down 4.7%, but if we focus on just the fourth quarter revenue, it's up 16% quarter-on-quarter, but still 6% lower than last year. Margin-wise, it stabilized in third quarter and is at 30.5% in the fourth quarter 2019.
Gross margin for whether the combined segment or each of the EM and PM both expanded in fourth quarter as compared to third quarter. Product mix continued to shift a little bit more to precision mechanics, giving a higher growth rate there. For the haptic, we have seen good growth with top line and modest expansion of margin. We see good interest in adopting our electromagnetic technology by the Android smartphones, such as virtual edge buttons, and we are looking for a wider range of market opportunities beyond smartphones, such as automobile, game controller, PC, et cetera. For stepper motor module business, we continue to see volume growth momentum in fourth quarter as well. We continue to have more technological upgrades to make the module smaller in size and weight, and with other features such as simultaneous popping up, rotating, and scanning functions.
Stepper motor module business still has ample potential, whether it's in the smartphone or non-smartphone applications. For precision mechanics, we managed to deliver more complicated designs in fourth quarter, which drove both the ASP and margin higher. We are positive on the precision mechanics in FY 2020, and we are looking for wider product range such as hinges, liquid metal, LCP, et cetera, to drive our growth. For the MEMS, full-year revenue is nicely up by 14% year-on-year, and margin also further expanded as we have further increased the adoption of in-house MEMS design and manufacture of digital ASIC chips. We have become the first MEMS producer in China to break the technological barrier to produce the MEMS with signal-to-noise ratio of over 70 dB, all within China. We plan to expand the scope of application of high-end MEMS beyond smartphone and to the smartwatches.
We will also explore more sales and distribution channels to expand our market share. We are positive on doubling our production capacity this year and to reach RMB 3 billion per year within next five years. On sustainability and ESG, we have set up communication of our ESG efforts to investor community since August last year. In the upcoming sustainability report that is going to be our seventh one and to be published in May, you will see our expanded scope and disclosure, such as GHG emissions, energy consumption, and our work related to climatic changes, et cetera. We are also working on further enhancing the involvement on our board on ESG on a regular basis. Of course, at this very unusual moment with epidemics all over the world, staff safety is our top priority.
We set up special task force teams under the leadership of the CEO and get all our senior management involved, not only to ensure the work resumption was done on track and in line with various regulations and guidance, but also by putting the staff health and safety as the very top priority. This concludes our quick presentation on the fourth quarter results. There are more supplementary information at our planning session of the slide for your reference. In the meanwhile, we'll now go to the Q&A session, where Benjamin and Richard are both here to answer your questions. Thank you.
Thank you. We will now begin the question and answer session. If you wish to ask questions, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. Please note we are limiting to two questions at each time. We have the first question, comes from the line of Susanna Chui from DBS. Please proceed.
Yes. Thank you, management, for taking my questions. I have mainly two questions. First one is congratulations to the great guidance on the optics. We now have the hybrid lens target of RMB 30 million in 2020. I would like to know if there is any target on the 6P and also the 7P lens as well. Could we update the ASP and also the margin outlook of the optics? I will have the second question.
Thank you, Susanna. It's Richard here. Regarding optics outlook, as we have prepared to not only continuously improve on our production yield, but also to reflect our capabilities and building confidence with our customers on more complex optics lens structure, including 7P. I think earlier on, Joyce mentioned that we are shipping our 7P designs and prototypes to our customer very soon. We believe we are confident to gain 7P projects and actually making shipments for these 7P projects around third quarter time. Clearly, the ASP overall for optics plastic lens will depend upon product mix. We have shown in the year 2019 gradually improving on the ASP, but also as a precaution, the market is saturated on the lower end. I think it will not do any suppliers any good to stick with kind of low-end lens design.
What is important is that while we will improve our production yield and increase the preference on 6P or even 7P product mix, we will greatly be able to also at the same time increase our production shipment to our customers. As you know, the optics lens business is very much determined. The performance of that plastic lens business is very much dependent upon internal production yields and also the production capacity. We believe certainly, as we have said all along, the gross margins on optics lens business, there's no reason why we shouldn't be setting a target of above 40% or even higher as we deliver more complex lens designs to our customers. The plan has not changed. We do not see any obstacles in terms of technical production or even the market for us to deliver that. That is clear something for us to deliver in this year.
Okay, thank you. Thank you, Richard. My second question is about other business line. We saw the acoustic grow very good in soft quarter, but we would like to know that the 2020 outlook for the acoustic side and also the haptic side, and also the RF and the camera. Due the coronavirus situations, could you have some revenue growth outlook and also the margin outlook in 2020 for this segment? Thank you.
Yeah, sure. Ben.
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Thank you very much. Could I have a quick follow up that could we still expect 40% gross profit margin when the scale reach 100 million and also ASP, RMB 4.2 or RMB 4.5 say in July, could we still expect that level of margin?
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Susanna, can I just quickly talk in english about what Ben has been telling everybody? Just a short summary. Because you asked about the business segment in situation where we are facing now. Our CEO has talked about for Q1 that we are seeing, we are in already mid-March. In the beginning of March, we already have achieved 80% resumption of our operation, and we have almost reached 100% as of now of resuming our normalized production. What is quite certain is that as of today, we have seen the market reacting, but for the second quarter, the market is still full of what we call demand from the [CLTP] Android market and also some of the older models existing. Hence in terms of that impact on AAC business, we believe both Q2, in terms of the normalized demand, pretty much business as usual.
What is unclear is the current situation spreading over to Europe and United States, et cetera. It is only correct and more prudent to describe Q3 situation as not so clear. What we like to talk about is what we can certainly manage this situation well in terms of our product business segment. For example, starting with optics. We have already mentioned that we are migrating to 6P and 7P. I think the previous question you asked about ASP. I think at the moment, most likely when we reach to capacity of monthly 100 million, we are in the range of RMB 4.2- RMB 4.5, and we migrate by around end of Q3 and then more so in Q4 time.
We expect the blended ASP to reach almost RMB 5, because this comes from the fact that we have already established AAC competitiveness, not only in terms of pricing but in terms of production capability. What is more important to achieve that 100 million monthly capacity is that we already have the CapEx machinery in place. We do not foresee for any further additional CapEx outing to reach that status. That is a certainty that we could deliver no matter what happen in Q3 or Q4. Talking about the RF mechanical business, I think we mentioned that we have already well established our position. We're one of the major players in China, one of the major Android customer players in China market. We definitely have won their orders, and in those projects, we are definitely earning major allocations for that business as well.
In terms of that business, it's about how we could improve utilization and also improve in our production unit in RF mechanical business. That is another certainty that we can deliver amidst the uncertain climate in Q3. In acoustic, I think as you know, last month we mentioned about we are continuing with our developing and promoting 0.65 and 0.75± mm plastic version, and whereby our target is to deliver something like 30 million for the whole year at an average price of $2. We believe for that would capture a meaningful stronghold in the top-end segment. In the mid-segment, our management plan is to fully utilize existing production lines because we believe that would give us a very strong foundation for years to come, especially we are seeing very strong acoustic specs.
For example, the dual strong field speaker that we are seeing in the top-end devices launched this year recently. Lastly, but not the least, MEMS microphone, we've already mentioned that we are in a very strong, unique position whereby we have proprietary design, and we are using a China-based fab. In the first quarter, we are already achieving deliver of 80 million units, whereby we believe there is strong business opportunity and good profitability when we get to Q3 to deliver 100 million units in the third quarter, especially keeping the situation that there is a very constrained supply situation for the second quarter. What we are doing at this moment is that we are paying very strong attention to deliver what we can be certain about in terms of business progress in optics, RF mechanical, and acoustic, and MEMS.
At the same time, we recognize that as always, we need to put in solid plans to keep costs down and improve utilization of production lines. We believe as the situation evolves, there may be opportunities that while we are keeping a very nimble, flexible kind of response to the customer's demand or market demand, it is very important that we watch very carefully our outlay in CapEx. Sorry, Susanna, can you repeat your second question?
You said that when the scale reach 100 million and the ASP reach above RMB 4, the margin will be 40%. We would like to know if this guidance still valid, for example, in July, because in July the scale already reach 100 million and ASP will be above RMB 4? Thanks.
I think as we said, we already have the machinery in place. There's no need for further, for example, depreciation or amortization costs relating to incremental delivery of doubling our shipment capacity. From the current margin trend, I believe this target of about 40% is achievable. If you look at industry, I believe that is a very realistic target for competent, capable suppliers to set.
Thank you. Please be remind that we are limiting to two questions at this time. The next question comes from the line of [Wei Xi] from Greenwich Asset Management. Please go ahead.
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Thank you. Thank you.
The next question comes from the line of [Wu Yue Chengen ]from CITIC Securities. Please go ahead.
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Sorry, I still need to quickly do a translation for the english-speaking dialing people. Although this will be very short and concise, I think CEO wants to reiterate that the design project on hand involving WLG of 48 MP, 1G5P, 64 MP, 1G6P and/or even 108 MP 1G6P or 1G7P designs and of which 1G6P are capable of delivering wide angle. Clearly, we have already built up experience of inventory or production of WLG lens up to 1 million, and this experience has been turned or has been fully captured in what we call our last data simulation and more importantly, in our lens database. Those will be capable of delivering what we call a repeated capability in achieving our production yield.
In the long run, we believe our capability, which now comes from the 6P plastic lens already target 100 million per month. We will get similar capability when we come to do WLG.
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Quickly, I think just to answer your question about why we are so confident about successfully shipping 100 million per month, I think this is back to the fundamental questions of production yields and production efficiency. We have stated that by the month of April, we like to increase our production capacity to something like 60 million per month, whereby we believe our costing structure, as [Ben] has insisted our optics production is that we are in control of the design and also manufacturing of the, what we call in the CapEx, in the production tooling. I mean, the only input in our plastic lens, optics production is the raw material. I think when we look at the Q2, Q3, Q4 situation as a new supplier, I think in the market, this is a normal process for new supplier to testify and prove their technology capability.
Once that is a proven fact, meeting the customer demand in the price range that we have described will ascertain our pricing competitiveness. Hence our confidence of reaching 100 million per month and also our gross margin target of 40%. That has always been in business model in terms of our positioning in the technology component industry.
Thank you. The next question goes to Kyna Wong from Credit Suisse. Please go ahead.
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Let me just answer the questions on CapEx planning and execution of CapEx planning. As we have always followed, our CapEx is to deal with additional capacity of new product platforms, whether they are acoustic or optics. When we talk about the RMB 3 billion CapEx in the year 2019, we are talking about how we have invested in the new SLS platforms and also, to some extent, the new projects that acoustic have entered into. That would not be a major percentage of 2019 CapEx. What we have stressed that in building up our 100 million per month capacity from a couple of years ago, I think our CapEx in 2019 addressed some of the plastic lens capacity and also addresses some of the preparation to build up the already 1 million inventory of WLG.
Hence our CapEx is fairly tied to the development program of our product segments. Mainly in 2019, the majority again is still related to optics to kind of split the remaining balance. I think as we have said, precision mechanics, CNC machines, we have not spent a lot in 2019 as we have already built up sufficient capacity. The CapEx requirement for 2020, I think as we speak, we are constantly reviewing. During this call, I think Ben has mentioned that in both the plastic lens and some of the kind of WLG capacity we already mentioned, we have already invested. The equipment are already ready. The CapEx this year will reflect again the new project requirement and some of the kind of new business that, for example, in doubling capacity of MEMS microphone.
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Ben has confirmed that the capabilities that we built up for plastic lens based on data simulation not only end up in the kind of final production process, but actually enhance our capability in designing and coming up with the production tooling. That is an important factor for enhancing the production yield. What I like to clarify about the RMB 3 billion CapEx incurred in 2019, I think Ben has reminded me to tell everybody to confirm that out of that RMB 3 billion, around something slightly less than 30%, around RMB 850 million is committed to what we call infrastructure construction projects. Those are not production equipment. The production equipment CapEx is the remaining RMB 2.2 billion. In fact, the optics took up 50%, around 50% of the remaining RMB 2.2 billion CapEx. I mean , that is the major CapEx spend we have in 2019.
The electromagnetic drive and the precision mechanics, those add up to less than 12%. The majority of the CapEx reflects the business progress.
Thank you. The next question comes from the line of [Lucy Wang] from CICC. Please go ahead.
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Sorry, Hello again. in the uncertainty windows in Q3, Q4, we believe we are flexible and nimble enough to monitor CapEx required to face demand reduction. You know, once the focus is clearly on development and digitalization of existing invested production CapEx, you know we believe in enhancing the technical gap between us and our competitors. We'll make sure we capture the full opportunity that may present itself in Q3 and Q4. For example, the plan for quarterly deliver a shipment of over 100 million MEMS microphones. More importantly, you know, be active on what we can see in the certain business opportunities. We always describe the optics and the other business as well.
It is very important that as we see this importance of timeliness to review CapEx and also enhancing utilization, at the same time placing very strong emphasis on widening the gap is what we are going to focus on. Hope it answered your query.
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Yes, we've been managing our business on an international perspective as we have reported our progress in building up Vietnam already is known. In Europe where we have currently our 2/3 of our normal operations are in place, are actually going reporting to work. What is important is that both in terms of technology enhancement work and also the interaction with customers on obtaining qualification are still in progress. I mean, those are continuing work that we have benefited from a high localization. We employ a lot of localized experienced technicians and operators to help us to achieve that. In a way, we are ready. We are prepared for the resumption in case the business demand come back in Q3 or Q4. We talked about camera module as well.
The plan has already been laid, and we can be confident that we will reach a capacity of about 4 million to 5 million a month, based on six production lines, by around May time or before June. Clearly, the plan of increasing that by another four production line are still in place. We are pleased to say that our internationalization or take advantage of globalization capabilities in each of the different overseas locations have played off, means helping us to resume normalized interactions on both technology and also in terms of interaction with customers. At the same time, we are clearly well-placed to take advantage with a strong potential that Q3, Q4 business will bounce back strongly.
Thank you. You have reached the end of question and answer session. I would now like to turn the floor back over to the host today for closing comments. Joyce, please continue.
Okay. Thank you for your time for our FY 2019 annual results presentation, also the precious time and the elaboration from our top management here. Any further questions with our IR team, Guo Dan, myself, Joyce Kwock, and [Sheridan Zhou] will be available here for your questions after this call as well. Thank you.
Thank you for your participation and to this conference. You may go ahead and disconnect.