Earnings Call: Q4 2016

Mar 22, 2017

Ladies and gentlemen, thank you for standing by, and welcome to AAC Technologies 20 16 Annual Results Investors Webcast and Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today and lasts for about 1 hour. I would now like to present opening remarks. We are happy to have Mr. Benjamin Pan, Chief Executive Officer Mr. Richard Mok, Managing Director and Ms. Connie Chin, Head of Investor Relations with us today. And now, I would like to turn the conference over to your moderator today, Ms. Connie Chin. Please proceed with your introduction. Good day, everyone. Thank you for joining Technologies 2016 Annual Results Investors Webcast and Conference Call. This is Connie Chien, Head of Investor Relations. Joining me on today's call are Mr. Benjamin Pan, our CEO and Mr. Richard Mog, our Managing Director. Before we begin, we would like to remind you that the copies of our results announcement, results presentation and press release are all available from our website, www.aecchannelenges.com. We would also like to draw your attention to the following disclaimer. Some information that you may hear during our discussion today may contain forward looking statements. This information includes revenue, gross margin, operating expenses, other income and expenses, taxes, future products and capital allocation plans. Actual results or trends could materially differ from what you hear today. As always, we intend to update you with any new information on future events and developments at the appropriate time. We will now briefly review any results and Q4 before we open up the call to questions. We posted the 7th consecutive year of record financial performance. Overall sales rose 32%, and it was mainly due to dollar content growth on our advanced design solutions. The solid growth came from both dynamic components and non accretive segments, which increased by 29% and 56% year on year, contributing 51% and 41% of our business sales, respectively. Overall, gross profit margin well maintained at 41.5%. Operating efficiency helped reduce OpEx to 12.4 percent of sales. Earnings per share was up 30%, together with the proposed final dividend, a total dividend of Hong Kong 1.47 per share for 2016 maintained around 40% payout ratio. Though we largely increased investment on capital expenditures for ramping up non acoustic segments business in recent years, We remained high ROA and high ROE. Besides, we shortened the cash conversion cycle from 84 days to 61 days by effective working capital management. For the Q4 of last year, we delivered record highs in both quarterly sales and earnings, increased 36% and 43% quarter on quarter, respectively. Strong momentum from nonrecruiter was the main factor of growth and we witnessed nonrecruiter contribution exceeded acoustic for the very first time. Revenue from non acoustic segments rose 73%, accounting for 56% of total sales. In the acoustic segment, stereo sound and waterproof features dominated and drove dynamic component sales up 11%. Thanks to high seasonality and good control on operating expenses, oil cost ratio reduced to less than 10% of total sales. Net profit margin improved to 27.4%. Looking ahead, we expect high proliferation of our high end acoustic solutions will further strengthen our leading position to drive growth. At the same time, the non acoustic segments will experience different stages of growth facing. With our strong design and production capabilities, backed by consistent high level of investment in R and D and technology innovation, we are well positioned to stay ahead of industry and consumer trends and to capture the promising market opportunities. That brings the end of our introduction. We would just like to remind you that we have set aside around 1 hour for this call. Now we will start the Q and A section. Thank you, Connie. The question and answer session will be conducted electronically. First question comes from the line of Cherry Ma from CLSA. Please go ahead. Hi, congratulation on the fantastic results. I have a follow-up question on Connie's mention of the non acoustic segment. Can you elaborate more about what you meant by it will experience different growth phases? And what is specifically the company's strategy for the RF casing business this year? If you may share some metrics in terms of margin or selling Kaisa volumes for last year and this year? The non acoustic business this year, we believe has a very strong opportunity for us as preparation for RF mechanical structures and also haptics. We've been well prepared for opportunities this year. For example, RF and Mechanical Structures, we are expected to be involved and deliver higher volume and more projects to major Android customers in China and also possibility of adding Korean customer. We are well prepared for that. And I think the slightly reduction in CapEx is due to the reason that we have accumulated sufficient production capacity to take advantage of the growth of kind of better design method casing that will emerge this year. I think overall, 2017, we expect the total of the non acoustic business actually will exceed the contribution from dynamic components as such. And looking forward, As we are on the 2nd phase of the learning curve of mechanical structures, we believe we have substantially improved the efficiency of production process required in delivering different designs to the mechanical structures business, we should be able to enhance our historical yields and obtain better and better performance. Overall, I think the margins from nonacoustic business, I think we do see opportunities for them to be improved in the year 2017. My follow-up question will be if the RF casing business, the gross margin has reached the corporate level from last year? In some of the I think in 2016, the projects of our mechanical structures vary in terms of shipment volume and size and designs. Some of the projects that AAC has undertaken and delivered has delivered margins well above average corporate margins. But on some of the smaller projects and some of the different design projects, those margins have fallen short of the average corporate margins. So it's a portfolio of different performance by projects, projects by projects basis. My second question will be related to dynamic component. From my quick calculation, it seems like 4Q dynamic component gross margin has recovered to well above 40%. I'm just wondering what's the reason behind this increase and if this will be sustainable in 2017? The overall Acoustics margins, I think in some way reflect our well prepared for better and better and stronger specs in the solutions we deliver to different customers. I think in quarter 4, again, it's a strong revenue quarter as the numbers demonstrate. We ripped on good higher efficiency on higher volume. And overall, I think the solutions that Acoustic has delivered in 2016, especially in the Q4, have much stronger specs and thus some of them have a higher or what we call rewarding ASP for us to manage to get better margins. In the year 2016, it's quite obvious and the trend is very, very strong that we have entered a phase of renewing or adopting much higher specs for what we call new generation of acoustic solutions. And it's clear that, for example, in the Android phones, these new specs, this new phase of new acoustic performance have firmly started and commenced with the result of better and higher ASP and opportunity for AAC to deliver even higher gross margins overall for this business. Thank you. Thank you for the question. Next question comes from the line of Dennis Chen from Citibank. Please go ahead. Hi, congratulation on the good results. My first question, is it possible get an update on the 3 d glass and lens and CNC machine capacity, please? In the three areas, RF mechanical structures, we are estimating something like 4,000,000 pieces per month on the RF mechanical, what we call casing modules. The total annual expecting kind of expectation or volume should not be less than 30,000,000 units for 2017. But more importantly, with our capability of consideration of integrating RF design, not only in the mechanical structures, but in terms of consideration for how 3 d top glass will be a part of the casing. We believe these projects are more likely to be what we call high end or mid tier solutions. Those are the plan we have for our mechanical structures in terms of capacity and positioning. In terms of 3 d cover glass capacity, I think in this year, 2nd and roughly around 2nd and third quarter, we should get to not a huge number of production capacity. We estimate around 1,000,000 per month. But really, I think our plan to look beyond that in the years 2018 2019, I think we are prepared to grasp what the market situation and the customer demand and to adjust or increase that capacity accordingly. But this year, I think, RMB 1,000,000 capacity per month is what we are planning for. Finally, in the 3rd area of optics, we are we do have installed capacity of 10,000,000 units per month. But at this moment, we are still on the learning curve. We're talking about shipment volume of on a monthly basis, RMB 2,000,000. So what our plan is, as we approach Q3 in this year, we'd like to kind of minimize the gap between the shipment volume and our capacity, I. E, we like to be able to think that the opportunity is for us to fully utilize the 10,000,000 capacity and deliver that shipment volume at the same time. Thank you. My second question is that we see many Android phones adopting stereo features and waterproof features. Do we have a rough estimate on the adoption of stereo and waterproof features in Android phone this year, any rough figures is fine. And just to clarify, for our mechanical segment, we right now still have between 5000 to 6000 CNC capacity? That's it for me. Thank you. In the Android phones, we estimated this year, 2017, what AAC would be doing, mainly addressing what we call the Android phone system in the PRC, I. E, ignoring or in terms of the shipment volume, we think 100,000,000, 100,000,000 units in this new type of waterproof and stereo sound solutions. But out of this RMB 100,000,000, what is most interesting is that around RMB 10,000,000 is based on a enhanced or new design whereby the stereo performance is much more noticeable, much more interesting in terms of user experience. And we believe with this new design, this higher serial user experience, AAC does have a much stronger power in terms of pricing. We like to think this kind of solution could fetch up to US4 dollars roughly RMB30, 30, whereby this 10% or 10,000,000 shipment will be a very interesting starting point for this to kind of increase overall percentage in the sterile and waterproof system in the year following, I. E, we do believe the trend for ASP of a sterile waterproof system continues as we see as we base ourselves finding creating a stronger user experience. And this is a very interesting kind of base for AAC to firmly establish us as the leader in terms of delivering what we call and what we have described in the past as a miniaturized kind of Hi Fi system capable of incorporating in the smartphone design. We have mentioned that we are prepared for a monthly capacity of 10,000,000, whereby to fully 10,000,000 per month capacity, I estimate, how much I think, now is 10,000,000, 4,000,000. 4,000,000 CNC machines for a 4,000,000 per month capacity, whereby all along, we are saying that we are focusing not on market share, but in terms of the positioning of how to integrate the use of 3 d copper glass and new material as an interesting design value to our customer. And based on that, we like to believe AAC has a proprietary approach in terms of enhancing yield and automation and in terms of arranging for automation production process in delivering that business, even for consideration of use of new material in the design. So that would be a sustainable approach on how to deliver the best important RF mechanical structures positioning in the business in a sustainable way, but not focusing on number of CNC machines. Got it. Just to clarify your answer, dollars 100,000,000 means stereo plus waterproof, right? It doesn't mean it does not mean 100,000,000 waterproof plus 100,000,000 stereo Because most phones, they don't have both features for China smartphones. In the RMB 100,000,000 we mentioned, mostly will be stereo sound capability. A smaller proportion will be waterproof. So we're talking about a total number of 100,000,000. Got it. Thank you. Thank you for the questions. Next question comes from the line of Ken Hui from Huatay. Please go ahead. Thank you for taking my question. My first question is regarding your sell down on HEPCR. Can you give us some color if you're going to book any gain in this quarter? And after the transaction, what is your percentage of ownership in AMS? And going forward, is that going to be just a passive investment or there is any cooperation opportunities? That's my first question. Thank you. In the disposal of our investment in Heptagon, mainly we are getting a portion of the proceeds in cash and portion of the shares of the acquirer. With the nature of the disposal, the shares in the acquirer are subject to a lockup period. No profits have been booked in the quarter or in the period reflecting the sale of disposal. I think AMS is the acquirer is a very interesting company. Whereby, I think on the news of the acquisition of Hetecon, its share price have reflected some gains already. For AAC, I think on our books, subject to the lockup period, we are in the flexibility after the lockup period to either sell on the market or retain a meaningful kind of shareholding to it. Nevertheless, I think our resulting shareholding in AMS is around 1 percent to 2%, maybe around 1%. It's not a huge percentage of the listed company. And to some extent, I think we understand the design capability that Heptagon brings to the acquirer. So in a way, I think, subject to the longer period, following the completion of the longer period, we have the flexibility to review the capability of the Akyra and to either realize the investment. But at the same time, we already have received cash proceeds from the disposal. Thank you for the questions. Next question comes from the line of Sam Lee from Credit Suisse. Please go ahead. Hello, can you hear me? Yes. Yes, great. Benjamin, Richard, Connie. First, congratulations for the very great earnings. My first question is about the competitive landscape for acoustic and haptic in 2017. For example, we all know that acoustic will have a meaningful upgrade in 2017, no matter in Chinese or OSV clients, but there are also new competitors coming in. I know our official answer is to maintain a major supplier position, but I would appreciate if Ben can give some a little bit more color from the technology or manufacturer side for both acoustic and heavy. Thank you. In the past, we have established ourselves in acoustic solution as a leader. But clearly, not only what we call in different systems, for example, in Android system, we have in the past what we call control inference and set up the acoustic performance standards in mobile smartphones, whereby in doing so, we are not talking about delivering that capability in the next 12 or 24 months. Really, it's a longer technical roadmap of development require us to leverage historical research and also new ideas of a time frame of 3 to 5 years. And what is also important is that we are undertaking this path irrespective of different customers' perception or what they thought they have the control or the design of such acoustic capability. In the longer kind of R and D roadmap we have set ourselves, we have, example, mentioned just now, I think in the answers to the previous questions, in delivering a new design of delivering a stronger serial user experience, this is one of what we call key performance indicator that we recognize that by stages, 1 by 1 gradual, we get closer to a genuine HiFi Miniaturized Acoustic solution. Hence, this is the way that we believe the existing kind of acoustic capability can be further improved, can be enhanced. And of course, this is all backed up and supported by, for example, when we talk about the new design, we already have 20 plus patents in relation to that design, which will firmly set out the path that we could take and elaborate to get closer to the HiFi Miniaturized Acoustic Performance. But also what is also important to take note is that we have set up a strong automation capability, not only to improve the what we call the link between design and production and the efficiency of the production process, so we can bring such benefits to our end customer. But also it is important to recognize that in the design and the product and the mass manufacturing process, the industry or the solutions that we are delivering is not a kind of standard it's not a result or it's not something that a standard set of equipment can deliver. We have important roles and ideas to contribute to make the production process completely it's not a pure is not related to pure kind of simple assembly process. And hence, the automation and the production process is a key differentiator in establishing us to get by stage by stage as said in getting to what we call miniaturized Hi Fi technical capability. Yes. Great, great. Then what about haptic? Any new progress in our, don't know, automation or whatever technology capability side? In the haptics kind of business development, we've seen very clear signs of taking the haptics experience to high level by the Android phones. And all along, I think AAC, we believe we already have established strong design, proprietary design, whereby we create very interesting user experience. This year overall, we believe a range around 3,000,000 to 5,000,000 of units may be shipped in 2017. We believe such solutions may fetch higher ASP prices like $3.50 to $4. But clearly, I think the software and the operating system will continue in Android system to evolve to affect the user experience from haptics. And I think it will be in the following year after 2017, after this year that we see kind of clearer or stronger adoption of haptic in the Android phones. Great. Can I still ask my second question? I think one more question from you, please, because we still have a lot of people Yes, yes, yes, yes. Because that one that was a long one. My second question is about gross margins. Can you give some rough guidance on gross margin for each segment? I mean, it's still not about the detailed numbers. I'm actually would like to understand the technology design or cost structure changes underlying. Thank you. I think overall, as we've seen, for example, in acoustic business, in this call, it's quite clear that there is a new phase of higher acoustic performance, fetching high ASP. So overall, we believe acoustic margins, there is a strong opportunity for AAC to deliver even improved margins than in 2016. And we expect that, for example, in the second half of this year, overall gross margins may be able to perform better than the margins in the first half. And in terms of non acoustic business, I think we have delivered messages that we are quite confident that the CNC and the mechanical structure shipment volume will be greatly improved or increased and thereby, whereby with our capability of integrating RF design into these high tier and mid tier solutions. We believe ASPs and our again, our higher level of the learning curve will again present out with opportunities of delivering better margins. And I think overall, from what we have just described in Haptics, I think it's clear that as smartphone develop more sophisticated haptics response even in the Android system with a range of $3.50 to $4 solution. I think AAC definitely has such opportunity to deliver better margins that we have delivered in our acoustic business compared to 2016. But overall, I think if these margins from our quarter results announcement does in a way reflect the business, the product mixes and the different stages of customers' new launches in each quarter. But overall, we believe in the past, our quarterly improvement in margins reflect how we continue to focus on improving the overall performance, not only in acoustic, but overall in the new nonacoustic business as well, especially when we talk about in 2017, the new nonacoustic business kind of outweighs the contributions of acoustic business. Thank you. Actually, I have more follow-up. Actually, last year, I remember for haptic, we did some outsourcing, so which affected our gross margin. So this year, I don't know whether we can reduce that kind of outsourcing and can help a little bit on margin. I think outsourcing is an interesting way to kind of help us to determine what is the best penetration position and what types of kind of capability when we are entering into something that of requiring higher CapEx. When we have sufficient knowledge about or when we have developed sufficient proprietary internal capability of such business. We are in a way much more kind of knowledgeable about the different processes involved in delivering a solution. So outsourcing is something that we are comfortable with. But then again, I think the overall consideration is whether outsourcing will be relevant or meaningful in terms of us developing a sustainable capability of reaching a higher margin. I think in some of the business, it makes sense for a certain short period of time, but there may be opportunity for outsourcing, maybe a slightly longer term feature when we approach a business. But I think for one thing, it's true. AAC constantly focus on the technology, on the technology capability of each of the solutions that we are delivering to customers. And I think outsourcing is something that I wouldn't say it's not a relevant consideration, but our focus is still to develop leading and differentiating technology to bring user experience. Thank you for the question. Next question comes from the line of Jasmine Lu from Morgan Stanley. Please ask your question. Hello. Can you hear me well? Yes. Okay. Thanks for taking my question. I'll be very quick. So first of all, since now it's already approaching the end of March, just wonder whether the management team can give us sort of guidance for the Q1 and maybe a little bit for Q2, especially there's a lot of the talk concerning about China smartphone demand. That's number 1. And secondly will be the OpEx. So in Q4, we saw the operating leverage expansion given that absolute level of OpEx actually didn't really increase that much. So how should we think about the trend into 2017? Thank you. I think in the Q1 of 2017, as we know, it is a seasonal it's a seasonality that the Q1 of a new year usually will show decline from the top peak previous Q4 from the previous year. I think this year, 2017, we should be able to see a very strong Q1. I think the decline would be much smaller than what we have seen in the previous year quarter on quarter decline. So Q1, I think it will prove to be a very interesting, very solid, good base for us to deliver 2017 performance. Secondly, I think in terms of leverages of OpEx, I think in the quarter in the Q4 last year, I think the three components in OpEx remains to be the general administration, the administration, marketing and also out to some to a larger extent the R and D expenses that we focus on as a discipline to make sure individual R and D resources are well allocated in the not only in the new areas, but on old areas as well. I think, yes, in 2017, there may be opportunities for us to obtain further leverage, but I would believe that being the R and D is a very important feature. And as we see, new solutions in new businesses continue to take its places, we believe such leverages may not show big kind of drop in ratio of OpEx. But nevertheless, there is a good opportunity for us to do better. So if you look at the R and D expenses only, so what would be the ratio that we could apply for the next maybe 1 or 2 years? I think for 2016, for the whole year, I think it's around 7.5%. In the year 2000 in this year, I think as we talk about new solutions in, for example, in optics, etcetera, I think still, I think we are focusing a range of 7% to 7.5%. So Jasmine, when we talk about R and D expenses discipline, we also want to mention that the way we think about the future or the direction of CapEx investment. I think last year, we made a substantial investment in RF Mechanical Softrics business and acquiring quite sufficient capacity in preparation for 2017 business. I think as we discussed about our R and D roadmap in delivering a miniaturized Hi Fi Acoustic solution, I think the CapEx this year, there will be a portion that goes in relation to equipping ourselves in preparation for this new structural design in the area of acoustic. So I think this CapEx for 2017, I think mostly will be in Acoustic and to some extent the Optics business new Optics business. Thank you. Thank you for the questions. Next question comes from the line of Arthur Xie from UBS. Please go ahead. Mr. Xie, your line is open. Please go ahead. Hi, can you hear me? Yes, Arthur. Hi. Yes, thanks very much for taking my question. First is just to get your clarification with regard to non acoustic gross margin changes. I think in the release, there are two reasons being mentioned. 1 is the impact of the product mix and also the increasing production cost that caused the overall gross margin to decline from RMB50.8 to RMB40.1. So if we leave alone the product mix changes, would you say on a like for like basis, did each of the product profit margins still decline in 2016 over 2015. And I think earlier, Richard mentioned that the yield rate for the RF mechanical could further increase. So does that imply for the non acoustic gross margin for this year, it's likely to recover? I mean, when we grow our non acoustic business, clearly, we are seeing different opportunities as I have discussed about the efficiency of individual performance of individual projects. But nevertheless, I think in 2016, the RF mechanical structures is still small in terms of our the project that AEC has undertaken. When we describe a change in the margins due to product mix and production costs, we are talking about, for example, whereby some of the solutions that we have delivered in 2016 are more have higher what we call overall costs to some extent either materials or structural design cost that nothing to do with the technical design or production capability of AAC, but it's a factual matter that some of the customer solutions will have such higher material cost content. And due to the different product mix, it will affect our margins. Back to the forward looking kind of expectation on RF Mechanical Structures. We have understand a lot more. We have already I think this is March, we already have seen our yields on some of the projects that we have done in January February have improved our previous EUs compared to 2016. And that's why we are confident that we continue to deliver this kind of production success, improvement in efficiency. Overall on acoustic business, the yields should improve. But whether the overall margins will improve to a greater extent, I think the opportunity is there. But again, I think the margins come from a result of customers ASP as well. And overall, this is the Q1. But nevertheless, I think when we have seen good management track record of us entering and expanding our not only new business, but our existing acoustic business, we would as I said, we would believe that our second half margins overall for the company will be better than the first half. And to some extent, especially in the year 2017, the new non acoustic business outweighs the proportion of the acoustic business. And so it would not be a surprise that our gross margins in the non acoustic business will be somewhat better than the levels that we have delivered in 2016. Okay. So the follow-up question is with regards to the full year outlook. Given the efficiency improvement and also in terms of the better scale. 2nd half is likely to be better than the first half. And earlier, we also talked about the Q1 could be a lower than normal seniority, the kind of a decline. Would you try to update your full year outlook in terms of the sales revenue growth and margin trend? I think 2017, as I said, we are happy that this is now around mid March. It's very likely that we should be able to deliver a strong Q1. On that basis, I think the overall annual 2017 performance, I think, could be something like not less than 25% year on year growth for in terms of revenue. And in terms of margin, I think as we as I said, the non acoustic business outweighing the proportion of acoustic contribution, that gives us a very good base to deliver better margins. But I think, again, as we have seen in the past, our improvement in margins came from very hard work. At this moment in time, I believe there is a good opportunity that we should be able to deliver a slightly better margin. But whether it's a lot better, I think we will get a clearer picture as we are near kind of August time when we have clear kind of how we've been doing and how we are well prepared for the 3rd Q4. That's good. Thank you. Thank you. Next question comes from the line of Arish Chin from UBS. Please ask your question. The last question comes from the line of Keck Yitel from CIMB. Please ask your question. Hi, the management team. There's 2 things I would like to understand. First thing is, WESPER Technology. So I want to understand in WESPER Technology, what with their technology, what are the new product that can bring to the market? And the second question is, beside all these things that we have discussed, what is the new product that you're looking at? Thank you. I think we made an investment in this company called Vespa Technology as we have a line of business core and microphone. I think Bessemer Technologies has the proprietary design embarking completely kind of a new way of a sensor design using different materials. So we are interested to kind of be participating in a new design, possibly supporting them in terms of presenting to our existing portfolio of customer. But we remain as a minority shareholder in this company. Secondly, I think new products that we are looking at, I think since 2,005, we are now Elon's year of listing. We have added to our capabilities, not only acoustic solutions, but in terms of RF design, optics and to some extent, making use of our knowledge in acoustic, coming up with interesting haptic user experience, I. E, our capability constantly evolve to reflect that we are a very much focused technology or miniaturization solution provider. And our end kind of objective is to create user experience. We've already kind of embarked ourselves on, for example, optics business, I. E, plastic bands, lens system, glass lenses, capability of 3 d top of glass. So these are we are not coming up with products as such. We are coming up with sustainable technology platforms for us to kind of deliver different precise solutions that our customer had in mind for creating user experience. So in terms of product, yes, we are constantly coming up with new products. We're looking at new products. But what is of most interest to AAC is our road path to develop a platform of technology whereby it embeds our existing and it can be integrated to our different knowledge of platforms in the dynamic components, in haptic. And for example, I think in this call, we've mentioned of integrating, not only about coming up with mechanical cases, but actually the solution is to integrate RF design and the possibility of new material and a more efficient kind of RF design even embracing kind of new materials, ceramic or glass. This is a kind of what we call technology platform, whereby I think product is something that we charge ASP, but more interestingly is new technology capability that constantly AEC would be focusing on. But then again, I think Ben mentioned that has already described, when we look at, for example, the acoustic roadmap is a 3 to 5 year kind of long term vision that we design our roadmap and base support. So all these new products or new technology platform is something that is a constant part of our management process that we evaluate, review and identify new technology areas as such. In terms of wespa technology, can you tell me more about the technology itself, the piezo electric MEMS, how is it different from the existing technology MEMS? And what are the advantages in using the piezo electric MEMS? Let me try my technical interpretation. Basically, a piezo design has a different kind of structure at the back. And its waterproof capability helps the performance of the piezo men's microphones to withstand, for example, humidity. And based on the waterproof capability, the performance will often DSL microphone will be less than 1 dB of that range. And that is a very important capability in order to come up with a design of array of 4 microphones or 8 microphones to achieve the noise cancellation capability that customers desire. So in general, I think to sum it all, what's the true capability of PSO Design and Smacro? Thank you. I have no further questions. Thank you. We have reached the end of our Q and A session. I would now like to turn the floor back over to Ms. Connie Chin for closing comments. Before I make the closing comments, we would like to draw your attention that we will publish an announcement related to a connected transaction about the acquisitions of about 20% of equity interest in AAC New Power generated today. Our INDB independent of the directors has already reviewed and approved these transactions. And we believe these transactions can enhance our R and D capabilities, especially of the study of the impact of the inventory on the performance on the hardware stack. We recommend investors to review the announcement later on today. Here is our closing remarks. Building technology platforms for innovative solutions to deliver long term profitable growth has always been our business strategy, which enabled us to expand our reach to different applications featured in all different mobile devices. We are well prepared to go through a clear solutions format and we stay focused on talented development for mobile device makers to include and create new user experiences. We are confident that we will continue to be the key miniature technology component solution provider around the world. To conclude, I wish to thank you for attending today's webcast and conference call and for your interest in AC Technologies. If you have any further inquiries, please feel free to contact our IR team. We look forward to speaking with you again to discuss the Q1 results of 2017 tentatively scheduled in middle of May 2017. Thank you. Thank you for your participation. And this concludes today's conference. You may go ahead and disconnect.