Good morning. Welcome to Sunny Optical Technology's 2022 annual results investor presentation. Thank you very much for your support and attention to the company. I would like to introduce the management of today's meeting. We have Mr. Ye Liaoning, the Executive Director and Chairman. Mr. Sun Yang, Executive Director and CEO. Mr. Ma Jianfeng, Vice President and Joint Company Secretary. Ms. Jasmine Wong, Senior IR Director and Joint Company Secretary. Ms. Christina Liu, our IR Director. We'll start today's result announcement presentation. The PowerPoint presentation has been uploaded to the official website of the company. You can also scan the QR code to acquire the deck. Now, I would like to give the floor to Mr. Sun Yang, the Executive Director and CEO, for the presentation.
Why?
Good morning, investors. Very happy to see you again. It's been three years and a half. I remember in August 2019, we were here in Hong Kong, and then the COVID hit. It's a pleasure for us to see you again. Every year, we have communication online with investors, but it's better to have a face-to-face communication and interaction. For today's result announcements, we have make lots of efforts, but to be frank, is not so satisfactory. There is still a lot of room to improve. Next, I would like to start the results and operation for 2022 for the company. First, let's take a look at the overall performance financially.
In 2022, for the vehicle related business, the performance was quite outstanding, but the main revenue contribution comes from smartphone-related products. In 2020, we have seen a specification downgrade and configuration downgrade for smartphone-related products, and that's why for revenue, gross profit and profit before tax have decreased. This is the main reason why the performance of 2022 was not so ideal. In terms of sales revenue is RMB 33 billion, down by 11.5%. Gross profit, RMB 6.6 billion, down by 24.4%. Profit before tax, RMB 2.7 billion, down by 51.8%. Effective tax rate, 8.9%. Profit attributable to the owners of the company are RMB 2.4 billion, down by 51%.
Earnings per share, RMB 2.20, down by 51%. Our vehicle-related business was performing well, but our revenue and gross profit margin was impacted by the spec downgrade and configuration downgrade of our handset-related products. Here you can see our total operating expense, RMB 4.0 billion, 12.3% of our total revenue. Selling and distribution expenses, 1.1% of the total revenue. R&D expenditure, 8.4%. We know that we really need some sort of expenses. The sales of revenue decrease, that's why the overall percentage of our expense to revenue increase by a small margin. We had very difficult for 2022.
We have increased the R&D in XR and vehicle-related product segments. This is to pave the way for the future for XR and our vehicle-related business, and that's why we have an increase of expense. For 2023, our target is to maintain the expense at below 12%. For this page is about other financial positions, and overall is quite ideal. Current ratio, 1.6x operating cash flow, RMB 7.3 billion. Now we have a cash and cash equivalent of RMB 18 billion and net cash per share reach around RMB 11. Gearing ratio, 14.4%. ROE, 11.2%. CapEx, RMB 3.1 billion. I would like to share with you the guidance. It's about RMB 3.5 billion.
I will share with you the details for our CapEx investment for RMB 1.3 billion will be invested in XR and a vehicle-related business. The second investment is around RMB 80 million for handset lens sets, mainly for our American customer and capacity expansion. RMB 800 million will be invested in China and vehicle production bases constructions. Another RMB 600 million will be invested in handset camera module, and we will work on the integration of a radar and camera. In total, our CapEx plan for 2023 will reach RMB 3.5 billion, and the major part will be invested in vehicle lens sets and XR. Here you can see the revenue breakdown. With years of effort, we can see that our handset-related product is now down by to 70-something percent.
For vehicle-related products, is now at 12.4% from 7.9% before. AR/VR, 3.6%, up by 1.2 percentage points. Our revenue breakdown has been improving, which is in line with the development of the overall industry. It is also in line with the market share of our contribution to the vehicle industries. Next page is the gross margin. As you can see that in general, our gross profit margin decreased from 23.3% in 2021 to 19.9% in 2022. The main reason is because of the specification, downgrade and configuration downgrade of mobile phones. This has given a lot of pressure to our gross profit margin.
I believe that, 2023 is a question of interest to you and XR has been increasing, but we have 70% of our revenue coming from smartphone-related business. The positive forecast for smartphone business would appear in Q3. For the first half of 2023, it would still be very difficult for smartphone segment. That's why we have been very discreet in the forecast of gross profit margin, and we believe that the gross profit margin might continue to decrease for the year. However, with our effort, we hope to present a better result to you for 2023. For vehicle and XR segments, we can see that the gross profit margin have been quite stable.
For optical component, 33.4% for the gross profit margin, for optical electronic products are 10%, and optical instrumental 42%. Next, I would like to talk about the operation review. First, for optical components. There are three parts. The first one is vehicle-related. In terms of R&D, we have completed the R&D for 17 megapixel front view lens sets, which will be used on Level 4 autonomous driving models. We'll continue to see the upgrade of resolutions for the cameras. The second project is the 2 megapixel hybrid front view ADAS lens set. In the future, we'll focus on cost reduction. This is a ADAS sensing camera. We have also invested in the microlens array for vehicles.
For mass production projects, we have completed the first polygonal rotating prisms that supply in LiDAR. We are the first one in the world to be able to mass produce this product. We have also acquired several designated projects that focus on high resolution headlamp with 1 megapixel level. In terms of emerging objects for R&D projects, we have completed the hybrid see-through lens set with wide angle. This is for interaction of reality and virtual scenarios, and for mass production projects, is mainly based on pancake solution. We are also the first one to have the binocular VR optical modules. For smartphone-related products, in terms of R&D, we have the prism center periscope lens set. This is also the first one in the industry.
In terms of mass production projects, we have multiple projects completed, which include super tele macro lens sets. The second one is ultra aperture lens set. It is also the first one in the industry. As the periscope lens set with the industry's largest image size. Next one is one -inch hybrid lens set. 200-megapixel ultrathin lens sets. 160-megapixel super definition main lens sets. Ultrathin main lens sets that is applied to foldable phones. As we know that, we need to have very compact components for foldable phones, so this one is the thinnest in the industry. Next, let's take a look at the projects for optical electronics. For vehicle-related projects, we have completed the R&D for 8-megapixel ADAS modules.
We are the first one to launch these kind of products in the world, we have the number one market share. We use the COB packaging technology to produce the 8-megapixel ADAS modules, which is better for miniaturization. For mass production projects achieved, we have all series of ADAS modules, and we have adapted to the platforms of Mobileye, NVIDIA, and Horizon Robotics. We have completed certifications. We have also obtained seven additional designated products for 8-megapixel ADAS modules. In terms of robotic visions, we have completed, first, the see-through high-resolution module products, which has been used by companies like Meta. We have also the second project, wide-angle linear ToF camera modules for sweeping robots and linear structure light camera modules for small sweeping robots and other smart devices.
For smartphone-related products, we have completed the R&D products for prism-center periscope modules, the first one in the industry. For mass production projects, we have first the periscope modules with the industry's largest image size. Here I'm talking about modules, and I have talked about camera already. We also have the first-inch OIS module, 160 megapixel super definition main modules, and ultrathin main products, which is the thinnest in the industry and also can be applied to the foldable phones.
As it relates to optical instruments, we have achieved two projects. One is let's take a look at intelligent equipment. With R&D completion, we have completed the vehicles modules automatic production lines with very high efficiency. It is an automatic assembly line for vehicle modules. We have also completed our integrated production lines for our testing and handset lens set. With microscope, we have completed the 45 millimeter parfocal SAPO series 100x oil immersion objectives, which is also the first in China, and it had hugely enhanced the application for the products. These are the various R&D and achievements that we have made in our three , you know, various BUs. Despite that, the year has been a difficult one. We have invested a lot in R&D. Now, let's talk about the patents.
We keep our growth very high in this area. We have in the year 2022, we have 1,122 newly authorized patents, there are 3,991 patents that are pending for approval. We are continuing to invest in R&D and patents. Let's talk about the three major lines for our vehicle lens set. As you can see, we have a 16.1% increase, reaching 78 million sets. This continues to keep our leading position in the industry and continue to increase our global market share. In 2023, our guideline is that we will have a 15% in the vehicle lens set space. Now, this is about the smartphone handset total. Let's take a look at that.
The total has come down by roughly 17.2%. We had produced about 1.192 billion. We continue to be first-largest market shareholder. However, because of the overall industry down, downwards trend, this number had come down. We have maintained a 2.3% increase in shipment volume of 6P or above handset lens sets. We have in the overall shipment volume, we anticipate a 15% increase overall. This is CCM, camera module. Overall, we have a decline of 23.3% at 516 million sets. However, with the periscope modules and the large image size modules, the more technically advanced space, we have increased by 57.4%. That speaks for our competitiveness.
As a all, as a total, our 2023 for our smartphone handsets which would be a 5% increase. This is our 2023 guideline. In the previous seasons, because of the smartphones market that I have been talking about, our assumption is that the market would start to look more optimistic in the second half of the year. Regarding our layout, international layout, you know very well, so I will not go into a lot of details. Either it's India or Vietnam, we have increased a lot of expenditure and capacity and the outlook is good. These are some of the accolades that our peers in our industries have given us, and I will not go into detail.
This year, we have added this new area of report to you, the ESG performance review. We being a world global company, working with the benefits of the world in mind, we are happy to report to you in this area. First of all, our overall ESG strategies, there are three pillars. The first is the social responsibility, and the second is the environmental responsibility, and the third one is economic development responsibility. Regarding these, it is these three areas of responsibilities that forms our overall ESG strategies. Overall, we Our peak is to achieve our carbon peak by 2028, and by about 2058, we can achieve carbon neutrality. This is our overall target. As it relates to green development, we have mainly done two areas of work. First is we have created a target.
The first is that by 2025, our GHG emissions intensity in Scope 1 and Scope 2, the international scope categorization, we hope that our intensity would be down by 20% when compared to 2021. This is our first target, and it has already been communicated and implemented internally. That is our greenhouse gas emission intensity would come down by 20% by 2025 when compared to that of 2021. The second is our 3.5-year sustainability-linked bond, a total of RMB 400 million. This is something that we issued and this has received the welcome of the market, and the market believes that we... This is an act of a company that has overall responsibility to the world.
As far as our social responsibilities, there are several areas. First is with our internal, our employees. As you can see, our employee satisfaction has gone up to 83.4. The second area is our actively safeguard co-occupational safety. As you can see, we have zero mortality, zero occupational disease, and zero serious accident. Also, you can see, these are the various things that we have done to enhance our energy efficiency and other measures. We have three layers that can safeguard this, that we would achieve, our goals. First is, the board, and then there's the audit committee, and then there's the ESG management and promotion team. We have an overall risk management and overall business ethics management.
Because of time constraint, I would just walk through this very briefly about what are the efforts that Sunny Optical has done in this area. Last but not least, let's talk about the strategy and outlook. Let's talk about the driving part. Auto autonomous driving especially. We have ADAS, in-cabin monitoring, rear-view parking, surround-view camera monitoring, Smart Eye, et cetera, and LiDAR as well. In all of these, we are spending our efforts in, and that would create a very high value for our products. As far as the vehicle camera related products, we believe that in this area we can continue to expect a 10 golden years of expansion, especially as it relates to sensors. We believe that the next decade will be a golden era.
Another area we believe that a lot of upgrades is to be done, be it vehicle camera or LiDAR products. First of all, Tesla is already using 5 MB. In the mainland, many brands are already using 8 megapixels. We also have to minimize the size despite that the car in interior is large. The size still has to come down because that would even create a better outlook, you know, better product look. Also, the self-cleaning functionality is also very important. You know, how is it that the lens can be cleaned very quickly and automatically. This is a very, very important feature that could ensure sustainable self-driving.
This is the main area of upgrade and improvement that self-cleaning is the main direction. As far as LiDAR-related product is concerned, we believe that this is also a very important sensor in autonomous driving. We work in two areas here. First is we create core optical components that all users can buy from us. We have indicated that the polygonal prism product, that is, core optical component that we can supply. We can also provide OEM service to any kind of LiDAR products. We can power or any of the manufacturers in this area. The third area is the ARHUD. With HUD, especially ARHUD, it will become more and more self-owned brands, and it will become more and more the standards.
Now on one hand, it's for inside the cabin and the other one is to be a creative use. ARHUD is a very important human and machine interacting platform. The other area is the headlamp. Headlamps, you know, used to be a very simplistic function. However, going beyond, headlamp would become very intelligent with a pixelate between humans, the environment and the car. This will be a very important area. In this area, we would be into core components and OEM services. The three main subcategories of the automobile sector, the vehicle camera-related products, the LiDAR-related products, and the display-related products. We are into all of this, and we have already achieved some very good results. The other area is the XR market. We are also in a leading position here.
Let's take a look at the display. These two are with VR. Regardless whether it's freeform or pancake, we are the first as far as market share in the world. With AR waveguide, we are also the first Chinese company into this space. We have already completed a full color AR waveguide product. It's already completed. This is perception and interaction within the XR space. We are also the world's largest market leader in see-through and also the traditional 6DoF for tracking and positioning, and also with eyeball tracking and facial tracking. All of these are our areas of development. The third area is the total solutions for AR and VR, and OEM as well. In the XR market, we are a total solution provider.
This is something more into the future. In the robotics area, we believe that with ChatGPT and Boston, meaning the hardware and software, conditions are already in place. We are of the opinion that there could be a huge boom for the robotics space. We are into the positioning and recognition, including the SoC layout and the Smart Eye, getting ourselves ready for the next explosion in robotics. Last but not least, let me talk about the smartphone camera. Smartphone camera remains a cash cow. We are not, you know, saying that it's going downhill. First of all, we believe that in the camera space, there is a huge point of innovation. That is the module actuator lens. These are the three most important pieces of components.
Previously, we create our own module, but not the motor. We believe that we should have all of these under our arm. We started a few years ago. We went into motor design. In the future, there will be integrated design and technology for module, actuator, and lens. With putting the three together and to go for integrated design, this will be a huge boost for module development. We are highly anticipating this. These are our main areas of innovation. Module, actuator, lens integration. With single camera or single modules development, I would just be very brief because you will see that with the front AF or OIS, we will reduce the size and the thickness.
There are also the large aperture, large space and also the automatic focusing, et cetera. The ultra thin foldable phones, as well as the ultra miniature head, et cetera. Also with ultra wide angle, we have a larger wide-angle fisheye, larger than 150 degrees and autofocus macro shooting. Now with Apple's periscope coming out, there's a lot of possibilities. First is the 2x 3x large aperture portrait. Now that would be a standard portrait lens, then is the 5x-10x ultra-long focal length camera. Then there's the internal focusing and macro shooting, two -in-one. There's also the prism-centered one, which we have already completed R&D. Now we're into prism post.
We will, after that, we will have prism-centered, prism post and prism advance, you know, at the front. You know, different types of design that we can use to create very new products. Now, this is the XR vehicle smartphone business sectors and its future trends. This is what I'm sharing with you today. Thank you for your attention.
Upcoming, we're moving to the Q&A session. If you have a question, please raise your hand. Please name yourself and your institution before you ask your question. The lady on the third line, please. Third row.
Thank you, management. Thank you for this opportunity for me to ask the first question. I am Kyna for Credit Suisse in China. Thank you very much. I have two questions.
One is with the vehicle business, because the company in the past has given a certain guidelines, growth regarding modules and other products. I'd like to ask in 2023, overall, in the vehicle business, what is the kind of growth and trend that you're expecting? Last year, you have also given an XR related guidance. How about this year? What is your anticipation for this year? This is my first question. The second question relates to the periscope. The upgrading of periscope. What is the preparation for the company in this area? In this year and the next with SAM, what's the market size that you think you can grab?
The company, being in the first position, how is it that this can help with your margin?
Kina, can you please repeat your second question?
The periscope, what is your anticipation? Apart from the large customers, what are the progress with the other customers?
Let me first answer your first question. With the vehicles, we have several products. ASP is with our camera, with our lens set, it's a stable growth of 15%. Then our modules. Last year, we have already reached RMB 1 billion sales revenue, and our goal is to double that this year. LiDAR is the more important one.
In 2023, as you can see, the market is already warming up, we believe that it will grow very quickly, and we have a lot of projects in the pipeline. This is to respond to your first question. The vehicle-related space in 2023 would grow rather quickly. With the periscope last year, second half of last year, you will see that this segment is starting to move. This in the last second half of last year, including Longyao and Sanzhong, they are also moving ahead. We are seeing more and more interest in the domestic market as well. As you can see our PPT, when you compare this one with those of previous years, you will find that there are differences.
Previously, we were only talking about it very briefly. However, as you, as you can see, the 5x-10x and then the centered, prism centered and prism pose, et cetera. You know, these are. We are also into these new areas. This is to work in line with the market. Smartphone space, we continue to expect some growth. As far as what is the amount that we can ship, that would be dependent on the actual situation. Thank you.
Next question. The other side, please.
I am from Huatai. Good morning. I have two questions. First is about the gross, the GP margin.
I have calculated last year's GP, the unit price for modules and lens sets seems to have flattened out, and the GP had come down quite a lot. Based on the previous experience, would the two go by the same trend, or what is the reason? For this year's guidance, can you talk about your three business units? What are the GP trends that you're expecting? How about the competition? Do you expect it to improve?
First of all, overall, because of the de-spec situation of last year, which I think you're very familiar with the handset lens set, our volume has come down by 17.5% as well as our GP. Our GP was in the range of 20%-25%.
This is the second half of last year and handset lens, MP. With the second half of last year would be around 30%. We anticipate 2023 would be somewhat retained at 25%-30%, like H2 of 2022. With XP, it has come down a bit. Last year, ASP for handset lens sets, were quite different in the first half versus the second half. When we compare the two, there's a double-digit decline. With the second half, compared to the first half, there was a 10 percentage point of improvement because of product mix change. When we look at it from now, we are not that optimistic. We believe that ASP continues to be under pressure. This is about the handset lens.
With modules, the ASP for last year has been quite stable. As you can see from the PPT, the high-end products, we have a 57% increase year-on-year. Under such a very difficult situation, this is support for us to maintain our ASP stable. Overall, ASP and GP would continue to be under pressure. With ASP, we believe that it would still slide down a little bit. With GP, our target is the over year of 5%-8%. That is the GP for the second half of 2022. With our optoelectronic products, it will be a better because of the VR and the vehicle modules. You know, these GPs are going up, and it is evidently very a lot better than those of modules.
This third area would be vehicles' cameras. ASP is stable, and GP is also stable at 40%, like the second half of last year. Our anticipation for this year is the same.
In Mr. Sun's PPT, he had talked about the overseas layout. In the last three years, the world has changed a lot, including customers' demands, including our customers' manufacturer site, et cetera. Those have been very different. Now, with it, how about the customer side structure mix? What is your plan outside of China? To work with the global change, how about two to three years ago? What do you expect our overseas deployment or plan in the world's in the manufacturing's outside of China to be look like?
What do you expect the market to look like two to three years from now?
Yeah. You know very well that in the last couple of years, the overall economic situation and supply chain had gone through a significant change and disruption. With the supply chain, we have to look at our deployment, our layout of the manufacturing. There may be some actions that you are expecting. For Sunny Optical, we are also facing the same challenges. We definitely have to look into the supply chain safety. Vietnam was our only choice. However, in the future, if needed, we will deploy resources in other countries. The investment is rather big.
Now, if we look, the overseas layout, overseas production, probably could be the main source of growth in our capacity in the future, and this would be a huge investment. As to how much exactly, I am not sure now, but I can tell you it's a big number. If we look at the number now, it's a big number, but if you look at the future, it's rather a need more than anything else. Now, our proportion in overseas manufacturing is rather small. Mainly is in Vietnam and India. In the future, we may accelerate on this area of development.
Next question.
Thank you very much, and I'm very happy to be seeing you after three years of COVID. I'm Tony T ung. I have several technical questions. First is with vehicle modules.
Some are saying MIR, PIR, FAW and the integrated technologies. What would that have? What kind of impact with our market for vehicle lens, and what would its impact be to our income? Then there are some designated projects. Would those be included? That's my first question.
With A-PHY? We have worked with the Valens, the Israeli company that is in the very far edge of this technology. A-PHY, I would say, is the future with the enhancement of pixelation, of pixel size of the sensor and the width, vision width of sensor that would be more and more would be higher. We believe A-PHY is a necessary direction. Its characteristic is a point-to-point transmission, and also its band is very wide.
The battery is very efficient. We work with variants of. If there's an opportunity to launch that in the domestic market, we definitely would be the first one. Regarding NVIDIA and Mobileye, we are also working with them. This is also the way that we would differentiate ourselves from other module manufacturers. Another thing is with Ethernet. This is not, this is not suitable for point-to-point transmission. What we needed is from LiDAR and the camera to directly connect them. We do not need another router. The Ethernet has really nothing to us. What we are keen about is the A-PHY, which is very has a lot to do with our future competitiveness.
This is something that we are working very hard on and hope to be able to surprise the market in the future. You were talking about the motor, integrated motor, module actuator lens integration. Do we expect ourselves to be the main driver and the main manufacturer here? What are the specs that we're looking into? I'd like to ask, tell you that the module actuator lens integration, our focus is not to grab business from the existing actuator manufacturers. They are doing very good and they are very excellent. In the very near future, we will continue to buy in big quantities, other manufacturer-created actuators. The module has to be nicely put, the size has to be good.
With the driver, the speed has to be very good and the anti-vibration has to be excellent. This is what we are looking into. The third area, because of the integration required, we definitely would be creating some of the actuators, the motors in order to work with our design. We will be buying a lot from other manufacturers. If our customers or other manufacturers need our actuators, we can also provide to them. We are not exclusive. We are open for business. The importance is that the integrated modules, we do not compete with the motor manufacturers. It's a complement rather than a competition.
Okay. Next question.
Good morning. I am Shi Liang from Telecommunications International. I have two questions.
You were saying that the ASP and GP for vehicle business would be remain stable. This is a good viewpoint. As we can see, the price cut is very huge. Are you confident that you will not be impacted by your downstream customers requiring a price cut? What is the basis of your confident? With your order book, what is the visibility right now? For how many months or how long can you see into the future? This is my first question. Thank you.
You were talking about vehicle handset lens sets. We had for continuous 10 years been the largest global market shareholder, exceeding 30%. The second runner-up is not even 10%, so they are quite far away from us.
All in all, our product mix for the vehicle lens sets is the best amongst the world. The viewer and parking rear lens, you know, for these we don't have a lot. Our vehicle lens set is leading. Most of the markets 8 megapixels lens sets were provided by us. We are already working with our customers, including the pricing. We have ASP and GP stable under such considerations. With the guidance that we give for fluctuations is not too big. However, with the overall vehicle lens sets space, the fluctuation that we expect would be a bit higher than before, but it would not be very different from before. This is my question. Thank you.
Thank you.
My second question is something that has been bothering me for a long, long time. We see in the LiDAR and in smartphone space, there's a very big difference in positioning. With the smartphone, we are more into modules and also in the core lens sets. However, with LiDAR, it seems that we continue to be not planning for modules. We are mainly into core components. I'd like to ask why is it that our strategy for the lower stream becomes so different between the two? Thank you.
I have already in the last couple of years explained to our investors, we've explained about our positioning for LiDAR, and we'll be into OEM, we'll be into core components.
Because the LiDAR OEM revenue is rather small because the overall modules demand is not big. Our main focus is with the core components. Our position is clear. We will be into core components and at the same time overall OEMs, we would also provide such service. This is for all LiDAR suppliers and partners. We're not competing with us. If they need OEM, we have OEM. If they need components, we have components for them. We would not be concerned about the up and down of the LiDAR markets. You know, in both ways we can service the markets.
The lady on the third row. Next question.
Good morning. I'm Cherry from Merrill Lynch. I have a question about XR sales target.
What is the sales target for this year? I see that in your PPT we might go into solutions. This is it optical plus display or other kinds of solutions?
With the VR, I think Mr. Ma has gone through that. With XR, AR, MR, VR in overall XR, I think it's about 30. We anticipate sales revenue to grow by about 30%. Last year was about 40, if I recall correctly. This year it's about 30 odd. This being one. With AR, VR it's like this. We would be into pancake, we will be into display, and we also considering FATP because we believe that with AR basically is all for us.
The AR waveguide, the 6P cameras, the see-through, and the AR checking, the projector and the A positioning. These are all our core competencies. We are not going blindly into FATP. We have estimated, we have assessed this very clearly. We believe that with the display and the and the waveguide AR, it should be us that provides the products. We would go into FATP in its entirety.
Thank you. My second question is that relates to the smartphone in the first half of the year, like you said, and the price has come down. The same applies in Taiwan, and there are some other manufacturers who are saying that they would pull down the price in order to get more GP.
Do you think this is going to continue, or when can we expect some evident recovery?
This is something that I already discussed at the very beginning. We have discussed with all of our industry partners or our peers. Overall, I think we are too pessimistic. Maybe I should not say that, but I think our view is that we can expect recovery to begin by quarter three. As a matter of fact, we already see some manufacturers seeing more and more orders. This is something that we haven't seen in the past two years. In the first quarter, we are already, you know, seeing some more orders because with COVID coming towards the end, the consumption would, you know, would become better and better.
We believe smartphone would improve in quarter three.
Next question.
Good morning. I am BOCI, Wang Nien-chin. I have two questions. One is with XR. We have seen that with Aolai and Shinwei, they have been moving very quickly.
I don't know whether what are our R&D plans in here. As we can see, with the waveguide AR, it still requires a lot of investment. Now, with VR, we can all see the actual is a bit different from our expectation, but this has to do with the continuous development of Big Five. With economic recovery, this will continue to improve. We expect more about AR.
With AR, we had put in our deployment of resources very early because this is a semiconducting semiconductor business, which means that the R&D time would be more, would consume more money and time. We put our high hopes in here. On the one hand, with AR, optical elements plays a very important role. We can create all of the core components, and we can also go into overall modules and complete solutions. This gives us a very good opportunity for future development, which is something that we would not give up. Despite that, when we look at it now, there may be some uncertainties, but we definitely would be putting in resources now. In Shanghai, you can see that we have already prepared some lens.
This speaks for our view of the future in this space and our action to of commitment. Of course, in the next one or two years, you might be able to see some income and profits, with VR, we definitely are moving on. Lastly, we already see 53%.
Thank you. The capacity planning for all of the production lines, can you talk about your outlook?
Simply put, the signal that we send is very clear. The large part is with XR and vehicles. With smartphone modules and lens sets, we basically should maximize the current capacity. We would add on about RMB 800 million, we cannot disclose further details now.
Last question.
Thank you. I'm from Morgan Stanley, Andy Meng.
I have two questions. One is about our revenue and GP turning point. Based on Mr. Sun has said, we can guess that quarter three would be a turning point. How about the GP? In the past, we, be it our smartphone lens sets, despite that our growth as far as our GP, is not growing very quickly because of the price. That's for smartphone. Mr. Ma said, the GP is already very high last year. Does it mean that our new business, the GP would be higher than the smartphone? If that continues to be the case, our GP turn point, do you expect that to see it in the second half of the year? Do we expect that next year or even further away?
Your question is quite hard for me to answer, frankly speaking. With the overall vehicle sector, overall revenue, as a share is increasing. With year-on-year percent, it's 38%, and with VR is 53%. These two areas, GP is improving very well. I mean, the net profit. If this continues to be the case, then the turning point might come soon. You were looking at the overall net profit and that the handset piece becomes very important. The handset lens set and the vehicle, if it continues to come down.
When it comes to quarter three, like we had expected, the turning point comes, then the GP and the net profit for these two would also come, of course, as soon as possible and maybe faster than you expect, but we will put our efforts in here.
Thank you, Mr. Ma. I hope that the second question will be easier. It's about our vehicle lens set. We have been a market leader at 30% market share, but we're not into North America and other markets. If the U.S.'s market share of electric vehicles becomes bigger and bigger, and we are not yet into that market, can we remain the world's number one?
Do we go in with a single lens set or do we go in with more module products?
Now, with Tesla, we already have a plan internally. Regardless of whether it is lens sets, modules or integrated products, as long as we can go in, that would be great. There are 2, only 2 ways. One is, you either is very cheap or you have something, you know, technology that shines in their eyes. We'd rather go for the latter. I can go in any time, actually. You know, I can just cut my price and give it a big discount, and they would say, okay. This is very easy, but this is something that we don't want to do.
We, with a high, high resolution, small size, self-cleaning, you know, these are the edges that could make us make us shine in front of them. We already have our own internal targets, giving very high pressures to our BU heads. I believe we can give you some good news. We believe that with Sunny Optical's capabilities, we can conquer, we can address the difficulties.
Given the time constraint, we will end our sessions here. Thank you for being here.