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spk01: Hello, ladies and gentlemen. Thank you for standing by for Viomi Technology Company Limited's earnings conference call for the fourth quarter and full year 2021. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Cecilia Lee, the IR Director of the company. Please go ahead, Cecilia.
spk05: Thanks, Operator. Hello, everyone, and welcome to Valmei Technology Call Limited Earnings Conference Call for the fourth quarter for year 2021. As a reminder, this conference is being recorded. The company's financial and operating results were issued in a press release earlier today and are posted online. You can download the earnings press release and sign up for the company's email distribution list by visiting the IR section of the company's website at ir.valmei.com. Participating in today's call are Mr. Xiaoping Chen, the Founder Chairman of the Board of Directors and Chief Executive Officer, and Mr. Weiqiang Cai, the Head of our Finance Department. The Cabinet's management will begin with prepared remarks and the call will conclude with a Q&A session. Before we continue, please note, today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Full information regarding these and other risks and uncertainties is included in the company's annual report on Form 20-F and other filings filed with the U.S. SEC. The company doesn't assume any obligation to update any forward-looking statements except as required by law. Please also note Well-missed earnings press release and this campus call include discussions of inaudited gap financial information as well as inaudited non-gap financial measures. Well-missed press release contains a reconciliation of the inaudited non-gap measures to the inaudited most directly comparable gap measures. I will now turn the call over to our founder and CEO, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese, followed immediately by English translation. Mr. Chiang, please go ahead.
spk00: Hello, everyone. Welcome to the 4th quarter of 2021. We achieved a sales revenue of 13.3 billion RMB in the 4th quarter, exceeding our previous expectations. The reason for the decline is the same as in the previous quarter. The main reason is that the business of Xiaomi's sweepers has been greatly reduced. At the same time, we are continuing to adjust the product structure. In the fourth quarter of 2020, we received a continuous increase in the proportion. In the fourth quarter of 2021, we reached a profit margin of 25.6%. This proves that we have made many improvements in product strength, brand strength, and business quality. In addition, in the third quarter, there were short-term losses due to large amounts of investment in research and marketing expenses. After we implemented stricter cost and cost control, we regained our profit in the fourth quarter. We saw the overall transformation of the industry and the maturity of IoT technology in the day. The support of 5G subsidies and national policies, as well as the changes in the way of life of the consumer population after 1990, are accelerating the development of the automated furniture industry. The data of the Central Industrial Research Institute shows that the scale of the Chinese automated furniture market is continuously expanding. In 2021, it has doubled more than in 2016, reaching a scale of 5.8 billion. It is estimated that by the end of 2022, it will exceed a scale of 6.5 billion. In April last year, 16 departments such as the Ministry of Industry, Industry and Industry to develop digital families to improve the quality of housing. China's digital family-related policy system and standards need to achieve basic security by the end of 2022. The digital family standard system, which was more complete in 2025, is gradually expanding from a small group of people to a large group of people. In the past year, home appliances, telecommunications, and Internet have all been added to IoT smart homes. Good day, good day, good day, good day. We are now entering the stage of deep customization of the AI fully intelligent experience. At this month's strategic new product launch, we have released a fully upgraded full-fledged intelligent solution, which is a structure called N44. The home of IoT is a complete home. It consists of three parts. N represents the product lineup of home appliances and home appliances. 4 represents the home map of home intelligent solution. It has four functions, including wireless network, active intelligence, spatial perception, and natural interaction. So far, our product with screen has achieved a complete home equipment automatic network. Our self-proclaimed millimeter wave radar module, Alpha X, can detect users' movement patterns and statuses without contact, etc. And compared to the 4G sensor, it can better protect users' privacy. In the future, we will use it on our more products to achieve automatic control between devices, sleep monitoring, security monitoring, and so on. Realize the initiative and intelligence of the device. We are also in the voice interaction function of the product. Make people and equipment closer to natural interaction. The other 4 represents that we provide four services to users, including all-in-one design, OTA upgrade, plus membership system, and promotion business. In addition, we have completed a suite of solutions for different families. For example, we have provided more than 1 million large-scale family users with 6-8 million super suite solutions. At the same time, we have provided more than 10 million large-scale mansions with 200,000 space suite solutions, as well as more than 300,000 This kind of ROYAL AI is only for high-end users to create a deep AI experience. As you can see, unlike the IoT smart home enterprises that focus on the platform and operating system, the biggest feature of Yunmi is that it uses products as a substitute through software and AI to realize the new product function of IoT home experience. At the press conference on March 17, we released a series of high-end products with the highest AI level so far. We also released many high-end products under the brand Cochrane, including the Royal Pro AI dual-screen refrigerator for a price of 50,000 yuan, the Royal Series AI laser interactive screen for a price of 40,000 yuan, and the Royal Pro Series AI dual-hole washing machine for a price of 20,000 yuan. The second point we want to share with you is the development of our offline channels. In the past few months, we have continued to promote the channel strategy of large stores and large stores. 200 pcs, 300 pcs, 400-500 pcs, this kind of competitive experience chain is gradually expanding in the new and new line cities, carrying the brand positioning of the technology brand, providing a better high-end, all-round intelligent experience. Third, we continue to improve the product structure of new content channels and strengthen brand marketing. We shared our new channel development in the last performance call. Last year, we formed a special team to increase content marketing and sales in Pinduoduo, Douyin, and other new channels. We have recently begun to optimize the sales category of new channels, increase the product of medium-high-end high-performance products, and increase the technology trend in new channels through KOL live broadcasts and crowdfunding. This year, we will increase a lot of marketing and channel investment. So this will be our next important marketing resource promotion. So in the promotion of the platform, as well as the evaluation of KL and KJK, to our elevator, In the fourth quarter, we expanded the market in Singapore, Germany, Italy, and other countries. We are also expanding, transforming, and proceeding smoothly. From the previous small and medium-sized businesses, we are gradually turning to international agents. We are launching new businesses with major international agents in North Europe, Germany, and other places. Our online self-serve business is also rapidly developing. In addition to the previous American Amazon self-serve, our Italian Amazon self-serve will also be launched in March this year. More European Amazon self-serve will be launched in the first half of the year. Although overseas is affected by the epidemic and war, Our overall market demand is fluctuating in the short term, but our market layout is still in good shape. In the medium term, overseas market expansion will be an important step for us to achieve long-term growth. From the past of selling products to selling solutions, we have developed a new model of the smart home industry, which is constantly improving, rich and dense. Once it is a product with a comprehensive solution, Thank you, Mr. Chen. I will quickly translate our founder's remarks before discussing our financial performance for the fourth quarter and for your 2021. Hello, everyone. Thank you for joining our fourth quarter and for your 2021 earnings conference call.
spk05: Our fourth quarter net revenues reached approximately 1.33 billion RMB, beating our previous guidance. As we discussed earlier, the year-over-year decline was mainly due to the significant decrease in the sales of Xiaomi brand-new server robots. Thanks to our ongoing product quality adjustments, we achieved a growth margin of 25.6% for the fourth quarter, maintaining consecutive year-over-year growth since the fourth quarter of 2020. and once again demonstrating the strength of our product lineup, growing brand recognition, as well as the improvement of our operating quality. We incurred a lose in the third quarter of 2021 following substantial investments in R&D and marketing, but resumed profitability during the fourth quarter as a result of stringent cost control measures. The smart home industry is developing rapidly, accelerated by the industry's overall transformation Increasingly matured IoT technology, popularization of 5G, national policy support, as well as lifestyle changes of the post-90s generation. The main smart home consumer group. According to statistics from AFKCI Consulting, China's smart home market has been continuously expanding, doubling in size between 2016 and 2021 to reach 580 billion RMB. It is expected to exceed 650 billion RMB by the end of 2022. Last April, 16 government agencies, including the Ministry of Industry and Information Technology, jointly issued guiding opinions on accelerating the development of digital homes and improving living quality, which requires a fairly complete set of digital home-related policies and standards to be established by the end of 2022 as well as the digital home standard system to be in place by the end of 2025. We also see that consumers who use the smart home products are transforming from small groups of people to the mass market. Over the past year, enterprises from various sectors, such as home appliances, communication, and internet, entered IoT smart home industry in quick succession, targeting industry segments such as hardware products, IoT development platforms, and operating systems. As one of the first enterprises to focus on IoT smart home area, we have been offering one-stop IoT home solutions since 2017. We have rapidly enriched our one-stop IoT home product line and are now developing a premium customized AI home experience to bring IoT smart home solutions to the next level. First, I'd like to discuss some of our latest product innovations as well as our upgraded one-stop IoT home solutions. One equals to N44, which we unveiled at our strategic new product launch event this month. One N44 leverages three components to synergistically provide users with a seamless, customizable smart home experience. The N in 1N44 stands for our comprehensive product portfolio of smart home appliances and home devices across home scenarios. The first four represents the four major smart home capabilities of HomeMap, including automatic networking, active intelligence, spatial awareness, and natural interactions. We have already achieved the one-click home device networking with our smart home screen devices. to support her map AI and spatial awareness capabilities while developing Alpha-X, our self-developed millimeter wave radar module. Alpha-X can sense users' presence and movement trajectory without viral contact, providing better user privacy protection compared with the viral sensors. Going forward, we will integrate Alpha-X into our product's functions such as automated device control, sleeping monitoring, and safety monitoring to truly achieve active device intelligence. We are also iterating our product's voice interaction function to enable natural interactions between users and devices. And the second floor represents four additional services we offer to our users, including the smart home solution design, OTA upgrades, a membership system, and value added services. We have also enriched our bundle smart home solution offering with packages designed for various types of households, including our 60,000 to 80,000 RMB super packages for large apartments worth over 1 million RMB, our 200,000 RMB space packages for penthouses, and our 300,000 RMB royal series for houses valued at over 100 million RMB. which delivers premium customized AI experience for the high-end market. And like other smart IoT home companies, which specialize in platforms or operating systems, we use our smart home products as the carrier to bring our users an upgraded whole-home IoT experience, as well as optimize the product's functionality through software and AI applications. At the March event, We also introduced a series of high-end products with our currently most advanced air technology, underscoring our trending technology branding positioning. These new products include our all-space AI air conditioner, Space Pro, which utilizes active manganese to help remove formaldehyde. Both our AI business refrigerator is equipped with 3D somatosensory sensors, Super 2, our 2,000 gallon large flux water purifier, which uses ultra-micro bubbles to remove the agricultural residue. And a new series of smart home devices such as HomePad Tab, our AI screen-based control interface, and Cyber2T, our smart lock with 3D facial recognition and visual functions. We also launched several new products in our premium brand cocaine. including the Royal Pearl series of double-screen refrigerators priced at 50,000 RMB, the Royal series of AI laser-interactive smart screens priced at 40,000 RMB, and the Royal series of AI twin-tube washing machines priced at 20,000 RMB. Second, I'd like to share with you our progress in developing our offline channels. Over the past few months, we have continued to execute our larger store better merchant channel strategy. The opening additional immersive offline store encompassing over 200 or 300 square meters in Tier 1, Tier 2, and new Tier 1 cities to enhance our trending technology branding positioning as well as provide our customers with a more comprehensive and premium smart home experience. Third, we optimized our product portfolio on new content channels and continued to improve our brand marketing during the quarter. As we discussed in our third quarter earnings conference call, following the establishment of a dedicated content marketing and sales team for our new channels such as Pinduoduo and Douyin last year, we have continually refined our product categories on these channels by adding higher gross margin products based mid- and high-end positioning products. We also continued to strengthen our training technology brand awareness and increase our exposure on these new channels through KOL live streaming and recommendations as well as other marketing activities. In 2022, we will increase additional investments on marketing and channels. We will broaden our omni-channel marketing and advertising activities including online promotion, such as in-platform KOL and TagGuru recommendations, and social media and offline promotion, such as the elevator advertising and print media. In addition, to enhance awareness and exposure of our brand in hundreds of cities, our marketing strategy will promote a brand message of challenging technology to consumers through multiple marketing channels, Finally, we also made some progresses on overseas market expansion. In the fourth quarter, we entered into markets in Singapore, Germany, Italy, and other countries. Further, our self-channel transformation has been progressing smoothly, shifting partly from small distributions to international agents, leading to new partnerships with large-scale agents in northern Europe and Germany, among others. We also extended our self-operated model to new overseas markets. Along with the U.S. Amazon store we launched last August, we opened a self-operated Amazon store in Italy in March this year, with additional self-operated European Amazon stores to come into service in the coming months. By strategically shifting from selling products to selling solutions, We have pioneered a new business model in the smart home industry while also improving our smart products, IoT capabilities and services for our one-stop IoT home solutions. We have also strengthened our trending technology branding as we entered the high-end market. Going forward, we will continue to increase our investment in R&D, particularly in AI software and algorithms. when optimizing the product lines and upgrading FKUs to deliver healthy and long-term growth. That concludes our funders' remarks. Let's now turn to our detailed fourth quarter and four-year 2021 financial reviews as well as the first quarter 2022 outlook. Net revenues were 1.33 billion RMB compared to 1.89 billion RMB for the fourth quarter of 2020. Net revenues exceeded the company's previous guidance, and the year-over-year decrease was mainly due to the continued significant decrease in sales of Xiaomi brand server robots, together with product portfolio adjustments for margin extension in other categories and the overall weaker consumer demands in certain categories. Revenues from IoT at Home portfolio decreased by 37.9% to $692 million, from 1.11 billion RMB for the fourth quarter of 2020. The decline was primarily due to the decrease in sales of Xiaomi branded sweeper robots and continued product portfolio adjustments for margin expansion in some categories, both of which contributed to the overall growth margin improvement for IoT's home portfolio. Revenues from our home model solutions decreased by 27.8%. due to 263.3 million RMB from 363 million RMB for the fourth quarter of 2020. The decline was primarily due to the weaker consumer demand for the industry overall during the quarter, as well as the product portfolio adjustments we made by decreasing the proportion of small sex-water purifiers in our product mix. As a result of product portfolio adjustments, the company once again achieved the year-over-year gross margin recovery for this category. Revenues from consumer booths decreased by 24.8% to 120.4 million RMB from 160.2 million RMB for the fourth quarter of 2020, primarily due to decrease the demand for purifier filter products. Revenues from small plants and others increased by 2.3% to 257.1 million RMB from 251.2 million RMB for the fourth quarter of 2020. Growth profit was 341.5 million RMB compared to 443.8 million RMB for the fourth quarter of 2020. Growth margin increased to 25.6% from 23.5% for the fourth quarter of 2020. Primarily driven by the company's continued efforts to shift the business and product mix towards higher growth margin products. Total operating expenses increased by 2.7% to 340.7 million RMB year-over-year, primarily due to the increase in R&D expenses and the G&A expenses. In more details, R&D expenses increased by 5.1% to 97.8 million RMB from 93.1 million RMB for the fourth quarter of 2020. mainly due to the increase in R&D experts and the related salaries and expenses. Selling marketing expenses decreased by 1.2% to 214.8 million RMB from 217.4 million RMB a year ago. DNA expenses increased by 31.4% to 20 million RMB compared to 21.3 million RMB for the first quarter of 2020. primarily due to the increase in related personnel salaries and expenses. Net income contributed to ordinary shareholders of the company was 22.7 million RMB, and net income attributable to ordinary shareholders of the company was 33.5 million RMB. Additionally, our balance sheet remained healthy. As of December 31, 2021, we had cash net cash equivalents of 587 million RMB, restricted cash of 35.8 million RMB, and short-term investments of 828.9 million RMB. Next, let's briefly discuss more key financial results for the full year 2021. Net revenues for full year 2021 were 5.3 billion RMB compared to 5.83 billion RMB for 2020. Revenues from IoT to home portfolio decreased by 7.4% to 3.4 billion RMB from 3.67 billion RMB for 2020. Revenues from our home water solutions decreased by 15.9% to 742.9 million RMB from 883.3 million RMB for 2020. Revenues from consumer booths decreased by 4.1% to 767 million RMB from 382.9 million RMB for 2020. Revenues from small towns and others decreased by 10.7% to 792.9 million RMB from 887.7 million RMB for 2020. Gross profit was 1.2 billion RMB compared to 1.08 billion RMB for 2020. Our gross margin improved to 22.6% from 18.6% a year ago. Total operating expenses increased by 24.6% to 1.16 billion RMB from 931.8 million RMB for 2020. In more detail, RNG expenses increased by 17.4% to 311.8 million RMB from 265.7 million RMB for 2020. Solid marketing expenses increased by 25.8% to 751 million RMB from 597.2 million RMB a year ago. G&A expenses increased by 41.8% to 97.7 million RMB, compared to 68.9 million RMB for 2020. Net income attributable to ordinary shareholders of the company was 88.6 million RMB, and non-GAAP net income attributable to ordinary shareholders of the company was 136 million RMB. Now let's turn to our outlook. For the first quarter of 2020, we currently set the net revenues to be between 680 million RMB and 730 million RMB. We estimate that year-over-year change in the first quarter Revenue will be mainly due to the high-based effect of Xiaomi Brand Super Robo business for the first quarter of 2021, which the company has then subsequently scaled back that business, as well as the overseas market impact in the first quarter of 2022. The above outlook is based on current market conditions and reflects current and preliminary estimates of markets, and operating conditions and customer demands, which are all subject to change. This concludes our prepared remarks, and we will now open the call for the Q&A session. The head of our finance department, Mr. Weiqiang Cai, will join the session and answer the questions. Operator, please go ahead.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your question to the company's management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question comes from Hilde Ling with Morgan Stanley. Please go ahead.
spk03: Thank you. There is a very obvious recovery. There are a few small questions I would like to ask. The first question is, I would like to ask, from the beginning of 2022 to now, what is the form of our current income trend? Especially in the domestic and foreign markets, what is the situation of our current increase or decrease? This is the first question. The second question is how we should look at the trend of revenue in the year 2022. This is also a separate view of the domestic market and the foreign market, as well as the view of each product line. This is the second question. The last question is a view of the interest rate and the net profit rate. So, let me repeat all these in English first. So, congratulate company on a very decent fourth quarter results and a very visible gross margin expansion there. A couple of questions. The first one is, can we have some color of the sales trend year to date? In particular, the sweeper robots in the domestic and overseas markets. And the second question is about also about revenue outlook, but that's all for the full year 2022. How should we think about it for the overseas business and also the domestic business? And also, can we have a little bit of color of each product category segments as well? And the final question is about the margin of the gross margin and also the operating margin for the first quarter of 2022 and also for the full year 2022. And how should we think about the rising commodity prices for material costs and also the oil prices, how would that affect our margin outlook? And when will we see a more visible trend of an inflection point? So that's all for my question.
spk02: Okay, thanks for all these questions. For the sales chain up to date, we saw the overall consumer demand is relatively weak. compared to the same period of 2021. While we saw our products and channel portfolio is trending more diversified and healthier. Firstly, we saw the sales contribution of high end products is increasing due to our introductions of a series of premium products and our efforts for the product portfolio adjustments. Secondly, we saw the sales on our new channels such as Pinduoduo and Douyin increasing very fast, and we are increasing additional mid- to high-end products and products with higher margins on these channels. We expect the sales on these new channels to increase further as well and help us to enhance our brand awareness. And for the sweeper robots, For both domestic and overseas markets, we saw weaker consumer demands for the whole industry compared to the first quarter of 2021, when we achieved a very robust growth in sweeper robots. Particularly for the overseas market, due to the international war and COVID-19, the market demands for smart and premium cleaning products are impacted. Despite the overall macro environment, our introduction of new SKUs, product line optimization, and overseas channel expansion are in line with our expectations. First, in terms of product SKU, we recently introduced our new self-cleaning sweeper robot Alpha 3 in January, and we see a fast growing in sales and received good feedbacks from the market. At the recent new product launch event, we also introduced our new wet and dry vacuum cleaners, CyberPro and Cyber2, which is equipped with double brushes, photo electric sensor, and OTA upgrade functions. Second, the sales contribution of high NSKUs are increasing. As we drive The product line towards premium, the sales contribution of our high-end products such as Alpha 2 Pro and Alpha 2 Plus and Alpha 3 increased. Third, as just discussed, for overseas markets, we successfully stepped into new markets in Singapore, Germany, Italy, and other countries. Further, our new cooperation with larger scale international agents are smooth and we expanded our self-operated model. Along with the US Amazon store we launched last August, we opened Amazon store in Italy, and we will open more self-operated Amazon stores in Europe in the coming months. Overall, though we experienced temporary market fluctuations, we still expect our cleaning business in 2022 to achieve growth and the product lines to turn more diversified. Yeah, for the second question about the sales outlook of 2022, generally for the sales structure, we could refer to the structure of Q4 2021. Like IOT at home portfolio may account for half of the total portfolio, and home water solution accounted for around 20, 20% and small, and others accounted for around 20% and consumables accounted for 10% around. For the overseas business, we expect around high single-digit of the total revenue. But it's subject to the market changes and the company's adjustment later. For the third question about the margin and price, We saw the price of raw materials were relatively stable when entering into the fourth quarter of last year. Well, due to the war and a series of economic reflections, the price went up in the first quarter. The increased price has been partially reflected in our ASPs, so it is partially offset by the increased ASPs. In addition, we have done some price lock agreements with suppliers in advance. So overall we don't expect the surging price of raw materials to cause material impacts on our gross margin or net profit margin side. Our partner is more influenced by the extent of our investment in our R&D and marketing expenses. To deliver mid to long term growth as well as to strengthen our branding of one stock home solutions, we will consider to increase additional investments in marketing and channels. As we already saw benefits of our marketing activities like we did on the third quarter of last year, we are confident these investments will help promote our new strategic products and enhance our brand image. Yeah, thank you.
spk01: The next question comes from Rudy Wei with CICC. Please go ahead.
spk04: Okay, so thank you very much for the management presentation. And I have two questions here. The first is about our promotion and the brand building strategy. We noticed that a company has launched many new products just two weeks ago, and most of the products are targeted at high-end customers. So how do you plan to improve the brand image and make the customers willing to pay for those new products? Also, we knew our spokesperson Deng Lun has some problems recently. So how serious is the influence to us? How does the company plan to improve its brand power and make consumers willing to pay for these products that are relatively high in price? In terms of sales, because there have been some problems with Deng Lun recently, how much impact does it have on us? Thank you.
spk00: On the platform, we saw a turning point. What kind of turning point? We saw that China China China China China China China China This is the place where we will grow our brand Because this is the place where young people gather the most This is one aspect of the brand In addition, it is about this This is the Deng Lun thing In fact, we have little time left There are only a few months left So when we were just disbanding In fact, we used this time This disbanding thing is quite popular I think I read about 500 million times on Weibo in one day In fact, it should be considered a bad thing, but it has become an advantageous thing. I think this is also very fast for the company. So for the company, it should be a There is no negative impact. This is the second one. The third one is the high-endization of the brand. The high-endization of the brand is also because the current criminal community is paying attention to the purchase of automated products. At this time, we need to do a high-endization expansion of the brand. From the product to our all-in-one automated sales method, 60,000, 80,000, 200,000, 300,000, this kind of automation, this kind of promotion actually continues to cover the criminal community. I will quickly translate our founders' feedback. So the branding is established for your questions.
spk05: So first, we are setting a turning point for the consumer groups who buy their health homes, smart home products, and we see the market has been transformed from small group people to the mass market, and this is very important for our industry. And second, we are doing a lot, and we will consider to do more and additional marketing and advertising, especially in some cities where young people are concentrating, like the new tier one and tier two cities. And for your question about the Deng Lun issue, as we responded very quickly and very efficiently, so this issue didn't cause any material impacts on our brand image. And as we respond very quickly and which give us very additional and more exposure on the market as you can see from the way before. Fourthly, we are turning our brand positioning to more premium. So we introduced at our recent product launch event, we are introducing more premium bundle purchase solutions offerings to our high-end market, including the 300,000 RMB solutions, the 200,000 RMB space packages for our premium consumers. And we see the uses of such groups are increasing among our users. That's the answer from our field.
spk04: So I will repeat the question in English. So what's your outlook for the competition in 2022? How do you evaluate the market competition situation? Will it become more fierce? Thank you.
spk00: China's supply chain should still be unable to get rid of it, right? With China's complete industrial layout, the ability of the supply chain, this is still inseparable from the Chinese market. This is a major aspect. The second aspect is in terms of demand. In terms of demand, in terms of demand, from Q4, in fact, demand is starting to be a bit, the domestic market is starting to be a bit weak. Then the consumption, the consumption of these factors should be some There are some that are a little tight. Because now all the big companies are hiring. When all the big companies are hiring, there is still some pressure on the small and medium-sized companies. This is the second one. The third one is in terms of competition. In terms of competition, when the demand is not urgent, Then this competition may be more, in Chinese words, it's called rolling, right? Roll harder. So everyone will do more of this kind of promotion, more of these channels, this kind of movement. But in general, I think from a more long-term point of view, in fact, we are in the high-endization of the brand, and the improvement of horsepower, and some of our internal business improvements, in fact, it is still a I will clearly translate.
spk05: So for your question, we can elaborate from two sides. The first is from the supplement chain side. As you see that there are few There exist many uncertainties in global world, but supply chain capability is still very needed and mainly concentrated in China. So we are not very concerned about this point. And from the other side, about consumer demand, we see that from the fourth quarter of last year, the consumer demand became relatively weak in domestic. As you see that there are a lot like else in some big giant companies. But overall, during the period that consumer demands decrease, it really causes more competitive situations among the players, and the companies might do a lot of additional stocking and promotional activities. For us, as we like shift our production business towards premium and we are maintaining the level of our gross margin and increase in R&D and do a lot of branding activities. We are confident to go through these challenges and deliver long-term growth. Thank you.
spk04: Thank you very much. That's all from my side.
spk01: As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.
spk05: Thank you once again for joining us today. If you have further questions, please contact us through the contact information on our website or the PSN group, our Investor Relations Consultant. Thank you all. Have a good night.
spk00: Thank you. Thank you.
spk01: This concludes this conference call. You may now disconnect your line. Thank you.
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