Summary of Wavelength Optoelectronics Conference Call Company Overview - Wavelength Optoelectronics was established in 2008 and went public in 2023, focusing on the R&D, production, and sales of precision optical devices. The product range includes infrared, visible, and ultraviolet bands, covering the entire process from material growth to optical processing, coating, lens assembly, and testing. The company primarily serves industrial markets, including laser processing, new energy, power batteries, photovoltaics, and semiconductors, with some consumer products like infrared imaging devices for industrial temperature control and automotive assistance applications. The company has multiple production bases centered in Nanjing, with subsidiaries in Singapore and Malaysia to expand overseas markets [4][5][6]. Financial Performance - For the first three quarters of 2025, Wavelength Optoelectronics reported revenue of 334.5 million yuan, a year-on-year increase of 24.66%. Non-recurring gains and losses amounted to 25.76 million yuan, down 16.4% year-on-year. In Q3 alone, revenue reached 122 million yuan, with a net profit attributable to shareholders of 11.5 million yuan, indicating an improvement in operational performance compared to the first half of the year, despite a decline in profit [2][5][6]. Revenue Structure - In Q3, the revenue breakdown was as follows: laser business accounted for 60% of total revenue, infrared business close to 30%, and consumer optics and other businesses combined made up 10%. Within the laser segment, semiconductor-related business contributed approximately 16%-17%, while traditional laser applications accounted for about 40% [2][6]. Gross Margin Improvement - The improvement in gross margin was attributed to several factors: the low base from Q4 of the previous year, product design improvements in the infrared business that mitigated raw material price fluctuations, and an increase in revenue contribution from high-margin semiconductor applications [7]. Profit Decline Reasons - The decline in profit was primarily due to significant prior investments, including fixed asset amortization and increased talent reserves for new business layouts, leading to a rapid rise in costs and expenses. However, these investments are expected to lay a foundation for future growth [8]. Asset Impairment - In Q3, the company experienced some asset impairment due to two main reasons: fluctuations in raw material prices and adjustments in production processes that led to increased repair and testing costs, totaling 2.56 million yuan [9][10]. Semiconductor Business Growth - The semiconductor business saw significant growth, particularly with increased business volume from existing customers and new customer orders. Demand for photolithography and measurement-related products surged, with revenue growing over 100% year-on-year. The company plans to nearly double its production capacity to meet this demand [11]. PCD Business Outlook - The PCD business, which provides optical lenses to equipment manufacturers for PCB pressing, drilling, exposure, and inspection, is expected to achieve annual revenue growth of 20%-30%, with an order volume forecast of over 50 million yuan for the year [3][14]. PCB Industry Strategy and Challenges - The company is strategically maintaining its development in the PCB market, focusing on major customers. Capacity issues pose a significant challenge due to the need to frequently switch production lines based on customer requirements, leading to delivery pressures. However, the company is optimistic about future market growth due to increasing demand for laser processing equipment in the PCB industry [16]. Display Business Performance - The display business experienced low demand in the first half of the year, with a slight recovery in Q3. However, the annual revenue is expected to remain flat or slightly decline compared to last year, with Q3 revenue below 10 million yuan compared to approximately 12 million yuan last year [19]. Future Expectations - The company anticipates a 20%-30% revenue growth for the entire year, with profits expected to gradually improve from Q3 onwards. This outlook remains stable based on previous communications [26]. International Expansion - The company is expanding its overseas operations, with a dual-energy operation model based in Singapore and plans to strengthen its sales teams in the US and Germany. A factory has been registered in Malaysia, with equipment expected to be installed soon to enhance production capacity [25]. AR and VR Development - The company is exploring AR and VR markets, providing products to module manufacturers, with AR shipments reaching tens of thousands of units in 2025. VR products are in development, with over 1,000 units produced this year, although not yet sold to consumers [24]. Infrared Technology Market Growth - The application of infrared technology in the civilian market is gradually increasing, driven by its advantages over visible light technology. The company is optimistic about this market segment, focusing on serving major clients and achieving significant growth in infrared business [22][23].

Group 1 - China's tightening of drone export controls since September 2022 has led to significant price increases for drone components exported to the U.S., with some prices rising by three times or more [1] - The new regulations, effective from September 2024, include controls on engines, motors, laser devices for target indication, and anti-drone electronic jamming equipment [1] - Exports of infrared imaging devices, which can detect heat radiation at night, have seen a 30% decrease in volume but a nearly 50% increase in total export value, indicating a doubling of unit prices due to supply-demand tensions [1] Group 2 - The global export volume of inertial measurement devices has dropped by 80%, while their unit prices have quadrupled [2] - Prices for drone DC motors have increased by approximately 30%, and AC motors have risen by 16% [2] - A French military drone manufacturer reported that the price for thermal imaging cameras from China has doubled, highlighting the dependency on Chinese components due to European manufacturers lagging in technology by about three years [4] Group 3 - Approximately 70% to 80% of commercial drones globally are manufactured in China, which dominates the production of key components such as sensors and speed controllers [4] - DJI is identified as the largest commercial drone manufacturer in the world, holding a 90% market share in the U.S. commercial drone market [4] - Chinese drones are noted for being cheaper and technologically superior compared to U.S. counterparts, despite facing political scrutiny in the U.S. [4][5]

Overview - The company has approved a proposal for shareholders, actual controllers, and subsidiaries to provide guarantees for the company, involving a total financing amount of up to 140 million yuan [1][2][8] Financing Details - The company will apply for a working capital loan of 100 million yuan from Hongta Bank, with a loan term not exceeding three years [1][12] - The company will pledge certain patent rights and real estate owned by its subsidiaries as collateral for the loan [1][12] - The financing includes a leasing business with Ping An Leasing for an amount not exceeding 40 million yuan, also with a three-year term [2][12] Related Parties - Yunnan Dongxing Industrial Group Co., Ltd., a major shareholder, and the actual controllers, Bao Wendong and Wu Kaihui, will provide joint liability guarantees for the financing [2][3] - Bao Wendong holds 69.70% and Wu Kaihui holds 30.30% of Dongxing Group [3][5] Transaction Nature - The guarantees provided by the related parties constitute related party transactions as defined by the Shenzhen Stock Exchange regulations [2][3] - The actual controllers have recused themselves from voting on the proposal due to their interest in the transaction [2][11] Impact on Company - The guarantees will not incur any fees for the company and do not require counter-guarantees, aligning with the interests of the company and all shareholders [8][11] - The company’s main business operations will not be dependent on these related transactions [8][11] Previous Related Transactions - The company has previously engaged in related transactions involving guarantees from the actual controllers and major shareholders, with various amounts and terms [8][9]