Earnings Call Transcript - CBAT Q1 2023

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by and welcome to the CBAK Energy Technology’s First Quarter 2023 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today’s call. If you have any objections, you may disconnect at any time. Now, I will turn the call over to Thierry Li, Investor Relations Director of CBAK Energy. Mr. Li, please proceed.

Thierry Li, Investor Relations Director

Thank you, operator and hello everyone. Welcome to CBAK Energy’s first quarter 2023 earnings conference call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer; Mrs. Xiangyu Pei, our Interim Chief Financial Officer; Mr. Xiujun Tian, our General Engineer; and Jennifer, our interpreter. We released results earlier today. The press release is available on the company’s IR website as well as from newswire services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that 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 expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company’s public filings with the SEC. The company doesn’t assume any obligations to update any forward-looking statements, except as required under applicable laws. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Li will speak in Chinese and I will translate his comments into English. Go ahead, Mr. Li.

Yunfei Li, CEO

Thank you and hello, everyone. Thank you for joining our earnings conference call today. We have just released our financial results for the first quarter of 2023. Regrettably, our total revenues have declined as a result of reduced revenues from our materials division, stemming from a significant fall in the price of raw materials. As part of current market conditions, we have achieved satisfactory results in our primary business, which involves selling lithium batteries. In particular, our battery business generated revenues of $29.6 million, representing a 97.1% increase from the same period last year. Among these revenues, $25.82 million came from batteries used in energy storage applications, which is a 72.9% increase, while $1.97 million came from batteries used in light electric vehicles, reflecting an impressive growth of 2117.2%. Moreover, revenues from batteries used in electric vehicles were $1.82 million, marking a remarkable increase of 5889.8 times compared to the same period last year. In addition to achieving significant revenue growth, we have also witnessed a significant improvement in our gross profit margin. For our battery business, the gross profit margin in the first quarter reached 10.85%, representing an increase of 4.31 percentage points from the previous year. We are confident that our gross profit margin will continue to improve in the future as our capacity gradually releases and production efficiency continuously gets improved. As usual, I would like to begin by providing an update on the total value of orders that we have received but yet to fulfill. As of April 30, 2023, the combined value of pending orders across our three main production facilities situated in Dalian, Nanjing, and Shaoxing has reached roughly $187 million. This figure has risen since our previous earnings call suggesting favorable development in our efforts to acquire new customers and secure new orders from existing ones. We maintain a high level of optimism regarding our market revenue prospects for 2023, particularly with respect to the revenue generated from our primary business operations, which is the sales of lithium batteries. Revenues from the LEV and EV sectors have continued to grow as a result of further collaboration with Jinpeng Group and its affiliate Jemmell. As of April 30, 2023, Jinpeng Group and its affiliate have placed orders worth RMB20.31 million since 2023. As a result, we have consecutively ranked among the top 15 LFP lithium battery suppliers in China in terms of installed capacity for EV and LEV applications in January and February, according to publicly available data. After consolidating our existing foundation in the energy storage field, our aim is to continue our efforts towards the LEV and EV markets. As of April 30, we have also received orders totaling approximately RMB3.58 million this year from our cooperation with certain modules and we expect to further promote the cooperation with these modules in the future. We have had in-depth discussions with our major European clients as we previously disclosed to further our collaboration for this year. Both parties have expressed a strong willingness to continue working together, and we expect to announce details of the agreed deal soon. As our cooperative relationship deepens and becomes more stable, we anticipate receiving larger orders from this European client than we have in the past. Additionally, we announced in April our collaboration with PowerOak, a company that ranks among the top three global players in the portable power supply markets through its subsidiary rebrand BlueTTi. Our partnership with PowerOak and BlueTTi started in March 2022. And we have received orders worth approximately $5.35 million so far. PowerOak is expected to place orders on a monthly basis indicating that the order volume of our collaboration with PowerOak is expected to continue increasing. We have been able to enter and expand in the global market for portable power supplies mostly through our collaboration with PowerOak, which is also one of the key markets that the company is paying close attention to. At present, we are actively reaching out to the top clients in this market and are hopeful to present our investors and shareholders with better cooperation projects and all the information. We have received inquiries from several institutional investors and potential clients about the status of our sodium-ion batteries. In the near future, we plan to hold a product launch event for our sodium-ion batteries, and hope that our investors and shareholders will stay tuned for our announcement. As we mentioned in our previous earnings call, sodium-ion batteries are currently a major focus for many battery companies. Once produced on a large scale, sodium-ion batteries are expected to replace lead-acid batteries that are widely used in light electric vehicles, which have a negative environmental impact. Our development of sodium-ion batteries not only positions us to enter a market worth about tens of billions of dollars, but also reflects our commitment to environmental responsibility. In terms of the progress of our Nanjing Phase 2 project, we have completed the roof sealing of some of our factories and expect them to be operational by the end of this year at the earliest. We are also making active preparations for an Investor Day and we’ll invite all investors and shareholders of our company at an appropriate time to walk through our Nanjing project. Once we’re ready, we will release information about the Investor Day. Now, let me turn the call over to our Interim CFO Xiangyu Pei, who will provide details on our financial performance.

Xiangyu Pei, Interim CFO

Okay, thank you, Mr. Yunfei. Thank you, everyone for joining our call today. I will now go over our key financial results for the first quarter of 2023. For the full details of our financial results, please refer to our earnings press release. The way how we intend to draw momentum in the sales of our battery products, we are optimistic for this year given that we have reached an agreement with our major European clients and made progress in developing clients in the global portable power supply market. Our gross margin from our primary revenues versus batteries has also recovered to 10.85%. As our new capacity releases and our production efficiency improve, we are confident that the gross margin for our battery business will continue to grow. Moving on to our financial performance, we experienced a 47% decrease in total revenues in the first quarter, dropping to $42 million from the same period in 2022. The main cause of this decline is the drop in our materials business, which has been negatively impacted by a fluctuating price of materials. On the other hand, we had strong performance in our revenues of lithium battery sales, achieving revenues of $29 million, which represents a substantial increase of 97%. Among these revenues, $25.8 million were from batteries used in energy storage applications, representing a growth of 72.9%. $1.97 million came from batteries in light electric vehicles showing an impressive increase of 2117%. Additionally, our revenue from battery sales in electric vehicles was $1.8 million, which is an expected low growth of 5889 times compared to the same period last year. This significant improvement in our primary business is very encouraging. We expect that the positive momentum will continue and we are confident that we will achieve better results this year. The cost of revenues in the first quarter was $39.25 million, which represents a decrease of 47% from the same period in the previous year. The reduction in cost of revenue was consistent with the decline in revenue. In the first quarter, our gross profit decreased by 45% year-on-year to $2.9 million, while the gross margin largely increased to 6.8% from 6.6% in the same period last year. This was largely due to the significant increase in gross profit margin of our battery business. The gross margin for our battery segment was 10.8%, up by 4.3 percentage points. That concludes my prepared remarks. We will now open the call for questions. Operator, please go ahead. Thank you.

Operator, Operator

Thank you. Our first question comes from an analyst from TPG. Your line is open.

Unidentified Analyst, Analyst

Okay. So first of all, I’d like to say thank you for taking my question. And also want to congratulate you on your strong performance in the first quarter of the year. I have two questions. The first one is that it seems that sodium batteries are about to be put into production. Can you tell us what advantages that sodium-ion batteries as replacements of lead-acid batteries can bring to environmental protection? And my second question is that you just mentioned the company has a plan to launch an Investor Day at an appropriate time. Are investors welcome to visit the company on this Investor Day? What’s the progress of the construction and equipment installation in the Nanjing Phase 2 project? If we pay a visit to the production facility on the Investor Day, what can we see on-site? Thank you.

Xiujun Tian, General Engineer

Okay. So, Mr. Tian is going to address the first question. Well, if – let’s have a look at the difference between lead-acid batteries and sodium-ion batteries. For lead-acid batteries, they are liquid state batteries. Compared with sodium-ion batteries, liquid batteries are easier to spread. As a heavy metal, lead can cause pollution through soil and water, and if lead enters the human body, it may cause poisoning. It can also lead to various diseases in human beings. If a person intakes a large amount of lead, it may even pose a threat to their life. However, if we look at sodium-ion batteries, there is a large storage of sodium in nature, and it is also a very common element in our food. It can even be regarded as a dispensable element for humans. So, we can say sodium-ion batteries are very friendly to humanity and to nature. If we can use sodium-ion batteries, then we can really embark on a journey towards green development. We believe that it is a very good supplement to lead-acid batteries. It is not only environmentally friendly, but also economically competitive.

Yunfei Li, CEO

Okay. So, with regard to the second question concerning Investor Day. Well, we do have a plan to organize an Investor Day event in the near future and we extend a sincere welcome to all shareholders and investors to pay a visit to our production facility and to join us on the Investor Day. On that day, we will also invite the media for publicity and to conduct a media campaign for us. You would like to know the progress of the construction of the Nanjing Phase 2 project. I will be very happy to provide you with more updates. There will be a building designated as an 8-kilowatt battery production facility, and the construction will be finished by June this year. By then, the 18 gigawatt-hour support factories will also be completed at the same time. We have already sent the specifications of our equipment to the suppliers and we are about to send them the bidding document very soon. So, if you pay a visit to our production facilities on the Investor Day, we believe that you will see our factories ready for the installation of equipment by then. Once again, we would like to extend an invitation to all shareholders and investors; you are more than welcome to visit us.

Operator, Operator

We have a question from an analyst at TPG. Your line is open.

Unidentified Analyst, Analyst

Okay. We noticed that the battery business of the company has grown very rapidly in recent years, especially the Energy Storage segment. How do you see the composition of revenue from the battery business in the future? To what extent can the share of revenue from LEV and EV business increase?

Yunfei Li, CEO

So, yes, you are right. From the sales revenue of the first quarter, we can see that the energy storage business segment occupies a big proportion of our sales revenue. The revenue from the EV and LEV occupies a secondary position. If we look at the revenue composition, we can see that revenue from energy storage takes up more than 80% of our total revenue. Based on the orders that we have in hand, as well as the production capacity, it is estimated that this year, we will still maintain a similar revenue composition just like the first quarter. However, if we dig deeper into the figures from the first quarter, we are also pleased to see that the sales revenue from the LEV and EV has also witnessed substantial growth. If we compare with the previous year, we achieved $3.7 million sales value in EV and LEV. With the increase in production capacity in our Nanjing production facility next year, along with our continued efforts in the EV and LEV markets, we predict explosive growth in our LEV and EV revenue next year. Thank you, operator, and thank you all for participating in today’s call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Operator, Operator

Thank you, all, again. This concludes the call. You may now disconnect.