NaaS Technology Inc. Q1 FY2023 Earnings Call

Thank you, operator. Hello, everyone, and welcome to NaaS First Quarter 2023 Earnings Conference Call. The company's results were issued earlier today and are posted online. Joining me on the call today are Ms. Cathy Wang, our Chief Executive Officer; and Mr. Alex Wu, our President and Chief Financial Officer. For today's agenda, Ms. Wang will provide an overview of our recent performance and highlight and Mr. Wu will discuss our operating and financial results. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, please note that this call includes discussion of certain non-IFRS financial measures. Please refer to our earnings release, which contains a reconciliation of non-IFRS measures to the most comparable IFRS measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB terms. I will now turn the call over to our CEO, Ms. Cathy Wang Yang. Cathy, please go ahead.

Hello, everyone. I'm NaaS CEO, Cathy Wang. It's my pleasure to share NaaS' first quarter 2023 earnings results with all of you and to discuss our recent development. We just celebrated the 1-year anniversary of NaaS going public. First and foremost, I'd like to express my heartfelt gratitude to the entire team of NaaS. The hard work and dedication of our team members combined with our significant first-mover advantage empower us to lead the EV charging solar industry, both domestically and globally and procure the world transition from fossil fuels to electricity. Next, I'd like to take this opportunity to briefly review the development of our industry and the strategies we have started to rapidly execute and will continue to pursue. The worldwide consensus on energy transformation is undeniable. With our primary energy service transitioning from fossil fuels to clean energy, new energy technologies focused on clean and efficient solutions have become key drivers of the ongoing technological and industrial revolutions guided by strict carbon goals announced in 2020. China has made remarkable progress in transforming its energy supply into a diversified and integrated clean energy system. According to an IEA report in 2022, almost 30% of global emissions reductions came from the electrification of passenger cars in China. According to CIC, China's AUA installed base will grow from 30.1 million in 2022 to 145 million by 2030. And the total public charging capacity will increase from 30.7 billion kilowatt hours to 337.8 billion kilowatt hours, growing by 11x and 25x, respectively. Even more precisely, as the installed base of smart electric vehicles, smart homes, and intermittent renewable energy grows, the power grid is becoming increasingly decentralized with driving digitalization. Distributed sources of energy, coupled with big data analysis and AI technology, are catalyzing the change from the conventional unidirectional flow of energy in the power grid to a multidirectional one, creating tremendous opportunities for integration. Meanwhile, the rapid development of new energy sources also presents higher requirements for the stability, consumption capacity, and scheduling capacities of the power system. We are fortunate to be a part of this rapid field and lead its development. On June 13, we launched our virtual power plant platform. This platform seamlessly integrates numerous charging stations, chargers, and millions of EV users nationwide into the power system by leveraging its connectivity and aggregation capabilities while acting as our dispatch hub. The virtual power plant platform enables efficient matching of power supply and demand, fostering a more sustainable IoT ecosystem for new energy. Furthermore, we continue to invest in research and development to enhance our digital operational capabilities. Our NaaS Research Institute team has developed the digital energy asset management system, utilizing adaptation models and deep learning AI algorithms to enable load forecasting and operational strategy optimization for photovoltaic power, energy storage facilities, and charging stations, improve our operations, and maximize revenue. Currently, the NaaS Research Institute team has submitted over 20 patent applications for this system. We expect to deploy it in our operations in the second half of 2023. Recently, we have also signed an agreement to acquire over an 89% stake in Sinopower, a leading solar energy project developer in Hong Kong, making our strategic entry into Hong Kong's distributed solar energy sector. According to a report by the Electrical and Mechanical Services Department, the Hong Kong estate and commercial industrial rooftop solar energy market will expand to 875 megawatts by 2026, indicating significant market potential. Additionally, with the rapid development of EVs in Hong Kong, there will be a sustainable increase in demand for charter operation services. This acquisition also holds significant importance for our global business expansion, as it facilitates our transformation towards an integrated new energy service provider, opening up broader avenues for our growth. Lastly, I'm glad to share our successful completion of an important HPO transaction on May 31, 2023. This transaction garnered significant interest from notable investors, including Dr. Adrian Cheng, the Executive Vice Chairman of New World Development Company Limited and Hong Kong listed CST Group. We are pleased to have their support and trust, which further solidifies our leading position and promising future in the new energy charging service sector. Looking forward, we will remain focused on expanding our charging network, refining our one-stop solutions, and broadening our customer base through win-win relationships. We will also continue to innovate and drive mass adoption of sustainable business models through digitalized and intelligent solutions. We firmly believe that these strategies will keep us at the forefront of our thriving industry and help us create lasting value for our customers and partners. Now I will turn the call over to Alex, our President and CFO, for a closer look at our operating and financial performance. Thank you.

Thank you, Cathy. Hello, everyone, and thank you for joining our call today. In the first quarter of 2023, we delivered solid performance amid a rapidly evolving business environment and solidified our leadership in the third-party charging service market. In the first quarter, our revenues saw a 2.5-fold growth year-over-year, reaching RMB 36.2 million, driven by our progress in expanding our network and optimizing our user experience across the construction, operation, and upgrade stages for charging station owners. The total charging volume transacted through our network during the quarter increased by 112% year-over-year, reaching 1,023 gigawatt hours. This accounted for 21% of all charging volume completed through public chargers in China during the same period. Additionally, the gross transaction value transacted through our network amounted to RMB 990.5 million in the first quarter of 2023, representing an increase of 107% year-over-year. At the same time, our total number of orders surged by 110%, from 21.2 million in the first quarter of 2022 to 44.4 million. Notably, in the first quarter, revenues from online EV charging solutions increased by 145% year-over-year, outpacing the total charging volume growth and GTV growth over the same period. Benefitting from greater operating leverage, our net loss margin in the first quarter declined by 383 percentage points year-over-year. While expanding our charging network, we're committed to providing a full suite of one-stop EV charging solutions for station owners to address their key pain points while enhancing our customer stickiness and creating additional revenue streams. As of May 31, 2023, we have provided operational maintenance services for over 20,000 parking slots across 3,000 charging stations in 300 cities. We have launched multiple charging products specifically designed for the European market to complement our one-stop charging solution. These include our AC Wallbox for EV charging at home and DC charging products for fast charging, both incorporating high-quality, cost-effective, innovative features that meet the required safety standards. Let me now move to our advancements in technological infrastructure. These advancements provide insight into our strategy and operations, thus promoting a more efficient, digitized, and integrated energy system. First, we developed an AI-driven Digital Energy Asset Management System, or DEAMS. It leverages charging order, traffic, economic data, ongoing trends, as well as our large model capabilities to predict station operating conditions, charging efficiency, and resource productivity for specific sites and forecast load on the power grid. With this system, we will be able to enhance our mobility and activity services for station owners in customer acquisition and operational processes. It also allows us to augment our charging station construction services, operational services, and maintenance services with one-click evaluations for station owners. It provides a visualized site-specific cost and return forecast for stations in different regions across China, thereby serving to enhance operations and investment returns for station owners while driving the efficiency improvements of the overall charging market. In addition, DEAMS can support a broad array of energy assets other than charging stations. It takes the scheduling optimization of PV energy storage facilities and charging stations based on cost-benefit analysis into consideration. It factors in additional income streams, such as revenue from peak shaving, ultimately improving overall efficiency and profitability when investment decisions are being made. As Cathy mentioned, we look forward to deploying DEAMS in the second half of the year and creating incremental value and opportunities for new energy assets. Another breakthrough was the virtual power plant platform we launched on June 13, which will be a hub for efficient coordination of power generation, the grid, and electricity users, with charging stations at the center of the use scenarios and the benchmark for the large-scale implementation of virtual power plants. This platform efficiently aggregates distributed energy resources, such as EV charging stations, energy storage facilities, and distributed PV through the cloud, forming manageable units with flexible management of these resources and intelligent scheduling and control. It actively participates in electricity market transactions and responds to grid scheduling needs, addressing electricity supply and demand fluctuations. Through our virtual power plant platform, we also effectively promote the orderly charging of EVs, enhance clean energy consumption, and contribute to reducing energy intensity and energy costs. Furthermore, we will leverage the virtual power plant platform to gradually build integrated charging stations with PV, energy storage, charging, and energy asset services. To round off our efforts to transform into an integrated new energy service provider, we recently entered into a definitive agreement to acquire a stake of over 89% in Sinopower HK, a leading rooftop solar energy developer in Hong Kong. Out of the 60 megawatts installed solar capacity in Hong Kong, 25 megawatts have been built by Sinopower, with a reputable client base that includes the Hong Kong Jockey Club and the Hong Kong Exchange. It has sourced and exceeded more than 600 projects since 2018, leveraging its strength in project sourcing, patented solar energy-related technologies, and partnerships with key industry stakeholders. Sinopower is a strong strategic fit for us. Through this transaction, we will enter the distributed solar PV sector in Hong Kong. We aim to strengthen our integration with Sinopower in technology, product, capital, end markets, and significantly enhance the execution and returns of solar projects. Separately, becoming part of our platform will help accelerate Sinopower's venture into the EV charging business. By leveraging this integration, we aim to expand our capabilities in renewable energy and EV charging solutions globally. This deal is expected to close in June 2023, subject to customary closing conditions. Next, I will go over some of our financial results for the first quarter of 2023. In keeping with our protocol, I will address our financial highlights here, and I encourage you to refer to our earnings press release posted online for additional details. Our total revenues reached RMB 36.2 million in the first quarter, up 150% year-over-year. The rapid increase was mainly the result of increases in platform order volumes and continued improvement in our operations. Our total operating costs were RMB 149.8 million in the first quarter, rising by 37%. This was primarily due to our significant business expansion. Our net loss for the first quarter of 2023 was RMB 109.7 million compared to a net loss of RMB 99.3 million for the same period in 2022. Based on the company's current and preliminary view of our business situation and market conditions, which are subject to change, we are reaffirming our guidance that full-year 2023 revenues will be in the range of RMB 500 million and RMB 600 million, increasing by 5 to 6 times from 2022. To summarize, in the first quarter, we continued to cement our leadership position in the EV charging network while innovating and making technological enhancements. Going forward, we will further expand our competitive position in the third-party charging services market while strengthening our virtual power plant platform and nurturing a clean, efficient, and low-carbon power system as we leverage the rising trend of new energy and EV adoption. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

Your first question comes from Megan Chen with Macquarie.

We have two questions. The first question is would you kindly elaborate a little bit more on the acquisition of Sinopower, especially for the synergies with our current business as well as the current mainland market? And also, in the future, what are the other acquisition directions that you're looking at?

Thank you, Megan. This is a great question. Sinopower is a leading rooftop solar PV developer in Hong Kong. As I mentioned before, it has an impressive 32% market share in that particular market, and we believe it's a clear leader in that space. We can obviously work with Sinopower to further strengthen its capabilities in that area, which can be underpinned by the policy of Hong Kong to bolster the PV solar panel industry. Separately, we will also work with Sinopower to expand its capabilities globally. As we shared in our previous earnings calls, NaaS has planned to expand into three major markets, including Europe, the Middle East, and Southeast Asia. We believe Sinopower's capabilities can be expanded and replicated in other markets. So once we finish the closing of the transaction, we will work closely with the founder and management of Sinopower to leverage that capability. And finally, from a charging perspective, which is the core capability of NaaS, we're also working with Sinopower to build and expand that capability in Hong Kong, especially regarding the charging solutions in leading estates. Sinopower has proven that it has the capability to work with asset owners to build solar solutions. We will work with Sinopower to expand those capabilities into charging solutions in the United States. So we're very excited about this acquisition, and we look forward to working with the Sinopower management team.

Your next question comes from Yizhen Du with CICC.

Yizhen Du from CICC. First of all, congratulations on the great performance in the first quarter. I have two questions about our business. The first line is about the online charging service. What do you think of the future of charging services? Do you think the charging services will continue to replace? This is the first question. The second one is about our energy storage business. As we all know, the launch of energy storage products is recent, could you share with us your focus for the energy storage business? This is my two questions.

Thank you, Yizhen. Thanks for your questions. Let me answer those one by one. From a charging service perspective, obviously, I don't have a crystal ball to provide a forecast for future service changes. What we've seen now is there has been a diverse trend in service fees. Nationwide, for example, the average service fee per kilowatt hour has been hovering around $0.40 to $0.50. However, if you look closer, there is quite a bit of diversity in service fees. For instance, at some stations in Beijing and Shanghai, the service fee per kilowatt hour could reach $0.80 during busy hours. Ultimately, I believe that the service fee results from demand and supply. With the adoption of EVs and the penetration rate in key cities like Shenzhen and Shanghai, it is likely to increase by 50%. We will see more EVs on the streets, thus creating demand for charging solutions. I expect that eventually, we will see charging service fees rise, although this trend may take a couple of years to fully unfold. As for energy storage, I am tremendously excited about the future of energy storage, especially in charging stations. If we step back and look at the overall market, EV charging volume accounted for less than 1% of the overall power grid output in 2022, but it is expected that in about 10 years, the charging for EVs will account for 5% to 10% of the overall power grid output. This will impose significant pressure on the grid itself, a trend that is already visible. From a government policy and energy system design perspective, there is clear encouragement in place to promote energy storage solutions in charging stations. This aligns well with our virtual power plant solutions that effectively connect all IoT devices, including charging power, energy storage solutions, and to a degree, PV solutions together to form an intelligent energy management system. In provinces like Zhejiang, Jiangsu, and Guangdong, where development is more advanced, we've observed price gaps between peak and valley times reaching over $0.70 per kilowatt hour. With battery costs decreasing and this wider price gap in these provinces, we anticipate a stronger commercial case for energy storage solutions in charging stations. We are currently working on those solutions already and hope to provide highlights and good news in our next earnings call.

Your next question comes from Megan Feng with Tianping.

Thank you for the team presentation. I missed the projected timeline for your virtual power plant platform and the automatic EV charging robots. How are they going to impact the company's financials?

Okay. So regarding the VPP solution, we've already launched the VPP solution on June 13, 2023. We are currently leveraging data from EV energy storage and charging stations in our energy base to provide input to our virtual plants and train its algorithm. Regarding the automatic charging robots, we launched the prototype in April, and we have used the prototype to attend to business events, specifically in places like EVIS in Abu Dhabi and Power to Drive in Munich. What we plan to do with the charging robot is to launch a commercial charging robot close to our customer base before Q4. Our team is diligently working on that. There are several work streams we are actively pursuing to ensure we can present the first commercial product before Q4. From a revenue perspective, I believe the charging robot may still be 1 to 2 years away. However, for the virtual power plant, we are already engaging in electricity trading and electricity procurement projects. These projects can be further enhanced by the virtual power plant's capabilities. Revenue from the virtual power plant will fall under our revenue stream dedicated to innovative solutions, and we encourage you to keep an eye on that.

Thank you, everyone, for participating tonight. If you have any further questions, please feel free to contact us. Thank you.

This concludes this conference call. You may now disconnect your line. Thank you.