NaaS Technology Inc. Q2 FY2023 Earnings Call

Thank you, operator. Hello, everyone, and welcome to NaaS Second Quarter and First Half 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 Yang, 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 highlights, 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 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.

Okay. Hello, everyone. I'm NaaS CEO, Cathy Wang. It's my pleasure to share our second quarter 2023 earnings results with our view and to discuss our recent developments. In the second quarter of 2023, we continued to deliver solid operating and financial performance with revenue margin leverage and a significant loss reduction. Our continued network expansion relies on a growing client base of station owners across various stages of charging station construction, operation, and upgrades, as well as improving operating efficiency. Our strategic partnerships also continued to deepen and expand. With leading enterprises such as Hyundai Motor Group, PICC Real Estate Investment, and CR Capital Management attracted to our innovative solutions and one-stop services. We are excited about collaborating with these partners to further propel the development of the EV charging industry. This year, new energy storage facilities experienced broad-based exponential growth. According to the National Energy Administration, newly commissioned installations in the first half of this year alone exceeded the past 10-year total installation, reaching 8.63 gigawatts, contributing to capacity in operation totaling 17.7 gigawatt hours. China's energy storage demand is also growing rapidly. It is expected to exceed 17 gigawatt hours by 2025, with the market size reaching over RMB100 billion. In September 2023, we signed a RMB204 million energy storage order in cooperation with several companies, providing over 380 charging stations with energy storage equipment and comprehensive solutions with energy storage capabilities of over 130 megawatt hours in total. This initiative demonstrates our strength and innovation in station-integrated energy storage technology, marking a crucial step forward in our integrated photovoltaic storage charging contracts. This order further boosts our confidence to deliver our full-year revenue guidance. Furthermore, our total fundraising year-to-date amounts to $91 million, significantly enhancing our financial strength and fulfilling our growth initiatives. Internationally, we are accelerating our global expansion. We acquired an 89.99% stake in Sinopower, a leading rooftop solar energy developer in Hong Kong in August 2022. We also entered into a definitive agreement to acquire Charge Amps, a leading European provider of EV charging service solutions. Capitalizing on the strong market presence and channel capability as well as our extended product and service portfolio and financial strength, we will further strengthen the standings of Sinopower and Charge Amps in their respective regions while promoting the global exploration of our product and service offerings. Looking ahead, we will elaborate the supporting policies worldwide and increasing market demand while actively exploring the integrated development of charging stations, the new energy system, and smart IoT devices, elevating both user experience and service quality, aiming for a 10% market share in global new energy asset operation and management services market in the long term. 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 second quarter of 2023, we delivered solid operating and financial performances. By offering diversified service offerings while leveraging the industry-leading scale of our charging network, we continued to solidify our leadership in the charging services industry. Significant progress was made in our transformation journey towards becoming an integrated new energy services provider, highlighted by our achievements in energy storage, among others. In the second quarter, we more than doubled our revenue year-over-year while achieving a significant loss reduction. Specifically, our revenues grew 121% year-over-year, reaching RMB48.6 million, driven by our ongoing network expansion and our growing station owner client base across the construction, operating, and upgrade stages for charging stations. Our gross margin reached 39%, representing a notable increase of 22 percentage points quarter-over-quarter. This improvement highlights our unwavering commitment to innovative business practices that drive favorable revenue mix changes. Additionally, we reduced our net loss by 94% year-over-year to RMB334.7 million. Our net loss margin narrowed by 385% quarter-over-quarter, and our operating loss margin narrowed by 373% quarter-over-quarter, benefiting from greater economies of scale. Our network experienced significant growth during the quarter, with total charging volume increasing by 112% year-over-year, reaching 1,228 gigawatt hours. This accounted for 21.7% of all charging volume completed through public chargers in China during the same period. Moreover, the gross transaction value conducted through our network rose to RMB1.2 billion, reflecting a 109% year-over-year increase. Simultaneously, our total number of orders rose by 110% to 53.8 million from 25.6 million in the second quarter of 2022. In the second quarter, revenues from offline EV charging solutions increased by 153% year-over-year, accounting for a higher share of total revenues compared with the first quarter. The robust growth of our revenues from offline EV charging solutions was mainly driven by the increasing number of clients attracted to our full suite of one-stop EV charging solutions that cover end-to-end station construction, operation, and upgrades. On August 28, we celebrated the commencement of operations of the first integrated energy port in Jiangsu province, for which we were deeply involved in construction. Working closely with the Energy Group, we offer vehicle owners straightforward, efficient, and environmentally friendly one-stop energy services. In addition, we signed strategic collaboration agreements with Hyundai Motor Group China Limited, PICC Real Estate Investment, and China Resources Capital Management to further expand our partnership roster. With Hyundai, we are enhancing charging infrastructure and mobility connectivity tailored for their EV models. With PICC, we're building a top-notch new energy charging service system, integrating infrastructure, co-branded stations, online connectivity, and comprehensive insurance services. With China Resources Capital Management, we're developing integrated energy port construction and innovative securitization of new energy assets, promoting green and low-carbon energy development. Furthermore, we received a RMB204 million energy storage order to be executed in the upcoming months, marking a solid advancement in propelling integrated photovoltaic storage charging station development while boosting our confidence in achieving our full-year revenue target of RMB500 million to RMB600 million. We will outfit over 380 charging stations with 580 integrated cabinets and matching comprehensive energy storage management systems, complemented by intelligent self-production services and supervisory and development services. The benefits of energy storage are threefold. First, there has been a lack of effective means to take advantage of the peak value price spreads and ensure operations during power outages. Energy storage integration allows charging stations to earn incremental revenues from on-off-peak price differentials while maintaining uninterrupted operations. Second, to accommodate high-power fast charging, the conventional approach involves costly grid upgrades to increase base load, which can be effectively replaced with much more cost-effective energy storage solutions. Third, energy storage can ensure power grid safety; in cases of fast charging, charging power in the local grid could exceed 1 million watts, potentially causing multiple points in the grid to collapse. Energy storage provides an effective solution to address the challenges of managing peak loads. Moving to our capital markets and levers, I'd like to highlight some accomplishments that have bolstered our financial strength. Sorry, I just got disconnected. Let me continue. Now let's delve into our global expansion strategy. Our agreement to acquire Charge Amps in August marked an important milestone in our globalization efforts. We are pleased to welcome the Charge Amps brand and team to our NaaS platform. As a pioneer in the integrated EV charging solutions industry, specializing in home, work, and destination AC charging solutions, Sweden-based Charge Amps has a strong reputation throughout Europe. For over a decade, Charge Amps' broad portfolio of intelligent, sustainable, user-friendly, and particularly attractive product offerings has satisfied customers, as proven by its 22% local market share, with an established international footprint in 13 markets. Charge Amps' commitment to sustainability is reflected throughout its entire production chain and participation in the UN Global Compact. Significant synergies exist between NaaS and Charge Amps. First, Charge Amps can leverage NaaS' relationship network to expand its sales channels, while NaaS can utilize Charge Amps' existing channels to launch affordable AC, DC, and household storage products to enrich its product portfolio. In addition, we can reduce Charge Amps' cost of revenue and improve its margins through our advantages in the domestic supply chain, procurement, and resource consolidation. Furthermore, as Cathy mentioned, we acquired an 89.99% stake in Sinopower in June, another critical component of our expanding global layout. Sinopower is Hong Kong's largest one-stop solar panel service provider, holding a significant 35% market share in rooftop solar PV development in Hong Kong. Through the Sinopower acquisition, we entered the distributed solar power market in Hong Kong, broadening our boundaries from charging services to upstream power plant services, opening a new chapter for energy asset management. We are working on integrating the technology, products, capital, and markets of both parties. With Charge Amps and Sinopower as our home bases for the European and Southeast Asian markets, we will accelerate the global expansion of our services while integrating PV and energy storage products in charging solutions and other facilities to drive innovation and sustainability in the new energy industry. Moving to our second-quarter financial results, our total revenues reached RMB48.6 million in the second quarter, up 121% year-over-year. The rapid increase was mainly the result of increased network order volumes and additional capabilities in our EPC business established and acquired through the first half of 2023. Our total operating costs were RMB388.6 million in the second quarter, decreasing by 82% year-over-year, primarily due to our significant business expansion. Our net loss attributable to ordinary shareholders was RMB334.7 million for the second quarter of 2023 compared with a loss of RMB302.2 million for the same period of 2022. Based on our 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 RMB500 million to RMB600 million, increasing by 5 to 6 times from 2022. To summarize, by expanding our one-stop charging solutions, advancing integrated energy systems and strategic acquisitions, we are on track to become a leading global new energy asset operation and management service provider. As we move forward, we remain committed to providing sustainable new energy solutions while continuously exploring new avenues for expansion and facilitating the industry's ongoing evolution. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

Can you hear me? Yes, firstly, congratulations on the second-quarter result. I have two questions. Firstly, can you please discuss the progress of the Sinopower acquisition, how about the integration after the acquisition closed in June? Also, could you share more color about the progress of this project? And secondly, could you please talk more about the strategic partnerships you recently developed? How does this fit in with your long-term strategic growth of your business?

Got it. Thank you. So two questions, one is about Sinopower integration, and the other one is about the strategic partnership, right? Let me address them one by one. Regarding Sinopower, I'm currently very excited. We finished the acquisition of Sinopower in Hong Kong in June. Since then, Sinopower has strategically leveraged NaaS' strength to enhance its presence in both EV and PV sectors, making significant progress in both areas. On the PV side, Sinopower completed a 2.6 megawatt rooftop solar project in Hong Kong, which is expected to generate 31 million kilowatt-hours annually. It has also secured contracts for 9 NaaS projects and has over 50 projects currently under construction, totaling 10.2 million watts in capacity. On the EV side, Sinopower has qualified as a contractor for the Hong Kong government-sponsored EV charging at home subsidy scheme, currently advancing over 40 EHSS projects aiming to cover around 6,100 parking slots upon completion. Besides that, Sinopower is actively involved in PV projects in MG County, which are currently under construction, alongside an industrial and commercial PV project in Vietnam. I'm very excited about this acquisition. I believe the integration is progressing well, and as I mentioned earlier, Sinopower now has a healthy pipeline of projects that will generate revenue and EBITDA for the entire group. That's my answer to the first question. About the second question regarding the partnership, we are ecstatic with these three new partnerships developed during the quarter. The first is with Hyundai, where we aim to bolster our charging infrastructure and mobility services tailored for Hyundai's EV models. For our partnership with PICC, one of the largest insurance companies in China, we will work towards building a premier new energy charging service system, including integrated infrastructure, co-branded stations, and also insurance services. With China Resource Capital Management, backed by China Resources, we will incubate and invest in operating new energy infrastructure projects and look at the potential to securitize new energy assets. Together, these partnerships represent one major OEM, one insurance company, and one important commercial real estate developer and investor—these pillars are important partners for us in the new energy ecosystem. We will continue building partnerships in these spaces and establish a strong ecosystem to work in. Thank you.

Hi, this is Will. Congratulations on a great performance in the second quarter and first half of 2023. I have two questions. First, can you discuss more details on the acquisition of Charge Amps and your strategy in the European market? My second question is about energy storage. Can you share more color on your energy storage in the charging station business? These are my questions. Thank you very much.

Thank you. Thanks for asking these questions. So the first question is about the Charge Amps acquisition, and I will now elaborate on our strategy regarding the Charge Amps acquisition. The second question is about energy storage, right? Okay, let me address your first question first. The acquisition of Charge Amps is a strategic step that we are taking in Europe. Europe is the world's second-largest energy vehicle market, with currently 8.1 million EVs in 2023. The projection is that by 2025 there will be 16 million EVs in Europe, and by 2030, there will be 55 million EVs in the region. From a penetration perspective, the penetration rate in the EU countries has reached 53% in 2023, which forecasts to 80% by 2030. In comparison, the EV penetration rate in China is about 36% currently. The two countries with the highest EV penetration rates are both in Northern Europe, with Norway leading at over 80% and Sweden closely following with around 65% to 70%. Thus, we are acquiring a brand that is situated in a developed and fast-growing market. Charge Amps boasts a decade of experience in creating high-quality and well-designed products in the charging industry. It holds a strong market position in Sweden and has established presence in multiple new countries. For the acquisition, our objective is to gain access to this leading brand as well as sales channels and AC products. The growth channels in Europe are particularly exciting to us because these channels will enable us to launch new products. We currently plan to launch products such as DC charging equipment and energy storage products through the same channels. We have created a strategic approach for our entry into the European market, along with a clear integration plan for this acquisition. We have completed a 180-day plan for integration, and we will have a small team of what we refer to as the Chief Transformation Office present in Sweden to help instigate integration into the NaaS system. We are truly excited about the opportunities that we can gain from this acquisition. The first step is establishing our presence with Charge Amps' leading brands and sales channels. The second step involves integrating energy service products and PV products to offer a comprehensive solution in Europe. The final step will be to facilitate energy transactions at the household level, meaning we will aggregate households and potentially engage in energy trading with the power grid. These are our three strategic steps, and we are pleased to announce that we have completed the first step and will continue development and growth through both organic growth and acquisitions to achieve our strategic goals. Now, regarding your second question on energy storage in our charging station business: energy storage presents an interesting market opportunity. There are currently about 140,000 public charging stations in China, and we are connected to about 55,000 of them. Of these, we have identified over 13,000 stations in cities where peak value power prices create significant commercial advantages for energy storage. Capturing this process presents immense opportunities. We have just announced plans to implement 580 energy storage solutions across 380 stations, totaling an energy storage capacity of 130 megawatt hours. That aggregate contract value is over RMB200 million. With government support, we anticipate that by 2024, around 5,000 stations in China will be suitable for energy storage, up from 1,818 to date. This development could potentially represent a RMB2 billion to RMB3 billion opportunity in CAPEX for us. As I mentioned before, implementing energy storage solutions is crucial for our charging context. We can further enhance these systems with our extensive analytics and intelligent technology capabilities, and we aim to become one of the largest asset operators of energy storage networks for charging stations. Thank you.

Thank you all for joining us today. If you have any further questions, please always feel free to contact us. Good night.

This concludes the conference call. You may now all disconnect your lines. Thank you.