Thank you, operator. Hello, everyone, and welcome to NaaS First Quarter 2024 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; Ms. Vivian Wu Ye, our Chief Strategy 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. Ms. Wu will discuss our operating results, and Mr. Wu will go through our financial highlights. 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 discussions 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. 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 Yang. It's my pleasure to share NaaS' first quarter 2024 earnings results with you and discuss our recent developments. 2024 is off to a great start, showing significant growth across our business. In the first quarter, we achieved revenue of RMB 96.24 million, a 156% increase year-over-year. Our gross margin ascended by 8.4 percentage points year-over-year to 25%. These financial achievements reflect our strong operational execution and the power of our strategic steps, making significant progress as we transform our business into one with lucrative and diversified revenue streams across our comprehensive energy solution offerings. Our fundamental capabilities in mobile connectivity have laid a solid foundation for our overall competitiveness. Enhancement in scale and operational efficiency has enabled us to achieve positive gains at both the GTR and NTR numbers. Simultaneously, we have actively collaborated with charging power operators within our ecosystem and continuously delivered innovation and energy solutions. This dual engine approach not only drives revenue diversification but also strengthens our position in the broader comprehensive energy market. While we have maintained steady revenue growth, we have also focused on optimizing our cost structure. The cost reduction and efficiency strides we have made are translating directly to our bottom line, and we are on track to turn our single month EBIT positive by the end of this year. In summary, the first quarter of 2024 has set a strong foundation for the rest of the year. With our robust financial performance, strategic investment in mobility and connectivity, coupled with continued improvements in operating efficiency, we are well positioned for sustained growth and long-term value creation. We have established a unique dual engine model in charging services and battery chain, comprising both charging services and energy solutions. Thank you for your continued support and trust in NaaS. We look forward to continuing our journey of innovation and leadership in the new energy sector. Now I will turn things over to Ms. Wu, our CFO, for a closer look at our operating results.

Thanks, Cathy, and hello, everyone. I'd like to start by highlighting our recent developments. Firstly, our photovoltaic operations in Hong Kong continued to drive revenue growth, and we expanded our market share in the region. This growth stems from increasing demand as well as our ability to capitalize on emerging market opportunities. Starting in April, we began piloting our EV services in Hong Kong, leveraging our established capabilities in the EPC and local community resources of the PV business. We're now offering EPC services for private charging piles in residential areas along with selling and installing our company-certified European standard chargers, effectively repurposing our existing capabilities. In March 2024, we established a significant partnership with Chaoran New Energy Technology, one of the largest CPO in the Central China region. In this collaboration, we'll provide comprehensive services, including site selection, hardware supply, and asset operation. The successful signing and execution of these projects are crucial for our company for several reasons. Firstly, this initiative marks the large-scale application of our AI analytics model in business operations, where we provide site selection services to help operators secure optimal locations. Secondly, we'll facilitate the sale of charging piles and integrate these operations with our online systems to enhance the compatibility between our hardware and software. Thirdly, by leveraging the synergy between our online and offline activities, we can enhance the efficiency of site operations. This approach ensures cost recovery for operators while enabling us to share in additional revenue. We also continued to focus intensely on technological development and have joined the Open Invention Network, the largest patent non-aggression community aimed at protecting open source. As of March 31, 2024, NaaS has filed over 250 patent applications across more than 10 countries and regions, including the United States, the United Kingdom, Norway, Japan, Thailand, Brazil, and Australia. Our active participation in the Open Invention Network highlights our dedication to leveraging open-source technology to enhance our charging infrastructure networks. This move is a critical part of our strategy to boost our intellectual property and R&D capabilities, which is crucial for refining our AI models and analytical capacity. In conclusion, our initiatives in Hong Kong, strategic partnerships, and focus on technology and IP demonstrate our proactive approach to growth and innovation. These efforts ensure that NaaS remains at the forefront of the new energy sector, driving the development of advanced, sustainable energy solutions. And with that, I'll give the floor to our CFO, Alex, for a deeper dive into our financials.

Thanks, Vivian. I'll start with a review of our results for the first quarter of 2024. In the first quarter, revenue increased by a remarkable 166% year-over-year, reaching RMB 96.2 million. This growth was primarily fueled by our evolving mobility connectivity business and expanded diversified revenue streams. Additionally, our revenue from our energy solutions business increased by 334% year-over-year to RMB 47.2 million, owing largely to our sustained efforts in delivering comprehensive energy solutions, including renewable energy generation and energy management and storage solutions. Our sustained revenue growth underscores the strength and viability of our business model and the increasing demand for our services. In the first quarter of 2024, we advanced our operations significantly. Specifically, the charging volumes through NaaS' network increased 19% year-over-year to 1,216 gigawatt hours. The gross transaction value increased 17% to RMB 1.2 billion, and the number of orders surged by 13% to 50.4 million. These metrics highlight our central role in expanding the new energy ecosystem while bolstering our revenues. Alongside our revenue growth, our strategic focus on cost control optimization boosted our gross profit in the first quarter, which increased fourfold year-over-year to RMB 24.3 million. Our gross margin also improved to 25.3%, up by 8.4 percentage points year-over-year, reflecting our enhanced operational efficiency and the positive impact of our strategic pricing initiatives. We also made considerable progress in refining our online operational efficiency, which we can see in our improved gross and net take rates. Our ongoing efforts increased our GTR and turned our NTR positive beginning in January for a record-high NTR witnessed in April. These achievements emphasize our leadership in operational excellence and customer engagement. We remain committed to improving our cost controls while maintaining steady revenue growth, continuously reducing losses. This quarter, we successfully decreased our operating expenses as a percentage of revenue to 224%, marking a decrease of 107 percentage points year-over-year and 421 percentage points sequentially. Our disciplined approach to expanding revenue and strategic cost reductions set us firmly on track to reach our goal of positive EBIT by the end of 2024. The reduction in labor costs and incentives, coupled with increased transaction volumes that offer operating leverage, has enabled us to effectively continue reducing costs. With this powerful combination, we are actively narrowing our losses and advancing our financial sustainability goals. In conclusion, this quarter has marked a significant milestone in our journey towards becoming a global leader in new energy asset management. With strong revenue growth, improved profitability, and strategic cost reductions, we are well positioned to continue our sustained growth in the new energy sector. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

Could you share some color on the gross profit margin on different business lines and their trends?

Sure. This is Alex. Let me answer this question. So from a gross profit perspective, overall, we have achieved an encouraging gross profit margin improvement in the first quarter of 2024 with an 8.4 percentage point year-over-year increase to 25%. This is the most important thing. Now, if you look at the major segments of business that we have for the connectivity business, as our NTR continues to improve, as we explained before, the costs and expenses are mainly in the human capital invested to build the digital infrastructure, and these costs are relatively fixed. So once we have the revenue scale of the connectivity business, we expect margin on the business to improve meaningfully. And by the way, since the way that we recognize our revenue in this business has been pretty conservative and consistent, we are actually having a pretty good gross margin on our connectivity business already. For the energy solutions business, due to its project-based nature, we can usually achieve somewhere between 10% to 20% margin on average. But it's important to mention that our Sinopower solar business has achieved a remarkable 30% to 40% gross margin in Hong Kong and the overseas market. Finally, for the fuel station operations business, we're still at a pretty early stage where we're improving our digital analytics capability and injecting those capabilities into the operation itself to improve the margin. I think a medium-term objective for margin for that particular business will be somewhere between 15% to 20%.

This is Amber Ge from Jefferies. I'll have two questions. First will be, with regards to the EV charging market, can you share more color on the market trends? With the EV penetration path to 50% in the new car sales, how is the sentiment in EV charging station investment? And what's your strategy to capture this fast-growing market? The second would be, your sales and marketing expenses have been significantly reduced quarter-over-quarter. So how are you able to achieve that? Can we expect the continued improvement in S&M efficiency?

Thank you, Amber. This is Vivian, and I'm going to answer the first question. As you rightly pointed out, we can see from the faster ramp-up on EV sales, the EV penetration is increasing, particularly in private family cars and lower-tier cities. This trend undoubtedly, we believe, will increase the demand for public charging. The transformation process from ICE to EV is only 6%, meaning that only 6% of vehicles are converted from ICE to EV at this moment. Therefore, we believe that the whole EV market still has significant room for development. For NaaS, we will unlock huge business opportunities in the near future, for sure. From the supply side, we also notice that the EV charging operation business is highly localized, which means that different EV charging stations may have totally different customer bases, traffic patterns, and cost structures. The above differences result in totally different return on investment profiles. In some cases, the payback period of an EV charging station may be as short as 1.5 to 2 years, while in other cases, it can be as long as 10 to 15 years. We see much more participation from private capital than SOE, as SOE owns only a small fraction of EV charging stations compared to about half of the market share in gas stations. The increased participation from private capital means that the operation of EV charging stations is becoming more market-oriented, leading to multilayered collaborations with us. Finally, according to third-party data, the EV charging station market is becoming more fragmented. The top five operators' market share has dropped from around 87% in 2018 to about 16% in 2023. With increasingly fragmented upstream markets, we see greater value we can provide. Based on these trends, we adopted our ABC strategies to capture market opportunities. The first letter, A, stands for analytic capabilities, where we leverage AI-based digital technology to drive insights and enable us, such as with real-time dynamic pricing. The B refers to our business development team, along with a quantity of CPOs. Charging is a localized business that requires knowledge of local markets. With nearly 2,000 CPOs in China and a ground team of over 150 people, we are equipped to engage local businesses across different regions. Finally, the C goes to connectivity, where we have connected to the market-leading number of EV charging stations and EV drivers in China. As we continue to expand this network, a comprehensive offering of services can be extended to both EV drivers and station owners. We believe that with these capabilities, we can seize market opportunities effectively and continue to expand our market share.

Sorry, we still have the second half of the question. The second half of the question is related to the sales and marketing cost, right? As a platform company, the sales and marketing expenses are primarily invested in acquiring new customers and retaining existing ones. Typically, these costs are high in the early stages of a company but tend to decrease as the company grows to a larger scale. In the new customer acquisition side, we've built a leading ecosystem that includes a large network of EV charging stations across China. We've partnered with 80% of EV OEMs and worked with major map and online providers. This ecosystem, along with the synergies from our parent company and our market-leading branding, helps us acquire 70% of our new users organically. For customer retention, our continued iteration and improvement in AI-based algorithms enable smarter decisions in providing user subsidies, resulting in a better return on investment in our sales and marketing dollars and a lower reliance on user subsidies for retaining existing customers. Finally, we're also expanding our business lines, especially in the B2B space, leveraging more of our analytical capabilities that don't require a large number of sales and marketing costs. All these elements combined lead us to expect a continuing reduction in the sales and marketing cost percentage in the coming quarters.

Can you discuss the pricing trend in the charging services market from both a short-term and long-term perspective?

I think this is a very big question, and I'm happy to answer it. Here are some of my observations. Firstly, for the short term, we are seeing generally stable market prices for EV charging. Over the past several months, our gross take rate has been consistently improving, indicating that we are providing more value to the market. For the long term, we believe that the price for EV charging has plenty of upside due to the following reasons. First, EVs have only 10% to 20% of the cost per mile compared to equivalent ICE cars. Thus, even if the charging price doubles, the attractiveness of EVs remains. Secondly, the EV penetration in private family cars is increasing rapidly, and drivers are becoming accustomed to charging their cars at public charging stations; hence, they are becoming less price-sensitive. Lastly, compared to developed markets where the charging price can be around EUR 1 or $1 per kilowatt hour, charging prices in China still have significant upside. Additionally, when comparing to industrial and household electricity consumption, transportation energy consumption has more flexibility to even out to the peak and valley stages of electricity consumption. Therefore, we believe that policymakers could leverage these features to provide more pricing freedom to market participants. In summary, I believe there is still a lot of room for charging prices to increase.

Your management highlighted the progress in your patent and intellectual property in the earnings release. What will be your R&D focus in the next 1 to 2 years, and how could this translate to business growth and efficiency improvement?

Definitely, R&D will be the cornerstone of our business development. Our digital analytics capabilities will be the key enabler for our business monetization. We have more than 100 employees in our data engineering and online operation teams, which make up our key R&D forces developing our digital energy asset operation tools and models. Our R&D team has developed various AI models applicable to different business segments and scenarios. For instance, our AI location suggestion model helps energy asset investors find the most appropriate locations to set up new charging stations. Similarly, our AI dynamic pricing model could optimize charging pricing based on real-time traffic data to maximize charging station efficiency. These digital analytic models enable us to expand our business and monetize across different business frontiers. For example, with our AI location suggestion model, we can capture the fast EV charging infrastructure build-out trends through digitally enabling solutions with hardware sales and EPCs. Additionally, our AI dynamic pricing model allows us to expand our fuel station operation business with greater confidence, capturing upside from improved operational efficiency at charging stations. Thus, we will continue to drive our business expansion and efficiency increases through our R&D efforts. I firmly believe that R&D, especially in-depth R&D of AI in the energy sector, is one of NaaS' vital competitive advantages.

So I have two questions. First, regarding the take rates. We have noticed some positive trends regarding your Q1 net take rates and gross take rates. How can we expect these take rates to perform in the second quarter and the rest of this year? And my second question is regarding the synergies of your business with your parent group. How should we see this contribution from your parent, NewLink Group, to drive your business this year?

Ethan, I will answer your first question, while Vivian will answer your second question. Since September 2023, the company has focused a lot on improving NTR. We've managed to improve NTR consecutively while expanding GTR. As we disclosed in our earnings report, both GTR and NTR have reached historical peaks since our listing in April. A few things we've done in that space include expanding our CPO or operator network and increasing our user base, giving us leverage to negotiate a higher GTR with operators. Our GTR has risen to a record high, and we believe the supply-side market is becoming more fragmented and localized, increasing the value we bring to operators from an operations traffic acquisition perspective. On the net take rate side, we've achieved a positive NTR since the beginning of 2024, and the NTR level has been extended to a new high, mainly deriving from improved capability to optimize user subsidies. We’ve deployed a membership loyalty program that can meet more specific demands from different types of users. We also leveraged our AI technology to improve operators’ operational efficiency on our platform by optimizing real-time dynamic charging pricing. From experience with our Newlink gas filling mobile app, we establish a benchmark that NTR can reach somewhere between 2% to 3% in a mature gas fueling industry. For the next quarters, we will continue working on both GTR and NTR and potentially bring even higher NTR in the coming months.

Ethan, I'll address the second question. I want to emphasize that our parent company, NewLink Group, has already reached net profit breakeven, excluding NaaS. This is significant for the entire company and could help NaaS achieve our business goals in several ways. Firstly, since the other business segments of NewLink Group have reached a net profit breakeven, NaaS could have more financial resources to support business development. Secondly, NewLink Group's online fueling platform has much larger traffic flow, hence when users on our parent group's platform switch from ICE cars to EV, we can enjoy organic traffic conversion. In fact, 70% of our new users are acquired without marketing incentives, with a large portion of this organic traffic coming from our parent group’s conversions. The synergies in the energy transition process between oil and electricity are substantial. Lastly, the business models in other business lines of our parent group, NewLink, are quite similar to NaaS, providing further cost control capabilities through team sharing and rental sharing. This will also greatly accelerate NaaS's profitability, and we are excited to see more synergies in the future.

May I have a follow-up? You mentioned that you would reach breakeven by the end of this year. Can we assume that we are still on this target unchanged to reach this profit breakeven? Could you provide more insights on the cost reduction methods that can help to achieve this goal?

That's a very good follow-up question. We are confident that we will achieve monthly EBIT breakeven by the end of the year and believe we are on the right track to deliver this important result. We published in our Q1 results that we have significantly reduced our expense ratio. I believe Q2 numbers will show an even further reduction, and we should be able to achieve a linear path to EBIT breakeven by the end of the year. Historically, part of our loss resulted from subsidies we provided to charging users during the early stages of our charging service business. Since January 2024, we have managed to maintain a positive net take rate, hence achieving transaction-level profitability. Our energy solutions business will continue to contribute gross profit as it scales while maintaining a stable gross profit margin. For example, our solar business can contribute between 30% to 40% of gross profit margin. If you also look at overhead expenses, they are stable and well-controlled. In Q1, we managed to reduce costs in absolute terms and are becoming increasingly disciplined in controlling expenses and enhancing operational efficiency. All these factors combined—growing gross profits from our business, improving operational leverage, and steady or reduced overhead—should allow us to meet our EBIT breakeven target by the end of the year.

Thank you once again for joining us today. If you have further questions, please feel free to contact us. Thanks.

This concludes the conference call for today. You may disconnect your lines. Thank you.