CBAK Energy Technology Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Seaback Energy Technologies Third Quarter 2023 Earnings Conference Call. Currently, all participants are in a 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.

Operator

If you have any objections, you may disconnect at this time. Now, I will turn the call over to Thierry Li, CFO and Secretary of the Board. Mr. Li, please proceed.

Speaker 1

Thank you, operator, and hello, everyone. Welcome to Seebec Energy's Q3 of 2023 Earnings Conference Call. Joining us today are Mr. Yvesaidi, Chief Executive Officer of Seebec Energy myself, Chief Financial Officer and Secretariat of the Board and Jennifer, our interpreter. Our General Engineer, Mr.

Speaker 1

Xu Juntian, will join us for the Q and A section. We released our results earlier today. The press release is available on the company's IR website at ir.cbac.com.cn 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.

Speaker 1

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.

Speaker 1

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.

Speaker 1

Jun Fei Li. Mr. Li will speak in Chinese and I will translate his comments into English. Go ahead, Mr. Li.

Speaker 1

Thank you and hello everyone. Thank you for joining our earnings conference call today. We are delighted to achieve another outstanding quarter of growth in our battery business. In the Q3 of 2023, our battery business generated revenues of 44,330,000 dollars soaring by 71.51 percent year over year. Compared to the operating loss recorded in the same period last year, during this quarter, we delivered an operating income of CNY7.58 million and a net income of CNY7.77 million, dollars which was 6.3 times that of the same period last year.

Speaker 1

Of these revenues, $42,81,000,000 came from batteries used in energy storage applications, a surge of 73.5 percent year over year, while $400,000 came from batteries used in electric vehicles, an increase of 19.5 times year over year. Moreover, revenues from batteries used in light electric vehicles were $1,111,000 down 2.8% year over year. For the 1st 9 months of 2023, our battery business generated revenues of 96,160,000, dollars an increase of 44.43 percent year over year, while delivering an operating income of 6,150,000 along with a net income of CNY 6,750,000. The growth across our financial metrics was primarily attributed to our strong foundation of key clients, particularly high value clients from Europe and the U. S.

Speaker 1

Orders from these clients have demonstrated exceptional stability and sustainability. We are confident in sustaining robust performance and profit growth in the upcoming reporting periods. Today, the market still faces various external pressures and challenges, including the global economy slowdown. We are proud to stand out as one of the few Chinese battery manufacturers achieving rapid growth and profitability amidst the current macroeconomic environment. Our remarkable performance has garnered substantial interest from private equity investors who have reached out to us regarding our latest developments.

Speaker 1

Let me share a more detailed update on our business initiatives during the Q3. With our increased visibility and enhanced reputation worldwide, our order volume continue to rise. As of November 1, 2023, we have recorded approximately RMB900 1,000,000 in the combined value of orders we have received but have yet to fulfill across our 2 main base reproduction facilities based in Dalian and Nanjing. Currently, orders for the Dalian facility have been scheduled toward the end of 2024 and our Nanjing facility is also overwhelmed. Incoming orders from new clients will be subject to further scheduling.

Speaker 1

In other words, both our revenue and profitability will maintain robust growth momentum over an extended horizon. Regarding client initiatives already announced, as of November 1, 2023, our collaboration with Power OAK, the world's leading portable power station manufacturer and parent company of top rated portable power supply brand, BlueTTI, has provided us with orders totaling around RMB 43,200,000. We also made great strides in our partnership with Jinko Group, the largest manufacturer of scooters and electric tricycles worldwide, generating orders amounting to roughly RMB53.59 million. In addition, I want to highlight our continued initiatives with Viussmann Group, a leading European manufacturer of heating and cooling systems. Our productive collaboration has translated into orders totaling up to €116,500,000 from the beginning of 2023 to November 1.

Speaker 1

Another major partner of ours is Anker Innovations, one of the largest third party accessory suppliers globally for Apple Incorporated's products. Following our sign in September, we have received orders from Anchor Innovations amounting to RMB 58,350,000. It is understood that anchor innovations will spur significant demand from our bakeries and is expected to place monthly orders on a continued basis. Furthermore, I want to highlight the fact that we have been in deep discussions regarding various corporations, including providing product samples with several major customers from Europe and the U. S.

Speaker 1

We will keep our investors informed of any significant updates. With a focus on meeting client plans, we scale up our investment in production capacity and R and D. In the Q3 of 2023, both our Dalian and Nanjing facilities have reached a production capacity of 1 gigawatt hour. Our subsidiary, Redundant, CBK Power is currently engaged in the development of Model 46115 and Model 4615, 7 lead DM batteries, which are new to the market and larger than the current market favorite Model 46,000. With higher energy density and an extended lifespan, these new models are ideal for large scale energy storage scenarios.

Speaker 1

Our R and D team is diligently driving these initiatives forward, and we expect to have the capacity to mass produce the Model 46115 batteries next year. In the long term plan, we will expand the production capacity for the Series 46 batteries to 15 gigawatt hours at the Dalian facility, achieving further supply ramp up. In the meantime, the construction of our Nanjing Phase 2 project has been in full swing. The factory roof has been completed, which enables 6 gigawatt hours of production capacity in the first stage. And we expect this production capability to be delivered fully equipped and operational soon.

Speaker 1

Hence, I wish to highlight that we will have greater overall capacity next year to address the current overwhelming client demand. We will elevate our production efficiency and further propel top line growth. Finally and importantly, let me walk you through our mass production of sodium ion batteries. As the only company in China capable of mass producing sodium ion batteries, we have engaged in extensive discussions with multiple investors on building a sodium ion battery plant. In the near future, we expect to finalize a substantial amount of private equity financing to expedite the development of our sodium ion battery plant with a target production capacity of 10 gigawatt hours.

Speaker 1

With the accelerated industrial adoption of sodium ion batteries, we believe it will become a pivotal focus across various subsectors such as electric scooters, low speed vehicles, energy storage power stations and household energy storage solutions. Looking ahead, the company will be empowered by a twin engine growth model, an impressive 36 gigawatt hour production capacity of lithium batteries and the remarkable 10 gigawatt hour production capacity of sodium ion batteries. We look forward to collaborating with our investors and partners to advance the evolution of the new energy sector and environmental protection technologies. Now let me turn the call over to our SFO, Mr. Li, who will provide details on our financial performance.

Speaker 1

Thank you, Mr. Li, and thank you, everyone, for joining our call today. I will now go over our key financial results for the Q3 of 2023. For the full details of our financial results, please refer to our earnings press release. As the Baycury business returned to year over year growth in the Q3, we also recorded ongoing improvements in gross margin and operating profit margin.

Speaker 1

This was underpinned by a sharp increase in the contribution of our higher margin battery business and a reduction in the cost of revenues as we further leverage our technology to improve production efficiency. Alongside a growing number of orders for our battery products, we will continue to find the right balance between growth and profitability, while investing in R and D and production capacity expansion to enhance our sustainable long term competitiveness. Turning to our financial performance. Our net revenue for the Q3 was RMB63.4 million, representing an increase of 9.9% compared to RMB57.7 million in the same period of 2022. This increase was primarily attributable to the growth in the company's battery business.

Speaker 1

In addition, our net revenue from batteries in the 3rd quarter was 44,300,000 representing a strong growth of 71.5 percent from the same period in 2022. Our gross margin for the Baytree business in the 3rd quarter was 26.4%, an increase of 17.7 percentage points from 8.7% in the same period of 2022. The cost of revenues in the Q3 was CNY 51,200,000 representing a decrease of 5.7 percent from $54,300,000 in the same period of 2022. The decrease in the cost of revenues corresponds to the company's higher gross profit from the battery segment. Gross profit in the 3rd quarter was $12,200,000 representing an increase of 2.54% from $3,500,000 in the same period of 2022.

Speaker 1

Gross margin in the Q3 was 19.3% compared to 6% in the same period of 2022. Our total operating expenses in the 3rd quarter rose by 40.8% to 7,000,000 dollars Within that, our research and development expenses increased by 8.1 percent to 2,600,000 dollars in the Q3. Sales and marketing expenses increased by 33.8% to $1,100,000 in the 3rd quarter. General and administration expenses increased by 73.7 percent to 3,200,000 dollars Our operating income in the 3rd quarter amounted to $5,300,000 compared to an operating loss of $1,500,000 in the same period of 2022. The change in the fair value of our warrants in the 3rd quarter was 0 point $2,000,000 compared to $94,000,000 in the same period of 2022.

Speaker 1

As a result, net income attributable to shareholders of CBIC Energy in the 3rd quarter was BRL6.3 million compared to net loss attributable to shareholders of CBIC Energy of 290 in the period of 2022. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Thank

Operator

Our first question comes from Brian Lantier with Zacks Small Cap Research. You may proceed.

Speaker 2

Good afternoon, gentlemen. Really impressive performance in light of a challenging operating environment. If I could drill down a little bit more on the power in the uninterruptible power business. Do you feel like that was principally in the Q3 driven by new customer wins or higher volumes with your existing customer base? And it sounds like going forward, some of the new customers are going to contribute a larger portion of that growth.

Speaker 2

Then I'll follow-up with another question after that.

Speaker 3

Okay. So in response to your first question, yes, indeed, the growth in our 3rd quarter, partly due to existing customers that we have. For example, our customers value and Nanjing have substantially increased their orders, and that also could lead to the growth of our sales volume. And besides that, we also have developed some new customers who also contribute to the growth of our sales. So this is the situation that you can see in the Q3.

Speaker 3

And because that, for example, for our model 32,140, we have already passed the certification. So in terms of our production, we have started from a small lot production and gradually transformed into a big show mass production. And we also believe that this will contribute to our further sales growth. And in the meantime, we are also expanding our production lines as well as our production capacity for the II VI Series products. So we also believe that this will bring in more sales volumes in the future.

Speaker 2

Great. Thank you so much for all of that. And could I if I could just ask a question about the raw material business. I know in the past there's been some interest from outside investors. Is that something you're still exploring?

Speaker 2

Or I guess just an overall general update on the raw material business and where that stands today?

Speaker 1

Okay. Brian, I will respond to your questions. As you can see, the industry, the raw material industry is experiencing a slowdown. Almost all the raw material producers are suffering decline in sales volume, same as highs to Hytrends, our raw material unit. But Hytrends actually has a very, very decent and good client structure.

Speaker 1

Subsidiary rates from CATL is also their clients. So we believe that once the industry recovers, HiTrans will improve their financial performance shortly. And moreover, we didn't actually integrate HiTran's business into our bakery business. We act only as a financial investors. Their team is completely independent from our team.

Speaker 1

That's why in our Form 10 Q and in our press release, we always separate the financial performance from Hytrend's from our Baytree business. That's much more reasonable. So as you can say as you just say, there are a lot of investors getting interested in HiTrans and we believe that once the industry recovers, they will be good. So we encourage a lot of the private equity investor. We will also refer a lot of private equity investors to Hytrends for the purpose of funding them to expand their capacity and also to see if we will be able to get a good deal from with those investors.

Speaker 2

Great. Thank you so much.

Operator

Thank you. Our next question comes from Fei Ko Wu with TPG. You may proceed.

Speaker 3

Okay. So I would like to pose a question concerning the Serbian Iron Factory. I'd like to know, you just in your speech, you mentioned that you have been engaged in the preparation and the construction of sodium ion battery. I'd like to know if you can give us more update about the technology of that the company has with the sodium ion battery. If we talk about the project investment in implementation stage, at what stage is this project getting progress?

Speaker 3

Could you give me also another update? Okay. So in response to your first question, well, for sodium ion battery, in June this year, we released the 1st sodium ion battery products. And this is we can say that in China, we are the 1st company to realize the mass production of sodium ion battery. And although in the market, some of the competitors also announced that they are doing the research or production of these sodium ion battery products.

Speaker 3

However, we are the company that really can realize a mass production. And this year, we also achieved the installation of this sodium ion battery in the vehicle and the effect turned out to be really satisfactory. And for our battery products, it can realize 2,000 to even more than 3,000 rounds. So we can say we have already have a stable product system in place. And talking about the production line perception, well, we can say our company and our products is very popular.

Speaker 3

In the markets, there were some other competitors, However, for However, for us, for our company, CEVAX have managed to come up with a product with 0.5 gigawatts and the production capacity will be expanded in the future. So at present, 4 partners have approached us and we are trying to select 1 place. What we can say for local governments have approached this, we are trying to select one place for the construction of the production line, and we are trying to select the best from the core. And then in the next year, we are even going to expand our production capacity to be as high as 10 gigawatts. And in that case, it will put us in a better position to cater to the demand of our customers.

Speaker 3

And in your introduction, you mentioned that CEBEC has become a business partner of Anchor Innovation. And I'd like to know how big the order volume of Anchor will be? And can you also share with us your expectation for your partnership with anchor? So at present, Encore has already finished the opening of models here with our factory. 7 to 8 products of Anker will use our battery.

Speaker 3

And actually, they started their pilot production here and the results turned out to be great. That is why they decided to export the products to Europe and Japan and India. And we already have been in-depth communication with Anchor talking about future cooperation and talking about deepen our future cooperation. And besides that, if we have a look at the expectation for the order volume, at present, it's about 500,000 items with order value of about RMB 20,000,000. And in the future, it will be increased to it is expected to be increased to RMB800,000 to 1,200,000 items and that is within order value of about RMB40 1,000,000.

Operator

Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Yuan Fei Li for closing remarks.

Speaker 1

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

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

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