Regions Financial Q4 2022 Earnings Call Transcript

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April 21, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NAS Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. I must advise you that this conference is being recorded today. I would now like to turn the conference over to your first speaker today, Ms. Cynthia Tan, Senior IR Director.

Operator

Thank you, and please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to NIA's 4th quarter and full year 2022 earnings conference call. The company's results were issued earlier today and are posted online. Joining me today on the call are Ms. Tethi Wang Yang, our Chief Executive Officer and Mr.

Speaker 1

Alex Wu, our President and Chief Financial Officer. For today's agenda, Ms. Wang will provide an overview of industry trends and recent performance 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.

Speaker 1

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 the conference call are in RMB. I will now turn the call over to our CEO, Ms. Kathy Wang Yang.

Speaker 2

Hi. Good morning, everyone. I hope you are great. I'm Casey Wang, the CEO of NAS. It's my pleasure and such an honor to share NAS's full quarter and full year of 2022 earnings results, discuss our recent developments with all of you.

Speaker 2

Firstly, I'd like to discuss with you the long term trend of energy transformation as well the potential for new energy development and the content of the global consensus on carbon neutrality. Elon Musk recently announced a Part 3 of Tesla's master plan, as you may be aware. In a nutshell, this is a plan for fully replaced traditional energy with the new one. The traditional energy face issues of environmental pollution and low efficiency, while new energy offer clear advantage in terms of being clean, environmentally friendly, safe and efficient. The energy transition is an irreversible global trend.

Speaker 2

So developing clean energy, reducing carbon emissions and building a green planet have become the most significant areas of conscience among countries throughout the world, including China, the United States, Europe and the Middle East. EV sales in China reached 6,900,000 units in 2022, accounting for 50% of total global sales. This year, that number is expected to reach 9,000,000. According to CIC, the number of ICE cars in China will be peaking around 2025, while EV sales will continue to grow and the number of EVs surpass ICE cars by 2,036, the total number of cars in China is predicted to exceed 424,000,000 by 2,050 with the number of EVs over 328,000,000. At the same time, the total investment in the supporting EV charging industry will exceed RMB 30,000,000,000 In 2022, China rose to the global leader in terms of the existing number of EV cars.

Speaker 2

EV incremental growth and EV export volume. 2022 was also an important year for NAST. As we complete our NASDAQ listing and strengthened our leadership position in charging service network. In 2022, our charging service network expanded rapidly with a year over year rise in total charging volume of 150%, accounting for 20% of China's total public charging volume. At the end of 2022, we had connected 550,000 chargers in 50,000 charging stations across over 350 cities.

Speaker 2

We take advantage of this strong in recharging network. We expand our one stop service to energy asset operation providing end to end one stop solutions covering the whole cycle of charging station construction, operation and upgrading, serving enterprise throughout the new energy value chain. Looking ahead as the leading player in the world's largest EUV market, We aim to seize the historical opportunities of energy transformation by leveraging our unique business model and industry opposition and the commitment to working together with partners to promote carbon emission reduction in transportation and have achieved a goal of carbon picking and neutrality. 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.

Speaker 3

Thank you, Cassie. Hello, everyone, and thank you for joining our call today. Our strong performance in the 4th quarter capped off a year of rapid growth for NAS. Riding on the tailwinds of the explosive EV market, we continued to solidify our leadership across our charging service network and significantly scaled our client base for our wind stop charging solutions, nearly doubling our net revenues year over year in the Q4. To effectively address the industry's pain points, NAS offers 1 stop services, including online and offline charging solutions and other innovative businesses for charging stations, auto OEMs and other enterprises across the new energy value chain.

Speaker 3

Thanks to strong customer endorsement of our 1 stop EV charging solutions, our net revenues increased by 177% year over year in the full year of 2023 2022 to RMB92.8 million. Online charging services are the cornerstone of our business. Our high quality services aided by network effects have driven our rapid market share expansion in the EV charging service industry. In 2022, gross transaction value through NAS Network reached RMB2.7 billion, representing an increase of 119% year over year, with net take rate expanded by 3.74 bps. Building on the foundation of our EV charging network, we focused on expanding our services to provide 1 stop EV charging solutions, which cover each stage of our transportation's lifecycle.

Speaker 3

These range from construction to operation and upgrades, and they will be our growth engine and source of profitability going forward. Since 2022, we have made significant strides in our business across these stages, gathering recognition from an increasing number of customers with offline EV charging solutions contributing 44% of our revenue in 2022. In the construction stage, we leveraged our big data backed industry insights, operational expertise and strong execution to offer site selection, hardware and software procurement and EPC turnkey construction solutions. As one of our ongoing projects, we provide 1 stop EPC turnkey service to build charging stations in Wuhan. Commencing operation on March 26, 2023, our first charging station is equipped with 6 60 DC fast chargers for a total installed capacity of 3,600 kilowatts and a total CapEx of over RMB5 1,000,000.

Speaker 3

From completion onwards, we provide operation and maintenance solutions to help clients reduce their operating costs and further improve efficiency and profitability, while simultaneously increasing our recurring revenue. In operating stage, we digitalize and upgrade key aspects of our charging stations operation and management, Working in concert with our capable offline services team, the online intelligent operation and the maintenance system we build for our charging stations responds to users' operation and maintenance needs, improving our charging stations' repair and maintenance efficiency. Our product offerings not only boost our customers' service quality and operational efficiency, but they also help our customers stand out among local competitors. We are currently providing maintenance services for over 15,000 parking lots at 2,100 charging stations in 186 cities. In the upgrade stage, we helped charging stations deploy energy storage upgrades.

Speaker 3

In January of this year, we partnered with Hyperstrong, a leading energy storage system integrator and system service provider to establish a joint venture focusing on energy storage. Meanwhile, we plan to launch our virtual power plant platform by mid-twenty 23 to facilitate the establishment of a modern energy system for charging stations. Our virtual power plant platform can promote energy efficiency and optimization, participate in the power trading market and provide various supporting services such as peak shaving and valid feeding of the broader power grid to achieve smart power dispatch. Altogether, these efforts have facilitated the construction of a modern energy system. Thanks to its effectiveness in addressing the industry's pain points and improving ROI, has attracted a growing roster of leading enterprises to establish strategic partnerships with us.

Speaker 3

The most recent example is Smart Charging, a joint venture we established in March 2023 with SmartOrder, an Internet platform in the lodging industry. We are jointly building a shared destination charging service network for EVs to address drivers' last mile charging problems during road trips. With respect to R and D, in March, we launched our self developed automatic charging robot Empowered by technologies including deep learning, 5 gs and V2X, SLAM, perception and regulation, our robots can connect with the underlying APIs of major OEMs, thus automatically opening the charging cover, accurately detecting the position of the charging port and automatically moving the charger in and out through the auto charging system of a mechanical arm. This smart and unmanned charging service can be easily deployed in parking lots without charging facilities at this time and will provide unmanned replenishment service for autonomous driving in the future. We have also started to explore overseas market by establishing our Asian Pacific and European headquarters in Singapore and Amsterdam respectively.

Speaker 3

We're delighted to have Allen Dong on our team as the General Manager for our European and Middle Eastern operations. Having worked for XPON and ABB previously, with over a decade of experience in EVs adding charging infrastructure in particular, I believe Allen's deep insights and passion for the EV industry will provide a strong boost to our development in overseas market. On top of the comprehensive progress we have made in our business, we continue to actively fulfill our social responsibilities. In 2022, we released our first ESG report, which showcased our data and achievements in 4 areas: low carbon operation, active innovation, employee care and public well-being. In 2022, we achieved a carbon emission reduction of about 1,850,000 tons, up 106% year over year.

Speaker 3

Next, I will go over some of our financial results for the Q4. I will address financial highlights here and encourage you to refer to our earnings press release, which is posted online for additional details. Our total net revenues reached RMB29.5 million in the 4th quarter, up 95% year over year. The rapid increase was mainly the result platform order volumes and continued improvements in operations. Our total operating costs were RMB151.1 million in the 4th quarter.

Speaker 3

This was primarily due to our significant business expansion. Our net loss for the Q4 of 2022 was RMB126.9 million as compared with a net loss of RMB57.2 million for the same period of 2021. Turning to guidance for full year 2023. We expect our net revenues to be in the range of RMB 500,000,000 RMB600,000,000 growing by 5x to 6x from 2022. This forecast considers the company's current and preliminary view on the business situation and the market conditions, which are subject to change.

Speaker 3

Looking ahead, as Cathy mentioned, we are very bullish about the EV Energy Service market. We continue to gear for strong growth through our 1 stop EV charging solutions and continue to take a disciplined approach to cost management, prioritize investment initiatives that deliver healthy ROIs and drive efficiency gains across our organization. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

Operator

Thank Panimi Yuzhen, your line is now live. Please go ahead.

Speaker 2

Sorry, sorry. Yes, yes. Maybe you can hear me now. And this is Yi Chen from CICC. First, congratulations for the great performance in the last year.

Speaker 2

And I have two questions for our future development. The first one is about the offline EV charger solutions. And we are curious about the guidance of the offline business. In other words, what do you think of the revenue growth of offline business in this year and next year? Besides, we all know that there are several different parts in the offline business.

Speaker 2

So which 1 or 2 or 3 parts do you think would support this growth? This is the first question. And my second question is about the even charging robot. Even charging robot is a very popular topic recently in China. And we think that we launched the last smart charging robots a week ago.

Speaker 2

So what do you think of the application scenario and market space of this new product? You mentioned it's just now that we need more details. And this is my 2 questions. Thank you.

Speaker 3

Okay. Thank you, Yi Chen, for your questions. Let me address them 1 by 1. So your first question about the offline business growth. I think let me reiterate what are some of the services that we provide to our customers in the offline space.

Speaker 3

We provide the one stop turnkey solutions to charging stations across the lifecycle of a charging station in 3 stages: initial building, operating and upgrading stage. In initial building stage, we provide support for big data backed site selection, hardware and software procurement and EPC, which is design and construction of the size. In the operating stage, we provide services like user acquisition, operation maintenance and non charging services such as fast food and auto vendor machine. In upgrading stage, we helped our customers build technological upgrades, including energy storage, solar PV, virtual power plant and electricity trading. So these are the list of services that we provide to our customers.

Speaker 3

During the course of 2023 and 2024, of course, we will continue to build our capabilities and help our customers establish these key capabilities through our services. All of those services have pretty high ceiling in terms of the amount of services we can provide to them. Specifically, I think for operations like user acquisition, hardware and software procurement, EPC, operation and maintenance and definitely energy storage. These are the things that we can help our customers in the short to mid term. And I can see that we will be able to make a decent amount of revenue from these services.

Speaker 3

And these revenues will support our growth for this year and next year. And I think as the China's growth potential for charging station building and charging station operation continues to expand, we'll have a lot of opportunities in these 2 years to deliver. And currently, we already have quite a lot of projects either running or in pipeline for us to acquire. So that's the answer for the first question. For your second question regarding charging robots, thanks a lot for the interest.

Speaker 3

Since we released the charging robots about a couple of weeks ago, we've received quite a lot of interest from all over the world really in Australia, Japan and Middle East. The current charging robot that we've shown in the video is a prototype, which we plan to commercialize in the next 3 to 4 months as a fully commercialized product. Currently, what we plan to do is continue to expand the battery capacity of the Chinese robot. In terms of use cases, I think there are 2 types of use cases. In the near term, the use case will be specific to the enclosed areas like charging parts, commercial properties and parts, industrial parts, So those areas that have a closed area that can serve a listed number of vehicles or parking lots.

Speaker 3

In the long term, I think the charging robot is an excellent option for autonomous driving. We believe in the future autonomous driving is clearly the trend. And when you have autonomous driving, we will need to have automated charging. So the 2 key functions of the charging robot are 1, that is capable to connect to all kinds of APIs from different OEMs because those OEMs are already using our APIs to locate the charging service. So we've had the connections already.

Speaker 3

That's number 1. And number 2 is the charging robot has state of the art technologies to help detect and plug in the charging gun into the vehicle, which is a technological challenge. But we managed to do both nicely. So I think the technology really empowers us to go for the autonomous driving in the future where for autonomous driving we'll have automated charging. So those are the 2 use cases I see, 1 in short term, 1 in long term.

Speaker 3

But for the next step, what we'll do is we will test these charging robots areas that people have shown interest. We will prepare the charging robot to be commercially used in some of those scenarios. Thank you.

Operator

Thank you. The next question is from Eugene Haire from Macquarie Capital. Please go

Speaker 4

ahead. Hi, this is Eugene Hsieh from Macquarie. Kathy, Alex, appreciate your time to answer our questions. I have 2 questions. First, I'd like to understand a bit more about how we think about the current and future profitability differences between the 2 major business segments on the online EV charging platform and then the offline EV charging services and how you think that develops over the next few years?

Speaker 3

Okay. Thanks, Yuqing. Let me address this question. I think we have a clear path to profitability on both online and offline EV charging solutions, but the path will be different for apparently different businesses. For online charging platform, I think let's talk about the current performance first.

Speaker 3

NTR has been continuously improving for the past couple of quarters. The NTR improvement has been improved by about 3.74 bps in 2022 and we can see the trend continues in Q1 2023. The way to see the online charging business is in a way pretty simple, right? So we have 2 sets of customers. The first set of customers is the operating vehicles.

Speaker 3

The second set of customers is a private vehicles or private cars. The operating vehicles are cost sensitive or price sensitive, but they obviously provide quite a lot of charging volume. The private vehicles are not price sensitive, but they charge less often, right? So the easy way to think about it is the operating vehicles are what we called the VIPs. So their charging effectively doesn't make money, but their VIP contributes to our royalty fee.

Speaker 3

The private vehicles, their charging actually makes money. We make a take rate from the private vehicles. So currently as the number of EVs grow on a pretty significant number year over year as Kelsey introduced before, we believe the percentage in the mix of EVs will add to private vehicles in the future, currently and in the future. So when we have the mixture of those two type of vehicles change towards private vehicles, we will have higher and higher NTRs and eventually we'll be able to break even and start making a profit. So I think we've already seen the clear trend from a quarter to quarter comparison and a year over year comparison and we believe the trend will continue.

Speaker 3

So from the online perspective, what we need to do is to continue doing our job properly and improve our operation efficiency and at the same time ensure we have we can keep and grow our percentage in the market. So that's for the online solutions. For the offline solutions, I think it's pretty straightforward in a way because these are all the B2B type of services and we make positive gross margin for all of our services in the 3 stages that we provide. So for the offline solutions, think naturally we will be able to make money. Currently, we're in the expansion stage where we need to build the infrastructure, the technology, the teams to deliver the significant growth.

Speaker 3

But the business itself in the offline sub solution area is profitable. Thank you, Jim.

Speaker 4

Great. Thanks. And one more question from me. You mentioned on the prepared remarks that you've hired Alan and then you've also opened offices in Singapore and Europe, looking at the Middle East. Could you give a little bit more color on, I guess, the any overseas expansion plans and maybe some timing on when you think that would actually pan out?

Speaker 3

Sure. Thanks, Yuijing. And this is a great and important initiative for us. So we are a NASDAQ listed company and we always see ourselves as a global company. We don't really see ourselves as a China based company only.

Speaker 3

We see ourselves as a global company. So ever since our listing, we have started our overseas expansion plan. We've done some homework really and we compared notes of the experience that people like Allen has in European market with the ecosystem of China EV charging market. And we find striking similarities between the two markets, right? And that gives us a confidence that for mature markets, the ecosystem tends to be similar, although in some cases people call them different names of different layers, but they tend to be very similar.

Speaker 3

So what we believe now is the charging ecosystem in China is the most advanced and the most mature and we should be able to replicate some of the best practices that we've accumulated in China over the years to other less developed markets in terms of EV charging. So that's really our strategy to start with. What we've currently done is we've marked down 3 key regions, Europe, Middle East and Asia Pacific. We obviously will use different type of strategies to deal with those 3 different type of markets. Alan is our General Manager for Middle East and Europe.

Speaker 3

For Europe, which is a mature market, we plan to look at a potential M and A strategy, which will help us acquire the brand network in Europe because it's a mature market. In the Middle East, we plan to work with some of the local governments to look at how can we help the countries build their charging network. Middle East is a very unique market. To be successful in the Middle East, we will have to work with local ecosystem. So that's exactly what we are doing in the Middle East.

Speaker 3

In Southeast Asia and in Japan, we're working with some of the energy companies to look at how can we leverage their existing network in the energy supply system to build the charging network, which we believe is probably the one the strategy that we can use with the most leverage. So we are changing some of those energy companies and we believe we'll be able to see some of the results in this year. So we are chasing all different type of opportunities And I think for this year, what we can do is we'll clearly establish our existence in the overseas market and we'll be able to land 1 or 2 major projects. That's what we plan to achieve this year. Thank you.

Speaker 4

Great. Thanks so much for that. If you don't mind, just one more. I'm interested in understanding a bit more about the relationship with parent company with NewLink and then where you feel that there could be some synergies there?

Speaker 3

Sure. Thanks, Yi Jin, for that question. So the parent company is called NewLink Group. NewLink Group is an energy digitalization and energy asset operation company and it's China's largest energy digital service company. Currently serves 300,000,000 users through its digital app and covers 25,000 gas stations in China.

Speaker 3

So there are a couple of synergies that we can clearly see. The first is from customer perspective, NewLink digital app called Tuanylo has 300,000,000 registered users. So these users are gradually these users are drivers of ICE vehicles and they're gradually migrating to EVs. We have done an analysis between for the people that are currently in our EV service, there have been about 70% use overlap. So I believe those 300,000,000 drivers or 300,000,000 users are effectively a very good user conversion pipeline for our online solutions.

Speaker 3

The second point is in terms of the gas stations, so Yealink Group covers about 25,000 gas stations. And a lot of those gas stations owners are either already doing the Chinese station business or are seriously considering the Chinese station business. We have done a survey about 30 percent of the gas station owners are interested to construct a charging station. So those are the people that have land and resources in the local network and they need help to support them to build a charging station from an expertise perspective and we have existing relationship with them. So these are the good candidates for us to convert from a station pipeline perspective.

Speaker 3

And obviously, in terms of our local network, NewLink Group has got an established local network in many, many cities in China because it has a very successful and very big fueling business. So the same local network can be leveraged for the charging and for the charging station management business, right? As a matter of fact, they're already helping us in terms of the maintenance and service business that I just mentioned because the maintenance service business has already managed about 15,000 parking lots across 168 cities. So the local network of NewLink also tends to be quite helpful in terms of the synergy. Thank you.

Speaker 4

Great. Thanks so much, Alex.

Operator

Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Speaker 1

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

Operator

Thank you. That does conclude the conference call. You may now disconnect your line. Thank you.

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Regions Financial Q4 2022
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