NaaS Technology Q1 2023 Earnings Call Transcript

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June 16, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NAS First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. I must advise you that this conference is being recorded. 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 Nars' Q1 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.

Speaker 1

Alex Lu, 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.

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

Speaker 1

Kathy, please go ahead.

Speaker 2

Hello, everyone. I'm Naa's CEO, Kathy Wang. It's my pleasure to share Naa's Q1 2023 earnings results with all of you and to discuss our recent developments. We just celebrated the 1 year anniversary of Nas going public. 1st and foremost, I'd like to express my heartfelt gratitude to the entire team of Nars.

Speaker 2

The hard work and dedication of our team members combined with our significant 1st mover advantage empower us to lead the EV charging service industry both domestically and globally and propel the world's 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 steadfastly executed and will continue to pursue. The worldwide consensus on green 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 the steel carbon goals announced in 2020. China has made remarkable progress in the transforming its energy supply into a diversified and integrated clean energy system.

Speaker 2

According to IEA report, in 2022, almost 30% of global emissions reductions came from the electrification of passenger costs in China. Regarding to CIC, China's n e way installed base will grow from $30,100,000 in 2022 to $145,000,000 by 2030. And the total public charging capacity will increase from 30,700,000,000 kilowatt hour to 3 137,900,000,000 kilowatt hour, growing by 11 times and 25 times with productivity. Even more extensively, as the installed base of smart electric vehicles, smart homes and intermittent renewable energy growth, the power grid is becoming increasingly decentralized with rising digitalization, distributed sources of energy, coupled with big data analysis and AI technology are capitalizing the change from the conventional unidirectional flow of energy in the power grid to bi directional, creating tremendous opportunities for integration. Meanwhile, the rapid development of new energy sources also presents higher requirements for the stability, consumption capacity and the scheduling capacities of the power system.

Speaker 2

We are fortunate to be a part of this vibrant field and lead its development. On June 13, we launched our virtual power plant platform. This platform seamlessly integrates lots of charging stations, chargers and the millions of EV users nationwide into the power system by leveraging its connectivity and aggregation capabilities. While acting as a dispatch hub, the virtual power plant platform enables efficient matching of power supply and demand, fastening a more sustainable IoT ecosystem for new energy. Furthermore, we continue to invest in research and development to enhance our digital operational capacities.

Speaker 2

Our NAS Research Institute team has developed the digital energy asset Management System, TIMSS. Using adaptation models and deepening AI algorithms, Teams enables load forecasting and operational strategy, optimization, biophotovolitic power and storage facilities and the charging stations, improving our operations and maximizing revenue. Currently, the NAS Research Institute team has submitted over 20 patent applications for this system. We expect to deploy DIMS in our operations in the second half 3. Recently, we have also signed an agreement to acquire over 89% stake in Singapore, a leading solar energy project developer in Hong Kong, making our strategic entry into Hong Kong's distributed solar energy sector.

Speaker 2

According to a report by the Electrical and Mechanical Services Department is actively to that China Hong Kong's East Edge and Commercial Industrial Looftop Solar Engine market will expand to 875 Megawatts by 2026, indicating what market potential. Additionally, with the rapid development of EUV in Hong Kong, there will be a substantial increase in demand for charger operation services. This acquisition also holds significant importance for our global business expansion as Viall 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 FPO transaction on May 31, 2023. This transaction garnered significant interest from notable investors, including Doctor.

Speaker 2

Andrew Zhong, 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 validates our leading position and our promising future in the new energy charging service sector. Looking forward, we will remain focused on expanding our charging networks, refining our one stop solutions and broadening our customer base through win win relationships. We will also continue to innovating and driving 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.

Speaker 2

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, Casey. Hello, everyone, and thank you for joining our call today. In the Q1 of 2023, we delivered solid performance amid a rapidly evolving business environment and solidified our leadership in the 3rd party charging service market. In the Q1, our revenues saw a 2.5 fold growth year over year to reach RMB 36,200,000, driven by our progress in expanding our network and optimizing our user experience across the construction, operating 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 10 23 gigawatt hour.

Speaker 3

This accounted for 21% of all charging volume completed through public charges in China during the same period. Additionally, the gross transaction value transacted through our network amounted to RMB990,500,000 in the Q1 of 2023, representing an increase of 107% year over year. At the same time, our total number of orders surged by 110% from 21,200,000 in the Q1 of 2020 2 to $44,400,000 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. Benefiting from greater operating leverage, our net loss margin in the Q1 declined by 383 percentage points year over year. While expanding our charging network, we are committed to providing a full suite of 1 stops EV charging solutions for station owners to address their key pain points and at the same time enhancing our customer stickiness and create additional revenue streams.

Speaker 3

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 Europe market to complement our 1 stop charging solution. These include our AC wall box for EV charging at home and DC charging products for fast charging, both boosting high quality, high cost effectiveness, innovative features and meets the required safety standards. Let me now move to our advancements in technological infrastructure. These advancements provide insights to our strategy and operations, thus promote a more efficient digitalized and integrated energy system.

Speaker 3

First, we developed an AI driven digital energy asset management system or DIMMs. It leverages charging order, traffic, economic data and other points 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 connectivity services for station owners in customer acquisition and operational processes. It also allows us to augment our charging station construction services, operation services and maintenance services with one click evaluation 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 improvement of the overall charging market.

Speaker 3

In addition, teams 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 and benefiting, ultimately improving their overall efficiency and profitability when investment decisions are being made. As Kathy mentioned, we look forward to deploying Deans 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 using scenarios and a benchmark for the large scale implementation of virtual power plants.

Speaker 3

This platform efficiently aggregates distributed energy resources such as EVs, 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 cost. 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 out 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 Final Power HK, a leading rooftop solar energy developer in Hong Kong.

Speaker 3

Out of the 60 megawatts installed solar capacity in Hong Kong, 25 megawatts have been built by Sinopower with a reputable client base, including Hong Kong Jockey Club and Hong Kong Exchange. It has sourced and executed more than 600 projects since 2018, leveraging its strength in project sourcing, patented solar energy related technologies and partnership with key industry stakeholders. Dyno Power is a strong strategic fit for us. Through this transaction, we will enter the distributed solar PV sector in Hong Kong, establish a strong integration with Sinopower in areas such as technology, product, capital and markets and significantly enhance the execution and returns of solar projects. Separately, becoming part of our platform will help accelerate Sinopower's venture into EV charging business.

Speaker 3

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 Q1 of 2023. In keeping with our protocols, I will address our financial highlights here and encourage you to refer to our earnings press release posted online for additional details. Our total revenues reached RMB36,200,000 in the first quarter, up 150% year over year.

Speaker 3

The rapid increase was mainly the result of increases in platform order volumes and continued improvements in our operations. Our total operating costs were RMB149.8 million in the first quarter, rising by 37%. This was primarily due to our significant business expansion. Our net loss for the Q1 of 2023 was RMB109.7 million as compared with a net loss of RMB99.3 million for the same period of 2022. Based on the company's current and preliminary view of our business situation and the market conditions, which are subject to change, we are reaffirming our guidance that full year 2023 revenues will be in the range of RMB 500,000,000 and RMB 600,000,000 increasing by 5 to 6 times from 2022.

Speaker 3

To summarize, in the Q1, we continued to cement our leadership position in the EV charging network, while innovating and making technological advancements. Going forward, we will further expand our competitive position in the 3rd party charging services market, while strengthening our virtual power plant platform and nurturing a clean, efficient and the 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.

Speaker 3

Thank

Operator

Your first question comes from Megan Jin with Macquarie. Please go ahead.

Speaker 1

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

Speaker 3

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 a super strong 32% market share in that particular market, and we believe it's a clear leader in that space. We can obviously work with Sinon Power to further strengthen its capability in that space.

Speaker 3

That can be underpinned by the policy of Hong Kong to strengthen the PV solar panel industry. Separately, we will also work with Sinopower to expand its capability globally. As we shared in our previous earnings calls, NASS has plans to expand in 3 major markets, including Europe, Middle East and Southeast Asia. We believe, Sino Power's capability can be expanded and replicated in other markets. So once we finish the closing of the transaction, we work very closely with the founder and management of Sinopower to leverage that capability.

Speaker 3

And finally, from a charging perspective, which is the core capability of NAS, we're also working with Sinopower to build and expand our capability in Hong Kong, especially with the charging solutions in estate, living estate. Sinopower has proved that it has the capability to work with the estate owners to build solar solutions. We'll work with Sinopower to expand those capabilities into charging solutions in the estate. So we are very excited with this acquisition and we look forward to work with the Sino Power Management team.

Operator

Your next question comes from Yi Jin Du with CICC. Please go ahead.

Speaker 4

Hi, this is Jun from CICC. First of all, congratulations for our great performance in the Q1. And I have two questions about our business. The first one is about the online charging service. So what do you think of the future change of charging service fee?

Speaker 4

Do you think the charging service fee will continue to decrease? This is the first question. And the second one is about our energy storage business. As we all know, Nas launched a series of energy storage products with ZYN. So just share with us your focus for LNG storage business.

Speaker 4

This is my 2 questions. Thank you.

Speaker 3

Thank you, Yi Chen. Thanks for your question. Let me answer this 1 by 1. So from a charging service perspective, obviously, I don't have the crystal ball in terms of giving the forecast for future charging service fee change. I think what we've seen now is there has been a sort of diverse trend of service fee.

Speaker 3

We have seen, for example, nationwide, the average service fee per kilowatt hour has been hovering around $0.40 to $0.50 per kilowatt hour, right? But if you sort of look closer, there would be quite a lot of diversity in terms of the service fee. For example, in some stations in Beijing and Shanghai, the service fee per kilowatt hour could reach $0.80 during the busy hour. So what I believe is, ultimately, the service fee is a result of demand and supply. I think with the adoption of EV, with the penetration rate in some of the key cities like Shenzhen and Shanghai exceeding loss of 50%, we will see more EVs on the street.

Speaker 3

So they will demand the charging solutions, right? So I think eventually we will see the charging service fee going higher. And that trend may lead a couple of years to be implemented. So that's the answer for your first question. For energy storage, I think we are very, very excited about the future of energy storage, especially the energy storage in charging stations, right?

Speaker 3

So if we take a step back and look at the overall market or overall industry, the charging the EV charging volume only accounted for less than 1% of the overall power grid output in 2022. But it is expected in about 10 years, the charging for EV will be accounting for 5% to 10% of the overall power grid output. That would impose significant pressure on the grid itself. We can see this trend and obviously the grid can see this trend as well. So from a government policy perspective and from a energy system design perspective, I think there's been a clear encouragement policy encouragement in place to encourage people to build charging stations sorry, to build energy storage solutions in charging stations.

Speaker 3

And this works very well with our power with our virtual power power solutions that connect effectively all these IoT devices, including charging powers, energy storage solutions and to a degree PV solutions together to form an intelligent energy management system. What we've seen is in provinces like Zhejiang, Jiangsu, Guangdong, right, those more developed provinces, we can see the price gap between peak and the valley reach more than $0.70 per kilowatt hour. And I think with the price of the battery cell going down and with the trend of a big price gap between the peak and the valley in those provinces, we will see a more sort of a commercial stronger case for energy storage solutions in charging stations. And we are working on those solutions already. Hopefully, we'll be able to give you some highlights and good news in our next earnings call.

Operator

Your next question comes from Meng Guan Feng with Tianfeng. Please go ahead.

Speaker 5

Hello, am I through?

Speaker 2

Hello? Yes, please go ahead.

Speaker 5

Okay, great. Thank you for your team presentation. I want to miss the projected time line of your virtual power plant platform and the automatic EV charging robots? And how are they going to impact the company's financials? Thank you.

Speaker 3

Thank you. Thank you. You're from Tianfeng, right?

Speaker 1

Yes.

Speaker 3

Okay. Okay. Thank you. So for V2C Solutions, we've already launched the VPP solution on June 13, 2023. We are currently leveraging data from PV, energy storage and charging station in our NG base to provide inputs to our virtual power plant and train its algorithm.

Speaker 3

As for automatic charging robots, we launched the prototype in April and we have used the prototype to attend exhibitions, especially in, for example, EVIS in Abu Dhabi and power to drive in Munich. What we plan to do with the charging robot is we plan to launch a commercial charging robot in ANGI close to our base before Q4. The team is working on it. There are a couple of work streams that we're currently working on to be able to see the 1st commercial product launched. I hope we can invite you to see the Chinese robot in the commercial capacity before Q4.

Speaker 3

Both services from a revenue perspective, I think the charging robot is probably still 1 or 2 years away. But for the virtual power plant, we are already doing, for example, electricity trading and electricity procurement projects. And these projects can be further replaced by the virtual power plant capabilities. So for virtual power plant, if you see, for example, our revenue streams, we have a revenue stream that is dedicated to innovative solutions. So the revenue from the virtual power plant will get into that particular stream.

Speaker 3

So you can keep an eye on that. Thank you.

Operator

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

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Earnings Conference Call
NaaS Technology Q1 2023
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