CBAK Energy Technology Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 10, 2024

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the CEBAC Energy Technologies First Quarter 2024 Earnings Conference Call. Currently, all participants are in 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 would turn the call over to Thierry Li, CFO and Secretary of the Board of Sebak Energy. Mr. Li, please proceed.

Speaker 1

Thank you, operator, and hello, everyone. Welcome to CEBEC Energy's Q1 2024 Earnings Conference Call. Joining us today are Mr. Yun Fei Li, Chief Executive Officer of Citic Energy myself, Chief Financial Officer and Secretary of the Board and Jennifer, our interpreter. Our General Engineer, Mr.

Speaker 1

Xu Jun Tian 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 in our IR website.

Speaker 1

Before we continue, please note that today's discussions will contain forward looking statements made under the Safe Harbor provisions of the U. 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.

Speaker 1

Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. 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.

Speaker 1

With that, let me now turn the call over to our CEO, Mr. Yu Fei Li. Mr. Li will speak in Chinese and now will translate his comments into English. Go ahead, Mr.

Speaker 1

Li. Hello, everyone. Thank you for joining our Q1 of 2024 earnings conference call. First, I would like to provide an overview of our performance in the Q1. We are pleased to announce that we have commenced the year 2024 on a solid note with robust growth.

Speaker 1

In the Q1, our battery business recorded revenues of $44,84,000 a remarkable increase of 51.5% compared to the same period of last year. This strong start sets a promising time for the year ahead, while the industry as a whole faced significant downward pressure with many of our competitors experiencing declining gross margins and profits, Our Baytree business continued to buck the trend and to achieve rapid growth. Our company's strategic focus remains on the energy storage sector, especially home energy storage and portable energy storage. Consequently, our revenue from batteries used in electric vehicles declined to $48,000,000 down 73.6% year over year. Similarly, revenue from batteries used in light electric vehicles decreased by 23.3 percent to $1,51,000 On the other hand, our revenues from batteries used in energy storage applications grew tremendously to $42,850,000 an impressive increase of 66% year over year.

Speaker 1

This strong growth in our energy storage business, coupled with orders from high quality clients, has propelled improvement in our gross margins. In the Q1, our Vectory business achieved a historic high gross margin of 41.2%, an increase of 30.3 percentage points compared to the same period of last year. Meanwhile, net income from our battery business continued its upward trajectory from last year, reaching $11,680,000 in the Q1, a significant leap from $11,000,000 in the same year of last year. This translates to a 107 point this translates to a 107 fold increase and is equivalent to the segment's net income for the entire prior year. Now let me delve into the specifics of our order demand.

Speaker 1

As of May 7, 2024, we have recorded approximately RMB327 1,000,000 or approximately $45,200,000 in combined value of orders received but yet to be fulfilled across our major production facilities in Dalian, Nanjing and Shaoxing. Regarding our disclosed decline initiatives, as of May 7, 2024, our accumulated orders from Jingpeng Group, the largest manufacturer of scooters and electric tricycles for a while, totaled approximately RMB60.28 million or approximately RMB8.32 million. Our collaboration with PowerOK, a global leader in the portable energy storage technology and its subsidiary energy storage brand, approximately RMB41.28 million or approximately $5,700,000 Additionally, our orders with Viessmann Group, one of the Europe's top 3 household energy storage suppliers and a leading European manufacturer of heating and cooling systems amounted to an impressive RMB 1,111,000,000 or approximately $153,000,000 Simultaneously, our orders with Anker Innovations, one of the largest third party accessory suppliers globally for Echo Incorporated's products, also reached RMB74,800,000 or approximately $10,330,000 Please Furthermore, our client base in the energy storage sector continues to expand. We have received substantial orders from several key clients, which will strengthen our global market presence and increase our market share. Among them is a European battery industry giant with whom we are currently discussing future collaborations and negotiating confidentiality agreements.

Speaker 1

We hope to obtain the client's consent to update investors, shareholders and the capital market about the progress of these collaborations through official company channels. Turning to our research and development efforts. We remain committed to exploring the diverse demand across various segments of the battery market, while actively pursuing new product innovations. Our latest undertaking, the development of our larger cylindrical lithium ion battery, the model 40140 is progressing smoothly. By expanding the dimensions of our original cylindrical battery, this model elevates both energy density and cost effectiveness, providing clients with a more effective and safer solution.

Speaker 1

Our company plans to procure production equipment in the Q4 of 2024 and expects to formally launch mass production in the Q1 of next year. We believe that the introduction of this product will significantly bolster our market expansion efforts and drive an increase in sales. Meanwhile, our battery technology is gaining recognition in the international market and has attracted attention from some top companies in India as well as many foreign companies along the supply chain. In addition, several foreign giants have approached us about acquiring our large surgical battery manufacturing technology through technology transfer. We are currently conducting a comprehensive evaluation and considering the possibility of transferring or licensing our battery technology in certain markets in the future.

Speaker 1

We will continue to strengthen our technology R and D and innovation in energy storage to meet the needs of various customer groups and the growing demand for energy. Furthermore, we have observed increasing interest in sodium ion battery production and application among battery factories and downstream customers in Europe and the United States. As one of the top and as one of the first companies in the world to achieve mass production of large ventricles sodium batteries, we are very excited about this trend. We are also in talks with several industrial investors and world class investment funds regarding separate financing for our sodium ion battery project, aiming to promote sodium ion battery development independently of the lithium battery segment in the future? Now let me turn the call over to our CFO, Jerry Li, who will provide the details on our financial performance.

Speaker 1

Thank you. Thank you, Mr. Yun Fei Li, and thanks, everyone, for making time to join our earnings conference call today. We are delighted to report strong Q1 results marked by sustainable growth and increased profitability. Total net revenues increased by 38.7% year over year, while net revenues from our Beitore business saw a significant uplift 51.5% year over year.

Speaker 1

In addition, the gross margin jumped to 31.9% from 6.9% a year ago, with the gross margin of our Beitohui business surging 30.3 percentage points year over year to 41.2%. As a result, our bottom line turned positive with a net income of $9,600,000 and a net income from the beta business of $11,700,000 positive for the 3rd consecutive quarter. We believe that we will be able to achieve a net income from the battery business of RMB 220,000,000 or approximately $30,500,000 to RMB 215,000,000 or approximately $34,600,000 for the full year of 2024. In addition, HiTunes, our independently operated subsidiary that supplies lithium battery materials, also expects to breakeven or incur on these slight losses this year. There is another exciting news we want to share with you.

Speaker 1

We have gathered attention from multiple institutional investors. Currently, we are in the process of due diligence with these institutional investors for investment purpose. While the progress of these transactions is uncertain due to the factors such as evaluations, ideally, we hope to complete private financing this year. Subsequently, we will provide updates to investors, shareholders and the capital market on relevant developments through official channels of our company. I will now provide an overview of our 2024 Q1 financial results.

Speaker 1

In the interest of time, I will be presenting abbreviated highlights only. We encourage you to refer to our press release issued earlier today for complete details. In the Q1, our total net revenues increased by 38.7 percent year over year to $58,800,000 Net revenues from sales of Betrayed reached $44,800,000 a year over year increase of 51.5%. Our total gross profit grew 546.3 percent year over year to $18,800,000 resulting in a gross margin of 31.9% compared to 6.9% in the prior year period. Gross profit for the Baytory business increased by 474.4 percent year over year to $18,500,000 with gross margin climbing to 41.2 percent from 10.9% in the prior year period.

Speaker 1

Our total operating income amounted to $10,300,000 compared to an operating loss of $2,900,000 in the prior year period. Net income attributable to shareholders of CDI K Energy was $9,800,000 compared to a net loss of $1,400,000 in the prior year period. Net income from the Beitoui business was $11,700,000 compared to $100,000 in the same period of 2023. That concludes our prepared remarks. Let's now open the call for questions.

Speaker 1

Operator, please go ahead.

Operator

Thank The questions come from the line of Brian Lantiff from Zacks Small Cap Research. Please ask your question. Your line is open.

Speaker 2

Good evening, gentlemen. Congratulations on a really impressive performance. If I could dive a little bit more into the gross margin, Terry. Is that a combination of factors here when you're signing the contracts, the pricing that you're achieving from the customers and then the cost inputs falling over the last year? Or if you could just give me a little bit more color as to how you were able to achieve that gross margin improvement?

Speaker 3

Okay. So thank you for your question. I'm going to There were 2 main reasons behind this soaring gross margin. The first one is that if you compare with the other leading battery manufacturers in the Chinese market, the gross margin is around 20%. However, our margin is about 40%, which is double the average in the Chinese market.

Speaker 3

Why? Well, on the one hand, it is because our product quality has been well recognized by some big customers from Europe and from the U. S. And these customers are the high end customers. They value product quality over price and we have been in cooperation with them for 4 to 5 years and we received almost zero customer complaint from them.

Speaker 3

That is a very good testimony that how well our product has been recognized by them. This is one of the reasons why they are willing to offer a good price to us. And then secondly, it is also because of the declining of the raw materials, just as Brian just mentioned. Yes, indeed, the cost of lithium carbonate has declined substantially from the peak in 2022. So the reduction in the material cost has also contributed to the increase of our gross margin.

Speaker 2

To clarify the 20%

Speaker 1

gross margin for margin average is only for top players. If you are talking about medium sized baseband manufacturer, the gross margin is somewhere between 50% to 18%, something like that.

Speaker 2

Great. Thank you very much. And if I could ask a question more on the overall market itself. Anecdotally, looking at some of your customers' products, it looks like they are pushing a lot of their larger storage units for home storage and emergency storage system. I wonder how that impacts you and I guess the demand for cells.

Speaker 2

It seems like that as each unit is requiring more cells that will lead to additional purchases and higher volume. Is that a trend you're seeing as well, I guess, from your customers?

Speaker 3

And yes, indeed, we observed the change in the market demand and actually we also witnessed an increasing order in the household storage products. And just as we have announced in our media release, we have already have our production our strategic plans that focus on 46,140, which represents a bigger size and bigger dimension of the lithium battery. And we believe that it will be able to fill the blank in the battery with a larger size. And if you have a look at the other large cylindrical batteries like 26,650, 50, we have already achieved a stable market production. And also for 32,140, we have already opened the market and receiving orders gradually.

Speaker 3

And then for 40140, we have already entered into the 46,140, we have already entered into the B type sample, a prototype B development stage. So yes, indeed, we have this product strategic plan well in place already. And then when we are making this plan, we are taking careful consideration of the market demand and we are ensuring that our production will match the market demand. And besides that, what I want to add is for 40140, it is predicted that we're going to start mass production in the Q1 of of 20.25. And then for 46,140, we also have our plan in 2025.

Speaker 2

Great. Well, and the last question, if I could just maybe ask about the facility expansion and where you stand reaching your goals of 5 gigawatts of production capacity, I guess, at the end of 2024?

Speaker 1

Brian, I will directly respond to your question. I think you are correct. We are preparing the additional 5 or 6 gigawatt hour capacity by the end of this year as we reported in our full year 2023 earnings call. The first I think the large the first large factory in our Phase 2 Nanjing project is already rooped. So what we are doing right now is we are procuring the equipment facility.

Speaker 1

Procuring all those production equipment right now. And the time line runs very smooth, and we believe that all the equipment will be ready by the end of this year. So next year, Q1, we will start production. So this is the time line. No change.

Speaker 2

Great. Thank you for the update.

Operator

Thank you. Yang 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 your lines. Thank you.

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Earnings Conference Call
CBAK Energy Technology Q1 2024
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