CBAK Energy Technology, Inc.

Good day ladies and gentlemen, thank you for standing by and welcome to the CBAC 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. If you have any objections you may disconnect at this time. Now I will turn the call over to Thierry Lee, CFO and Secretary of the Board of SEBAC Energy. Mr. Lee, please proceed.

Thank you, operator, and hello, everyone. Welcome to SEBAC Energy's first quarter 2024 earnings conference call. Joining us today are Mr. Yunfei Li, Chief Executive Officer of SEBAC Energy, myself, Chief Financial Officer and Secretary of the Board, and Jennifer, our interpreter. Our General Engineer, Mr. Xiu Juntian, will join us for the Q&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 Newswell Services. A relay of this call will also be available in a few hours in our IR website. 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 involved in human risks and uncertainties as such the company's actual results may be materially different from today's from the expectation

...express today. Further information regarding these and other risks... ...uncertainties is included in the company's public firings 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 U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Li Feili. Mr. Li will speak in Chinese and I will translate his comments into English. Go ahead, Mr. Li. 大家好,欢迎各位来参加我们2024年第一季度的业绩发布会。 Hello, everyone.

Thank you for joining our first quarter of 2024 earnings conference call. 首先... Many competitors in the same industry have seen a decline in profit and loss. But our battery business is still growing. It has achieved a faster growth. The focus of the company is still on the energy-saving sector, especially the family energy-saving and convenient energy-saving track. Therefore, we have seen a decline in battery income in the application and car industry. This part of the revenue reached $480,000, which dropped by 73.6% in the same period last year. Similarly, the battery income applied to the light-engine electric vehicles also dropped to $1.51 million, which dropped by 23.3% in the same period last year. As for the battery income applied to the energy-saving areas, there has been a greater increase. It reached $4,285 million, which is 66% of the total growth. The high growth of energy-saving businesses and the signing of high-quality customers have driven our net profit. In the first quarter, the net profit of battery businesses reached 41.2%, which is 33.3% of the total growth of the same period last year. I would like to provide an overview of our performance in the first quarter. We are pleased to announce

that we have commenced the year 2024 on a solid note with robust growth. In the first quarter, our battery business recorded revenues of $44.84 million, 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 whole face significant downward pressure, with many of our competitors experiencing declining growth margins and profits. Our battery business continues to buck the trend and achieve rapid growth. Our company's strategy 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 million, down 73.6% year-over-year. Similarly, Revenue from batteries used in light electric vehicles decreased by 23.3% to $1.51 million. On the other hand, our revenues from batteries used in energy storage applications grew tremendously to $42.85 million, an impressive increase of 66% year-over-year. This strong growth in our energy storage business, coupled with orders from high-quality clients,

pale improvement in our growth margins.

In the first quarter, our beta represents achieved a historic high growth 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 continues its upward trajectory from last year, reaching $11.68 million in the first quarter, a significant leap from $0.11 million in the same year of last year. This translates to a 107-fold increase and is equivalent to this segment's net income for the entire prior year.

Next, let me introduce the specific order requirements. As of May 7, 2024, we have received orders from three major production bases in Dalian, Nanjing, and Shaoxing. The amount of orders delivered is about $4,520 million. As of May 7, 2024, we have received orders from three major production bases We have a total of 60.28 million RMB in cooperation orders with the world's largest two-wheeled and three-wheeled car manufacturers, Jinpeng Group, with a total of about 8.32 million RMB. We have a total of 41.28 million RMB in cooperation orders with the world's leading transformational energy technology enterprise, Glemminghai, and its subsidiary, the energy brand Brody. which is about 5.7 million dollars. The order volume of the FACEMAN Group, which is one of the world's largest family storage suppliers, is about 1.5 billion dollars. At the same time, the order volume of Anker, the largest Apple third-party hardware manufacturer, is about 74.8 million dollars.

Now let me delve into the specifics of our order demand. As of May 7, 2024, we have recorded approximately RMB $327 million or approximately $45.2 million in combined value of orders received but yet to be fulfilled across our major production facilities in Dalian, Nanjing, and Shaoxing. Regarding our disclosed client initiatives, as of May 7, 2024. Our accumulated orders from Jingpeng Group, the largest manufacturer of scooters and electric tricycles worldwide, total approximately RMB 60.28 million, or approximately 8.32 million dollars. Our collaboration with Powerway K, a global leader in the portable energy storage technology, and its subsidiary energy storage brand, Blue TTI, reached approximately RMB 41.28 million, or approximately $5.7 million. Additionally, our orders with Bilsman Group, one of Europe's top three household energy storage suppliers and a leading European manufacturer of heating and cooling systems, amounted to an impressive RMB $1.11 billion, or approximately $153 billion. Simultaneously, our orders with Anchor Innovations one of the largest third-party accessory suppliers globally for Apple Inc. products, also reached RMB $74.8 million, or approximately $10.33 million. Thank you. In addition, our customer base in the energy sector is constantly expanding.

The company has recently received large orders from many important customers. These orders help us strengthen our global market popularity and gain more market share, including a European giant. Currently, the company is in the process of negotiating with the client on future cooperation and cooperation confidentiality agreements.

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-based industrial industry giant with whom we are currently discussing future collaborations and negotiating confidentiality agreements. 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.

In the field of R&D, we continue to explore the needs of the battery market and develop new product lines.

We have recently developed a larger number of types of

With the smooth development of the 40140 battery, the product has further increased the energy density of the battery and the cost-effectiveness of the product by expanding the size of the battery, providing customers with a more efficient and safer solution. The company plans to purchase production equipment in the fourth quarter of this year,

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 innovation 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. Our company plans to procure production equipment in the fourth quarter of 2024 and expects to formally launch mass production In the first quarter of next year, we believe that the introduction of this product will significantly bolster our market expansion efforts and drive an increase in sales based on tissue.

At the same time, our battery technology is well-received in the international market, not only due to the attention of some top companies in India, Thank you.

Meanwhile, our battery technology is gaining recognition in the international market. There is attractive attention from some top companies in India as well as many foreign companies along the supply chain.

In addition, several foreign giants have a cold start about acquiring our large centrifugal battery manufacturing technology through technology transfer.

We are currently conducting a comprehensive evaluation and considering the possibility

transferring or licensing our battery technology in certain markets in the future.

We have noticed that Europe and the United States have started to pay attention to the production and application of NaCl. The company is one of the first to achieve a large-factor NaCl mass production within the world. I am very excited about this trend. We are also working with many industry investors There is a medium and batteries become more common to be used in the energy storage market.

We will continue to strengthen our technology R&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 first companies in the world to achieve mass production of large-capacity 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.

Next, let's welcome our CFO, Li Jiewei, to present the financial performance of the company to the investors.

Now, let me turn the call over to our CFO, Terry Lee, who will provide the details on our financial performance. Thank you. Thank you, Mr. Yunfei Li, and thanks, everyone, for making time to join our earnings conference call today. We are delighted to report strong first quarter results marked by sustainable growth and increased profitability. Total net revenues increased by 38.7% year-over-year, while net revenues from our regulatory business saw a significant uplift of 51.5% year-over-year. In addition, the gross margin jumped to 31.9% from 6.9% a year ago.

with the gross margin of our regulatory 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 $9.6 million and a net income from the battery business of $11.7 million, positive for the third consecutive quarter. We believe that we will be able to achieve a net income from the battery business of RMB $220 million or approximately $30.5 million to RMB $250 million, or approximately $34.6 million for the full year of 2024. In addition, hydrants are independently operated subsidiary that supplies lithium-butylene materials, also expected to break even or incur only slight losses this year. There is another exciting news we want to share with you. We have gathered attention from multiple institutional investors. Currently, we are in the process of due diligence with these institutional investors for investment purposes, 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 first quarter financial results. In the interest of time, I will be presenting abbreviated highlights only. We encourage you to refer to our press release issue earlier today for complete details. In the first quarter, our total net revenues increased by 38.7% year-over-year to $58.8 million. Net revenues from sales of batteries reached $44.8 million, a year-over-year increase of 51.5%. Our total gross profit grew 546.3% year-over-year to $18.8 million. resulting in a gross margin of 31.9% compared to 6.9% in the prior year period. Gross profit for the battery business increased by 474.4% year-over-year to $18.5 million, with gross margin climbing to 41.2% from 10.9% in the prior year period. Our total operating income amounted to $10.3 million compared to an operating loss of $2.9 million in the prior year period. Net income attributable to shareholders of CDIK Energy was $9.8 million compared to a net loss of $1.4 million in the prior year period. Net income from the battery business was $11.7 million compared to $0.1 million in the same period of 2023. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We're now going to proceed with our first question. The questions come from the line of Brian Luntiff from Zach Small Cap Research. Please ask your question. Your line is opened.

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.

And then after that, there is this cost decline and other factors. And then after that, there is this cost decline and other factors.

And then after that, there is this cost decline and other factors.

And then after that, there is this cost decline and other factors.

And then after that, there is this cost decline and other factors. What is the main reason behind the rise in interest rates? Let me explain in detail. This is the reason. This is the reason.

This is the reason. This is the reason. This is the reason. This is the reason. If we make a choice between price and battery quality, they will be more inclined to battery quality. We have been cooperating with our major customers for nearly four or five years without any customer complaints about the quality and quality of our products. This is one of the reasons why we can get a high price in terms of customers. Thank you for your question. I'm going to explain. There were two main reasons behind this soaring growth margin.

The first one is that if you compared with the other leading battery manufacturers in the Chinese market, the gross margin is around 20%. However, our margin is about 40% that is double the average in the Chinese market. 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 US and these customers are the high-end customers they value product quality over price and we have been in cooperation with them for four to five years and we received almost zero customer complaint from them that is a very good testimony that how where our products have 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.

To clarify the 20% gross margin for market average is only for top players. If you're talking about medium-sized battery manufacturers, the gross margin is somewhere between 50% to 18%, something like that.

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 systems. I wonder how that impacts you and I guess the demand for cells.

It seems like as each unit is required, more sales that will lead to additional purchases and higher volume.

Is that a trend you're seeing as well, I guess, from your customers?

I would like to ask a question about the needs of general market customers for products. I observed that there is such a trend in the market, that is, customers for the capacity of this battery, whether it is a home battery or a storage battery for other uses, they all have higher and higher requirements for the storage function of this battery.

Okay, let me answer this question. It is true that as the market changes and as the number of household resources increases, we have just announced in our conference that we are also making a larger model, such as the 46140 model. This layout is also a gap in the market in the bigger battery market. The 26650 we made before is now a very stable product, and the market of 32140 is now fully open. Now, the products of 46140 in our layout have entered the stage of B2 and volume. So, our product layout is also based on the market demand. According to the market demand, it is directly related to this. So, we are already doing a work in this area.

I would like to add that the company's product line plan for 40140 will be mass-produced in the first quarter of next year. And then 46140 may be

And yes, indeed, we observed the change in the market demand. And actually, we also witnessed an increasing order in the household storage projects. And just as we have announced in our media release, we have already have our production, our strategic plans that focus on 46140, which represents a bigger size, a 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 26650 we have already achieved a stable market production and also for 32140 We have already opened the market and receiving orders gradually. And then for 46140, we have already entered into the prototype

development stage. So, yes, indeed, we have this product strategy 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 The .

What I want to add is for 40140, it that we're going to start mass production in the first quarter of Thank you.

of 2025. And then for 46140, we also have our plan in 2025. Great. And the last question, if I could just maybe ask about the

Facility expansion and where you stand on reaching your goals of five gigawatts of production capacity.

Oh. Oh. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. I would directly respond to your question. I think you are correct that we are preparing the additional 5 or 6 gigawatt-hour capacity the end of this year as we reported in our in our full year, 2023, in our full year, 2023, call. The first I think that's a large, the first in our phase two large factory in our phase two launching project is already approved. So what we are doing right now is we are procuring during the equipment facility. procuring all those equipment right now. The timeline reminds us that all the equipment will be ready by the end of this year. So next year, first quarter, we will start production. So this is the timeline. No change. Great. Thank you for the update. Thank you. Once again, as a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. Questions in the Q&A, let me turn the call back to Mr. Young-Failey for closing remarks. Thank you for your time. Thank you for attending today's conference. We look forward to seeing you next time. Thank you. 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.

Thank you all. Again, this concludes the call. You may now disconnect your lines. Thank you.