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 Seabank Energy. Mr. Lee, please proceed.

Thank you, operator, and hello, everyone. Welcome to Seabank Energy's first quarter 2024 earnings conference call. Joining us today are Mr. Yunfei Li, Chief Executive Officer of Seabank Energy, myself, Chief Financial Officer and Secretary of the Board, and Jennifer, our interpreter. Our General Engineer, Mr. Xiu Jun Tian, 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 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 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 in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Yufei Li. Mr. Li will speak in Chinese and I will translate comments into English.

Go ahead, Mr. Li.

Hello, everyone. Thank you for joining our first quarter of 2024 earnings conference call.

First of all, I would like to introduce to you the performance of our first quarter. We are very happy to see a steady growth in performance, which has opened the curtain of 2024. In the first quarter, our battery business has reached $4,484 million, which is 51.5% of the total growth. The opening market is strong. Overall, Although the entire battery industry has been under a lot of pressure, many competitors in the same industry have experienced a decline in profit and loss, but our battery industry is still growing. We have achieved a faster and greater growth. The company's key layout is still in the energy storage area, especially the family energy storage and convenient energy storage track. Therefore, we are applying the battery income in the car industry has dropped. This part of the revenue has reached $480,000, which fell by 73.6% in the same period last year. Similarly, the battery income in the light-engine electric vehicle industry has also dropped to $151,000, which fell by 23.3% in the same period last year. As for the battery income in the energy industry, There has been a greater growth, reaching $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 profit-making level. In the first quarter, the profit-making rate of battery businesses reached a historical high of 41.2%, which increased by 33.2% in the same period last year. First, I would like to provide an overview about 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 regulatory 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 pay-to-earns of 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. 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, has propelled improvement in our growth margins. In the first quarter, our battery 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 $11.68 million in the first quarter, a significant leap from $0.11 million in the same year of last year. This translates to a $107 point, but this translates to a 107-fold increase and is equivalent to this segment's net income for the entire prior year. Please on the issue.

下面我来介绍一下具体的订单需求量的情况。 截至2024年5月7日,我们在大连、南京和绍兴三个主要生产基地已经收到 but the amount of orders paid is about 3.27 billion yuan, which is about $45.2 million. In terms of customer orders that have been disclosed last year, as of May 7, 2024, the total amount of orders for the largest global two-wheeled vehicle and three-wheeled vehicle manufacturer, Jinpeng Group, is about 60.28 million yuan. about 8.32 million yuan. The global leading portable energy technology enterprise, Draminghai, and its sub-property brand, Brody, have a cooperation order amounting to about 4,128 million yuan, about 5.7 million yuan. It is one of the world's largest heat-consuming equipment suppliers, one of the world's largest heat-consuming equipment suppliers 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 decline in 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 Power OAK, a global leader in affordable energy storage technology, and a subsidiary energy storage brand, Blue TTI, reach approximately RMB 41.28 million, or approximately 5.7 million dollars. 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 Anker Innovations, one of the largest third-party accessory suppliers globally for Apple Incorporated's products also reached RMB $74.8 million or approximately $10.33 million. Thank you very much.

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 the popularity of the global market and get more market share, including a European giant. Currently, the company is in the process of negotiating with the client on future cooperation and negotiating on cooperation confidentiality agreements. We hope to get the client's consent to update the relevant cooperation progress in the company's official channel to investors, shareholders, and the capital market.

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. 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. Thank you.

In the R&D field, we continue to explore the needs of the battery market, as well as the development of new product lines. We have recently developed a larger number of original batteries, 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 and is expected to officially start production in the first quarter of next 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 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 synergical 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 that will significantly bolster our market expansion efforts and drive an increase in sales based on tissue.

At the same time, our battery technology is highly admired in the international market, not only by some of the top companies in India, but also by many overseas top and bottom companies that are interested in our large-scale assistive product technology. Many overseas giants, companies, Meanwhile, our battery technology is gaining recognition in the international market.

It 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.

We will continue. Looking forward to the future, with the application of Li-ion battery and Li-ion battery in the energy market, we want to continue to strengthen the company's technology research and innovation in the energy field to meet the needs of different customer groups and the energy needs that are growing day by day. We have noticed that Europe and the United States have started to pay attention to the production and application of lithium-ion batteries. The company is one of the first to achieve large-cell lithium-ion production in the world. I am very excited about this trend. We are also working with many industrial investors Fortunately, as 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 top and 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 CIFO, Li Jiewei, to introduce the company's financial performance 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 regulatory 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, high trends are independently operated subsidiary that supplies lead-in-between materials also expects to break even or incur on these 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.

Okay, well, first of all, congratulations to our company for achieving such a brilliant performance. The question I want to ask is about our profit margin. What I want to know is that when you are signing a contract with a client, the price of the product is already determined, right? And then after that, is there a cost decline or other factors that can affect it? What is the main reason behind the rise in interest rates?

我来具体解释一下毛利的这个原因吧 就是现在整个电池行业 尤其是在中国电池行业 头部企业的毛利平均水平在20%左右 我们的毛利水平是高出整个市场平均水平的一倍以上 主要的原因在于两个方面 第一个方面是因为我们产品的品质 得到了我们的一些大客户的认可 因为我们的欧美大客户主要走的都是高端路线 他们对于价格跟这个 If we make a choice between the battery quality, they will be more inclined to the battery quality side. We have been cooperating with our major customers for nearly four or five years now. There have been no complaints from customers 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 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?

Okay, then I would like to ask a question about the general market customer demand for products. Then I observed that there is such a trend in the market, that is, the customer's capacity for this battery, whether it is this home battery or the storage battery for other uses, they are all for this one. This question is for Mr. Tian to answer.

Okay, let me answer this question. It is true that as the market changes and the amount of domestic energy increases, we have just announced that we are also making a bigger model, such as the 46140 model. This layout also fills the gap in the market for larger battery types. The 26650 we made before is now a very stable product, and the market for 32140 is now fully open. Now, the product of 46140 that we are building has entered the stage of B2 and B2. So, our product layout is also based on the market demand. According to the market demand, it corresponds directly to this.

So, we are already doing a work on this aspect. 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

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 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 first quarter 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, I guess, at the end of 2024.

Brian, I will directly respond to your question.

I think you are correct. We are preparing the additional five or six 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 two Nanjing project is already roofed. So what we are doing right now is we are procuring the equipment We're procuring all those production equipment right now, and the timeline runs very smooth, and we believe 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. Seeing no more questions in the queue, let me turn the call back to Mr. Yang Feili for closing remarks.

Thank you for attending today's call. We look forward to reporting to you in the next quarter.

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.

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