CBAK Energy Technology Inc (CBAT) 2009 Q3 法說會逐字稿

Good evening everyone and think you for joining us on China BAK Battery's third-quarter fiscal year 2009 ended June 30, 2009 conference call. During today's call, we will provide details on the Company's third-quarter fiscal year '09 results as well as provide a corporate update about recent activities.

Today's call will be limited to one hour. With me today on the call is China BAK's Mr. Tony Shen, China BAK's Chief Financial Officer. He will be available to answer questions during the Q&A section.

Our agenda for today is as follows. Mr. Shen will make remarks on behalf of the management team on the Company's financial performance and discuss current business strategies and then he will make remarks about China BAK's business outlook. Finally, we will open the call to your questions.

Before we get started, I would like to remind our listeners that our comments today will contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such written and verbal disclosures are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the anticipated results. These types of statements and underlying factors as well as risks and uncertainties are listed in filings with the the Securities and Exchange Commission as well as the news release that was distributed earlier this morning.

Our statements on this call are made as of July 23, 2009 and the Company undertakes no obligation to update any of the forward-looking statements contained herein whether as a result of new information, future events, changes in expectations or otherwise. With that said, it is my pleasure to turn the call over to China BAK's CFO, Mr. Shen.

Thank you, Josh. I would like to extend a warm welcome to everyone joining us on the call today. First, some highlights.

Our Tianjin facility shipped samples of lithium-phosphate cells for use in low-speed electric vehicles to Qingyuan Motors in China and discussions with major US- and EU-based auto manufacturers were also started.

We started to ship cylindrical cells to the international Tier 1 OEM notebook manufacture which qualified our products in Q2 09. Revenue grew from Q2 09 in the difficult business environment as demand for our cylindrical battery cells continues to grow. Polymer cells started to be used in notebook computers and prismatic cells exported to India increased and our gross margin recovered from Q2 09 as our cost reduction efforts and material costs decline took hold.

Now I would like to review this quarter's financial performance in more detail. All of the dollar numbers will be in US dollars.

Net revenue for the third quarter of FY 09 were $44.7 million, up 9.5% from last quarter and down 34.7% from the same quarter of last year. The increase in net revenue over the net revenue generated in the last quarter was the result of improving business environment in China and new revenue resources such as polymer cells being used in notebook computers and prismatic cells exported to India.

The substantial decrease in net revenue generated in the same quarter last year were generally due to the global financial crisis and recession which weakened demand for many of the products that our customers sell. Revenue from cylindrical cells used in notebook computers and other applications were $12.7 million, up 37.6% last quarter and down 6.9% from the same quarter of last year.

Revenue from lithium polymer cells used in personal electronic devices such as PDAs, MP3 players, Bluetooth devices and now notebook computers were $3.3 million in the third quarter of FY 09, up 70% from last quarter and up 32.6% from same quarter of last year.

Revenue from prismatic cells, including aluminum-case sales, steel-case cells and battery packs were $28.6 million, down 3.5% from last quarter and down 45.4% from the same quarter of last year. Revenues from aluminum-case cells were $22.5 million, down 3.5% from last quarter and down 33.4% from same quarter of last year.

Revenue from battery packs were $5.7 million, up 18.8% from last quarter and down 33% from the same quarter of last year. Revenue from steel-case cells were minimal as we ended production six month ago.

Gross profit for the third quarter of FY 09 was $5.0 million, up 67.1% from last quarter and down 40.5% from the same quarter of last year. Gross margin was 11.3% compared to 7.4% last quarter and 12.3% in the same quarter last year. The increase in gross margin from last quarter was the result of lower average manufacturing costs and lower average material costs.

Operating expenses totaled $8.6 million or 19.3% of revenue in the third quarter of FY 09 as compared to 15.7% of revenue last quarter and 12.3% of revenue in the same quarter of last year. R&D expenses were $1.5 million or 3.3% of revenue as compared to 2.8% of revenue last quarter and 27% of revenue in the same quarter of last year.

Sales and marketing expenses were $1.6 million or 3.5% of revenue as compared to 2.8% of revenue last year and 2.2% of revenue in the same quarter of last year. G&A expenses were $5.5 million or 12.4% of revenue as compared to 10.1% of revenue last quarter and 7.4% of revenue in the same quarter of last year.

Operating loss for the quarter was $3.6 million as compared to operating loss of $3.4 million last quarter and operating loss of $36,000 in the same quarter of last year. Net loss was $5.2 million in the quarter as compared to net loss of $5.7 million last quarter and a net loss of $2.3 million in the same quarter last year.

Diluted earnings-per-share were negative $0.09 compared with negative $0.10 per share last quarter and negative $0.04 per share in the same quarter of last year. For this quarter, day sales outstanding, DSO, decreased to 145 days from 171 days last quarter.

Day sales of inventory decreased to 136 days from 148 days last quarter. On June 30, 2009 China BAK had $29.6 million in cash and a negative $41.8 million in working capital, reflecting a current ratio of 0.83 to 1.

Short-term bank loans and long-term bank loans totaled $191.4 million as compared to $172.7 million on March 31, 2009. Shareholders equity totaled $156.3 million.

We adjusted our long-term and short-term bank loan structure and as a result, finance costs decreased to $1.9 million which were at their lowest levels in fiscal year 2007. China BAK still has $69.4 million available for borrowing on the credit facilities.

Thank you for listening today. I will be happy to answer any questions you may have. Josh?

(Operator Instructions) Mark Tobin, Roth Capital Partners.

Quick question just on the visibility overall when you look at each of the different product lines that you have. Can you give a little more color on how you see the growth over the next 12 months for each of the product lines?

We see (inaudible) as consistent as you can see from this quarter, slight growth from the March quarter and visibility is still limited. But we would expect this recovery to continue.

So you will see probably higher growth rates from the June quarter to the September quarter. Beyond that, I think you need to wait for our fiscal 2010 guidance which will be given in the next conference call.

Can you look at each of your businesses though just from a very high level? Prismatic batteries, do you view that as a 5% growth type of business, a 10% growth type of business? I guess when you -- over the long term, how do you view each of those product lines from a growth standpoint? Obviously the vehicles and the cylindrical will ramp much more quickly.

In general, the 5 to 10% growth per year is probably expected. But since we've dropped quite significantly for the September quarter of 08, we expect the revenue level to return to (inaudible) level in two or three quarters. So from this point on in the next two or three quarters, the growth rate will be higher than what we mentioned before, 5 or 10%.

Okay and then -- I actually joined the call late, so I apologize if this was covered. (technical difficulty) the CapEx for the quarter was fairly low. Have you changed your CapEx target for the remainder of this year and into 2010?

Well our CapEx target for this whole fiscal year was $41 million, I think. And up to the end of the June quarter, we have used $35 million. So I think the remaining $6 million may or may not be spent in the current quarter, the September quarter.

Okay and what capital projects do you have underway right now? Have you started construction of your Shenzhen and R&D facility?

Actually we have not. We have continued -- we continue to behave quite conservatively in capital expenditure and we think that for our core businesses, the most part of the investment has been made.

Finally on -- I noticed there was about a $2 million or $2.5 million bad debt write-off (multiple speakers) is that included in G&A for the quarter? So if you backed out your operating expense, is that pretty consistent with the past couple of quarters?

Yes, as you can see, the March quarter was kind of abnormally low because of the partial shutdown in January. And this quarter is more like a "normal" quarter. But even at such a quarter, we remain very restrained in G&A expenses.

(Operator Instructions) At this time, we're showing no further questions. Mr. Shen, you may proceed.

We will wait for a few moments to see if others have questions.

(Operator Instructions) [Jonathan Shibeir], Dow Jones.

Thanks for taking the call. I was wondering if you could give any more guidance into the agreement with Qingyuan Motors or if you could talk a little bit more about the US and European auto manufacturers that may be looking at working with your batteries, so how many -- if you can give any more details about which ones or (multiple speakers)

Qingyuan Motors is a China-based manufacturer of light of electronic vehicles. We sent them -- in this type of batteries, it's usually custom made because every manufacturer has a different design, some very substantially different.

So we made the battery cells to their order and shipped them assembled. Based on the testing results, there may be more orders or there may be changes in design, in chemistry. Anything is possible.

So for the US-based and European-based auto manufacturers, the only thing -- because we have nondisclosure agreements with them, I can only tell you that if I somehow tell you the names, you would easily recognize them. So they are major auto manufacturers

And how many -- I'm sorry, sir. How many are you in discussions with?

One based in the US and a few more based in Europe and then also some others in China. The total number is about nine.

Thank you sir.

At this time, we're showing no further questions. Mr. Shen, you may proceed.

We will wait for more questions and if in five minutes, there will be no more questions, we will finish the call.

(Operator Instructions) We are showing no further questions. You may proceed, sir.

So I think we will conclude the call. Thanks everybody for calling in today and we look forward to hearing from you during the quarter and certainly in the next conference call for the September 09 quarter and for the whole fiscal 2009. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.