CBAK Energy Technology Inc (CBAT) 2009 Q4 法說會逐字稿

Good morning, everyone, and thank you for joining us on China BAK Battery's fourth quarter of the fiscal year ended September 30, 2009 conference call. During today's call we will provide details of the company's fourth quarter and the fiscal year 2009 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 Chief Financial Officer, Mr. Tony Shen. He will be available to answer questions during the Q&A session. 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 its current business strategy. And then he will make remarks about China BAK business outlook. Finally, we will open the call for questions.

Before we get started I'd like to remind our listeners that our comments today will concern forward-looking statements and management may make additional forward-looking statements in response to your questions. Both 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 Securities and Exchange Commission as well as the news release that was distributed earlier this morning.

All statements on this call are made as of December 2, 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 to the call over to China BAK CFO, Mr. Shen.

Thanks, operator. I would like to extend a warm welcome to everyone joining us on the call today. I will be available to answer your questions later on.

First, we would like to share some highlights. We saw a strong recovery from the downturn this quarter with sequential growth in revenue and operating cash flow as compared to Q3'09. Profitability further improved with higher gross margin and smaller loss than Q3 '09. We have successfully established ourselves as a major competitor in the cylindrical cell market. Revenues from cylindrical cells in the whole year of fiscal 2009 increased to $55.3m, up 30% from FY08. And revenues from prismatic battery packs increased to $8.9m, or 15.5% of revenue in Q4 '09, becoming our third largest revenue source, in response to customer needs.

And then after the quarter end, in November 2009, BAK Tianjin signed letters of intent with several electric vehicle manufacturers and an electric bicycle manufacturer, for providing high-power batteries for use in cars and bicycles.

We also raised $20.6m in a Registered Direct Offering in October 2009 which further strengthened our financial position and improved our operating flexibility.

Now I will reveal the quarter's financial results in more details. All dollar figures will be in US dollars. Net revenues for the fourth quarter of FY09 were $57.6m, up 28.8% from last quarter and down 20.9% from same quarter of last year.

Revenue from cylindrical cells, used in notebook computers, were $15.0m, up 18.6% from last quarter and down 23.4% from same quarter of last year.

Revenue from prismatic cells, including aluminum-case cells, steel-case cells and battery packs, which are used in mobile phones and certain personal devices, were $37.5m, up 31.4% from last quarter, and down 16.6% from same quarter of last year.

Within that, revenues from aluminum-case cells were $28.6m, up 27.1% from last quarter and down 20.6% from same quarter of last year. Revenue from battery packs were $8.9m, up 55.3% from last quarter and up 64.4% from same quarter of last year. Revenue from steel-case cells were minimal as we ended production in January 2009.

Revenue from lithium polymer cells used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices were $4.9m in the fourth quarter of FY09, up 46.1% from last quarter and down 39.2% from same quarter of last year.

Gross profit for the fourth quarter of FY09 was $8.1m, up 60.3% from last quarter and down 29.6% from same quarter of last year. Gross margin was 14.1% compared to 11.3% last quarter and 15.8% in the same quarter of last year.

Operating expenses totaled $9m, or 15.7% of revenue in the fourth quarter of FY09, as compared to $8.6m or 19.3% of revenue last quarter, and $8.4m or 11.6% of revenue in the same quarter of last year.

R&D expenses were $1.6m, or 2.8% of revenue, as compared to 3.3% of revenue last quarter, or 2.3% of revenue in the same quarter of last year.

S&M, sales and marketing expenses, were $1.8m or 3.2% of revenue, as compared to $1.6m or 3.5% of revenue last quarter and $1.5m or 2.2% of revenue in the fourth quarter of last year.

G&A expenses were $5.6m or 9.7% of revenue as compared to $5.5m or 12.4% of revenue last quarter, and $5.2m or 7.1% of revenue in the same quarter of last year.

Operating loss for this quarter was $0.9m, as compared to operating loss of $3.6m last quarter, and operating income of $3m the same quarter of last year.

Net loss for the quarter was $1.4m as compared to a net loss of $5.2m last quarter and a net income of $1.5m in the same quarter of last year. Diluted earnings per share were negative $0.02 compared with negative $0.09 per share last quarter, and $0.03 per share in the same quarter of last year.

For the fourth quarter of FY09 days sales outstanding, DSOs, decreased to 120 days from 145 days last quarter. And days sales of inventory decreased to 116 days from 136 day last quarter.

For FY09, net revenues were $211.1m, down 13.9% from FY08. And gross margin -- gross profit, was $26.8m or 12.7% of net revenue, down 13.4% from $30.9m or 12.6% of net revenue for FY08. And the net loss for FY09 was $14m as compared to a net loss of $7.9m of FY08.

On September 20, 2009 China BAK had $30.7m in cash and cash equivalents, and negative $46.3m in working capital, reflecting a current ratio of 0.83 to 1. At year end short-term bank loans and long term bank loans totaled $194.8m as compared to $191.4m on June 30, 2009. Shareholders' equity totaled $156.6m. China BAK had $49.6m available for borrowing under its credit facilities.

We are pleased to see steady increase in revenue, gross margin and operating cash flow since Q2 of FY09 amid economic recession. Operating measures such as DSO inventory turns have also rebounded in this fourth quarter to near pre-downturn levels. We will continue to exercise prudence and drive for operating excellence.

China BAK expects that FY2010 revenue will fall in the range of $270m to $310m, which, at the low point of the range will represent a 28% growth from FY09. And the bottom line for FY10 will be breakeven to slightly profitable.

Thanks, everyone, for listening today. I'm happy to answer any questions you may have. Operator.

(Operator Instructions). Your first question comes from the line of Mark Tobin from Roth Capital Partners. Please proceed, sir.

Hi, Tony, how are you?

Good. How are you, Mark?

Good. Can you provide us an indication of your assumptions leading to that guidance, specifically contribution by product segment?

In the guidance we typically don't provide breakdowns by product line, but I can roughly indicate the relative strength of each product line. We expect that prismatic will be strong because we mostly sell to domestic China market and, as everybody probably knows, the Chinese economy is not affected as much by the downturn, the worldwide downturn, as other economies.

And we also expect that a second major OEM customer will kick in sometime within the fiscal year for cylindrical. And that cylindrical will further rebound with the rebound in the retail sales environment in North America.

And then the last but not least, our power cells of electric bicycles and for electric cars will contribute, although a smaller amount, to the revenue line.

Smaller than what was in 2009?

Smaller than other product lines but definitely bigger than our 2009 figures.

Okay. Then, looking further down the income statement, it looks like you've had two quarters in a row with G&A at about $5.5m. Is that a run rate at this point or were there some one-time expenses included in that $5.6m of G&A?

There is still some bad debt expense which is now unfortunately a part of our G&A configuration. Although every quarter that amount is somehow different, we don't expect it to rise significantly and with the economy recovering it's likely to trend slightly down.

Okay, the bad debt expense. How do you view your G&A from a quarterly run rate perspective? Is this $5.6m kind of in the ballpark? I know you're building out some capacity, would that add to that line a little bit?

It's hard to pinpoint a figure because every quarter there's something different. Some quarters the bad debt expense may be lower but for some quarters the non-cash charge from amortizing the options may be higher, so it all depends. But I don't see the figures going a lot higher than that, than the current level.

Okay. And then shifting to capital expenditures, what's your CapEx plan for 2010?

Roughly $40m.

And what are the use, what's the investment for?

Mostly to upgrade, if cylindrical recovers strongly we may add some capacity there. And also when orders come in for Tianjin, for the power cells for cars and bikes we may increase our capacity in Tianjin. And then there's always a part for the maintenance and for related equipment, accessories for the current manufacturing lines.

Okay. Then following on to that, within your cylindrical segment what's the current capacity that you have installed at this point? And as you ramp up to this second OEM is there a need to add to service that demand?

Right now our cylindrical capacity is about 7m units per month and the utilization rate is relatively low at this point. So we don't see any need to increase just because of the second major Tier 1 OEM customer, because at the beginning that amount would not be a lot anyway.

Okay, that's helpful. I'll jump back in the queue. Thank you, Tony.

Yes, thank you.

(Operator Instructions). And you have a follow-up question from Mark Tobin, Roth Capital. Mark, please proceed.

I saw that there was a lot of strength this quarter from battery packs. Can you remind me what end segments those are being sold into?

They are actually almost the same as the prismatic aluminum-case cells for cell phones. Some cell phone customers want us to pack it also, which is adding a layer of casing to the bare battery cells. That's why we group it into prismatic.

Okay, and you're doing that in-house, the packaging?

Yes, and right now we are seeing it as the trend from customers' requirements that I think there's a slow but consistent trend that customers want the packing to be done also by the cell manufacturer.

Okay and then one follow-up on the guidance. Can you give us an idea of how much revenue within that guidance is related to the potential second Tier 1 notebook computer battery customer?

It's very small because we expect that customer to start probably in the June quarter of 2010. So it would contribute only to less than one-third of the year, and at the beginning it will be small.

Okay. Thank you very much.

So that part is not going to make or break the guidance.

Okay, understood. Thank you.

Yes.

(Operator Instructions). You have no questions at this time, sir.

If there's no more questions I think we'll conclude the call. Thanks to everyone joining us today.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Good day.