CBAK Energy Technology Inc (CBAT) 2011 Q1 法說會逐字稿

Good morning, everyone, and thank you for joining us on the China BAK Battery's first quarter of fiscal year 2011 ending December 31, 2010, conference call. During today's call we'll provide details on the Company's first quarter fiscal year 2011 results, as well as provide a corporate update about recent activity. Today's call will be limited to an hour.

With me today on the call are Mr. Xiangqian Li, China BAK's Chairman and Chief Executive Officer, and Mr. Ke Marcus Cui, China BAK's Interim Chief Financial Officer. Both Mr. Li and Mr. Cui will be available to answer questions during the Q&A section.

Our agenda for today is as follows; the CEO, Mr. Li, will make remarks about the Company's business outlook, and then on behalf of the management team, Interim CFO, Mr. Cui, will comment on the Company's financial performance and discuss current business strategy.

Finally, we'll open the call to your questions.

Before we get started, I'd like to remind our listeners that management's 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 [actual] 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 we distributed earlier today.

Statements made on this call are made as of January 28, 2011, and the Company undertakes no obligations to update any of the forward-looking statements contained herein, whether as the result of new information, future events, changes in expectations, or otherwise.

On the call today, management will also discuss non-GAAP financial measures to provide investors with a measurement of operating results which are comparable with the subsequent periods. We have provided a reconciliation of those non-GAAP measures to the nearest GAAP equivalent, and you can find that in the earnings release that was distributed earlier today, and is also available on our website. We encourage all of you to refer to (technical difficulty).

With those initial formalities out of the way, it is my pleasure to turn the call over to Mr. Li, who will provide some initial remarks that will be translated by Mr. Cui. Mr. Li, you may proceed.

(Interpreted) Thank you, operator. I would like to welcome all of our shareholders to China BAK's first quarter, fiscal year 2011, earnings call.

I am pleased to report that we commenced the fiscal year 2011 with double-digit revenue growth, improved gross margins by strengthening cost control measures.

Following years of investment in conducting intensive research and development efforts to develop high power lithium batteries, we have been able to significantly enhance the quality and the performance our products, accordingly increase revenues from this segment.

In addition, due to the growing customer demand, we extended our production capacity of BAK brand battery packs in fiscal year 2011. Therefore, aluminum case cells and battery packs up 10.2% in the last quarter, and up 22.5% for the same period in fiscal 2010.

We have successfully implemented trial production of newly designed, low cost and non-cyclized cylindrical products for Notebook computers and power tool manufacturers. And we believe we are well positioned to be a key supplier to the branded high-end OEM battery market.

We firmly believe that, with our wealth of experience and the wealth of technological expertise, we will continue to deliver a high quality product to our customers, and successfully implement our turnaround strategy.

With that brief introduction, I would now like to hand over this call to Mr. Cui, who will present an overview of our financial and operational results for the first quarter of fiscal year 2011.

Thank you Mr. Li. Now I would like to review this quarter's financial performance in further detail.

Net revenues for the first quarter were $63.5 million, up 14.3% from $55.6 million last quarter, and up 26.5% from $52 million (sic - see press release) for the same period in fiscal 2010. We also continue to reduce our bank loans, and implemented efficient capital expenditure controls.

Gross profit for the first quarter of the fiscal year 2011 was $10 million, or 15.7% of net revenues, compared to gross profit of $5.3 million, or 9.5% of net revenues in the last quarter, and gross profit of $9.6 million, or 19% of net revenues in the first quarter of fiscal 2010.

The increase in gross profit was a result of increased direct sales of battery packs to OEM cell phone manufacturers, driven by strong customer demand.

The year-over-year decline in gross margin was a result of our adoption of a competitive pricing strategy for its cylindrical cells to increase its market share in the OEM market.

Operating expenses totaled $11.8 million, or 18.6% of revenue in the first quarter, compared to $12.6 million, or 22.6% of revenue, in the last quarter, and $12.4 million, or 24.8% of revenue, in the first quarter of fiscal 2010.

The reported operating loss of $1.8 million, compared to operating loss of $7.3 million in the last quarter, and $2.9 million in the same quarter last year.

Excluding the impact of the non-cash items, including provisions for doubtful debts, obsolete inventories and impairment charges related to strategic review of business operations, non-GAAP operating income was $1.8 million in the first quarter of fiscal 2011, compared to non-GAAP operating loss of $3.3 million in the last quarter, and non-GAAP operating income of $2.7 million in the same period a year ago.

Net loss was $3.7 million, or diluted loss per share of $0.06 in the first quarter of fiscal 2011, compared to net loss of $8.6 million, or diluted loss per share of $0.14 in the last quarter, and net loss of $3.4 million, or diluted loss per share of $0.06 in the same quarter of fiscal 2010.

Excluding the impact of non-cash items, including provisions for doubtful debts, obsolete inventories and impairment charges related to strategic review of business operations, non-GAAP net loss for the first quarter of fiscal 2011 was $0.1 million, or a loss of $0.00 per diluted share, compared to non-GAAP net loss of $4.6 million in the previous quarter, or a loss of $0.08 per diluted share, and non-GAAP net income of $2.2 million, or earnings of $0.04 per diluted share in the same period a year ago.

Now I want to discuss key balance sheet items. On December 31, 2010, we had $24.5 million in cash and cash equivalents. For the first quarter of fiscal year 2011, days sales outstanding decreased to 126 days from 134 days last quarter, and days sales of inventory decreased to 110 days from 115 days last quarter.

Short-term bank loans and long-term bank loans totaled $177.6 million, as compared to $179.3 million on September 30, 2010.

Shareholders' equity totaled $149.4 million, and China BAK generated $18.4 million from cash flow from operating activities in the first quarter of fiscal 2011.

At the end of the quarter we had $66.9 million available for borrowing under our credit facilities.

In conclusion, I'd like to note that China, the world's largest market for new auto sales, has recently announced that [5 million] electric cars will be travelling on the nation's roads by 2020, according to HSBC. That will be equivalent to [35%] of the global electric vehicle market.

The Chinese Government is encouraging and promoting the EV industry and the supporting infrastructure. This presents an outstanding growth opportunity for China BAK as a supplier of high power lithium battery cells, which are used in electric vehicles, E-bikes and UPS.

Under the Government's support in new energy development we will utilize the brand to extend our production output, and enhance product quality to strengthen our market position.

In the near term we are also focusing on our efforts to increase our market share in BAK brand batteries, for OEM mobile phones in China.

As discussed earlier, we continue to increase the Company's cash flow from operations, enhance our gross margins, and return to profitability. We are confident in our ability to continue to make substantial progress in implementing our turnaround strategy.

On that positive note, I would like to thank you all for your participation on the call today. [We'd] be happy to answer any questions you may have. Operator.

(Operator Instructions) Mark Tobin of Roth Capital Partners.

Hi. Thank you for taking my questions. First, Marcus, in the press release it referred to a strategic review of business operations. Can you give us some additional insight into what was reviewed, and what charges did fall into that category?

We did review some of the numbers for the most recent [period], and we recognized a provision of account receivables, which is $3 million. And we did not recognize any other expenses, such as impairment charge and obsolete inventories.

Okay. From an impairment standpoint, was it focused strictly on receivables, or was there a look at PP&E as well?

Well, in this quarter we didn't make any adjustment in the PP&E. We've been focusing on making improvements on account receivables.

Okay. And then two more questions on outlook. One, I notice, as you talk about looking ahead strategically, there's not a mention of the Cylindrical business. Is that an area that's not a key part of your -- or you view as a key part of your growth at this point? Or how do you view the Cylindrical business?

Well, actually, we've seen an increase in the revenue, which is a 14.3% increase, compared to the last quarter. Actually, revenue growth in most of our product segments, in this quarter, we've seen a 10% revenue growth in the cylindrical battery cells segment.

Based on our estimation, we will have a bigger [deal] coming in, from next quarter; maybe see late of May, or early of June, we will see more than 3 million of 4 million cells coming in, in Q3.

Also, we have developed a couple of new type of battery cells, using the same production line, which will be definitely stretching our product portfolio.

So the [2.0] (inaudible) battery cells has been installed in the electric vehicles since last quarter. And we have delivered more than 150 pieces of battery packs to Tier 1 auto makers in Taiwan. And we have shipped more than 20 battery packs, using the same type of batteries, to BMW. And we have received very positive response from these auto makers, and we expect we will be given a repeated order very soon.

Okay. And I guess leading on, I was going to get to the automotive segment. As far as the Chery rollout, with its EV, can you give us a sense of what percentage of those cars that are going to be equipped with China BAK batteries, versus other suppliers?

I think the auto maker named Chery, actually, our Tianjin facilities has been supplying batteries to Chery. For the most recent quarter, the fiscal quarter one, we've seen a very positive sign in the revenue growth. We have delivered 120 pieces of battery pack to Chery in Q1. And we also received a very positive response from Chery.

So far, the pack sales in Tianjin facilities has increased to more than 90% in this quarter's overall sales. We expect the cells produced in Tianjin will account for more than 60% of the total battery sales.

Currently, in Tianjin, we have developed larger format cells, which is [3,600]. We will utilize this larger format battery cell into the electric vehicles. Chery; we have signed a Letter of Intent to supply these larger format cells for more than 500 cars, within this year.

So in Tianjin, I don't think the battery cells used for EV applications will grow very rapidly over the next two quarters. Because still, I believe, the main contributor in China BAK's revenue will be the prismatic battery cells, and the battery cells for use in laptops.

So yes, that's it.

Okay, thank you, [all]. And one final question. As we look ahead to heading into the spring festival holiday next week, is it safe to assume that your business is going to show the normal seasonality, where you tick downward during the March quarter?

The answer is, yes, we'll see seasonality, especially in February, because we will have a holiday of at least 10 days in February. So normally, February is a month of low revenue.

Okay. I appreciate you taking my questions.

Okay. Thank you, Mark. Thank you.

Thank you. (Operator Instructions) I'm showing no further questions at this time.

Okay. Thank you all for joining us today.

On behalf of the entire China BAK Battery team, thank you for your interest and participation on this call. This concludes China BAK Battery's first quarter financial year 2011 earnings conference call.

Thank you. Bye-bye.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.