CBAK Energy Technology Inc (CBAT) 2011 Q2 法說會逐字稿

Good evening, everyone, and thank you for joining us on China BAK Battery's second quarter of fiscal year 2011 ended March 31, 2011 conference call. During today's call, we will provide details on the Company's second quarter fiscal year 2011 results, as well as provide a corporate update about recent activities. Today's call will be limited to an hour.

With me today on the call are Mr. Xiangqian Li, China BAK's Chairman, Chief Executive Officer; Dr. Huanyu Mao, China BAK's Chief Technology Officer and General Manager of BAK Tianjin and Mr. Marcus Cui, China BAK's Interim Chief Financial Officer. Mr. Li, Dr. Mao, and Mr. Cui will be available to answer questions during the question and answer session.

Our agenda for today is as follows. 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 strategies. Finally, we will open the call to your questions.

Before we get started, I would 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 recent and forward disclosures are made pursuant to the Safe Harbor provisions 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 today. Statements made on this call are made as of April 28, 2011. And the Company undertakes no obligations 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 the 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 second quarter fiscal year 2011 earnings call.

I would like to begin by noting that typically our February quarter is a seasonally low sales month, due to plant closures during the national holidays and the Chinese New Year. In addition, the high turnover of workers during the holiday season resulted in reduced output during the second quarter of fiscal 2011.

Later, Marcus will give us more detailed analysis about this quarter's performance.

(Spoken in Chinese).

Okay. I will continue to -- on behalf of Chairman Li to introduce his opening remarks, as Chairman Li is missing his -- the comments in the written paper.

So okay, I would like to discuss a little bit more about our strategy in such a difficult market situation. We are actively pursuing new OEM orders from brand-name cell phone manufacturers and increasing our market share in the OEM market to offset the loss in revenue from the replacement battery market. We expect to secure new orders from OEM customers, including ZTE, Huawei and CCL in the coming quarters, which will help boost the sales our aluminum case cells product.

With production capacity and yield improvement, I expect that profitability in Q3 from prismatic cells will start to improve. And we expect to see a significant improvement in the fourth fiscal quarter.

Following the earthquake in Japan, orders for our cylindrical cells have increased. And we expect our cylindrical cells business to break even, as early as the beginning of the fourth quarter, due to improved pricing strategies as we expect our new low-cost and longer life-cycle cylindrical cells used in notebook computers and the power tool manufacturers to exhibit strong sales volume in the coming quarters.

The growth opportunity in the electric vehicle market continues to remain strong and we are expanding our presence in this market. During the second quarter, BAK Tianjin expanded its customer base and shipped four electric car packs to Tianjin Auto, which will be used to power pure electric cars used for postal deliveries. Upon approval by the local government, the pure electric cars will be used in over 20 cities in China for postal deliveries, presenting an attractive growth opportunity.

Okay. I will start my -- with the comments on this quarter's -- on the fiscal -- second fiscal quarter financial and operational results.

We recorded revenue of $46.7m, down approximately 7.4% from $50.4m in the year-ago period.

Our gross profit for the second quarter was $4.4m, down 50.6% from $9m in the same quarter of last year.

Gross margin was 9.5%, in comparison with 18% in the year-ago period. Decline in sales and gross margin during the quarter were attributable to a number of factors, including falling demand for replacement batteries, impacting sales and average selling prices of our aluminum-case cells, decline in average selling prices of our cylindrical cells and battery packs, which was offset by increased sales volume, and slowdown in orders from our lithium polymer cells customers, which was offset by an increase in selling prices.

Revenues from prismatic products, including aluminum-case cells and battery packs, which are used in mobile phones and certain personal electronic devices were $29m, which was down 39% from $47.5m last quarter and was down approximately 17% from $35m for the same period in fiscal 2010.

In addition, our relatively new business, battery packs, demonstrated increased market demand with 26% jump in sales volume during the second quarter, compared to the year-ago period. We expect continued growth in battery pack orders from OEM market. And overall pack sales are expected to rise in the second half of fiscal year 2011.

Revenues from cylindrical battery cells used in notebook computers were $15.2m, which is up 45.2% from $10.5m last quarter and up almost 14% from $13.4m for the same period in fiscal 2010.

Revenues from lithium polymer cells used in personal electronic devices, such as PDAs, MP3 players and Bluetooth devices were $1.7m, which was down about 51.6% from last quarter and down 2.4% from the same period in fiscal 2010.

Revenues from high-power lithium battery cells used in electric vehicles, electric bicycles, power tools, uninterruptible power supplies and other applications manufactured at our Tianjin facilities were $0.8m, which was down 62.5% from last quarter and up 123.6% from the same period in fiscal 2010.

Our Tianjin facility has received positive market feedback [for samples] of its high-power lithium battery cells. In February 2011, we secured a new contract to supply lithium ion high power batteries from a leading e-bike manufacturer, which is called XDS Shenzhen Xidesheng Bicycle. And we are confident that we will increase our revenue, our market share in the e-bike and electric vehicle segment, as we gradually increase our high-power cell production.

Gross profit for the second quarter of fiscal 2011 was $4.4m, which was down 55.5% from $10m last quarter and down 50.6% from $9m in the same quarter of last year.

Gross margin was 9.5%, in comparison with 15% (sic - see press release) last quarter and 18% in the year-ago period. The decline in gross profit was mainly attributable to a decrease in sales volume and average selling prices of prismatic cells, as a result of traditional seasonality and intense competition in the market. In addition, the decline in selling prices of cylindrical cells also caused a decline in gross profit.

Operating expenses totaled $6.3m or 13.4% of revenue in the second quarter, compared to $11.8m or 18.6% of revenue in the last quarter and $8.1m or 16.2% of revenue in second quarter of fiscal 2010.

We reported an operating loss of $1.8m compared to $1.8m in the last quarter, and operating income $0.9m in the same quarter last year.

Net loss was $4.1m or diluted loss per share of $0.06 in the second quarter of fiscal year, compared to net loss of $3.7m or diluted loss per share of $0.06 in the last quarter and net loss of $2.5m or diluted loss per share of $0.04 in the same quarter last year.

Okay. Now I would like to briefly discuss key balance sheet items. On March 31, 2011, we had $25.6m in cash and cash equivalents.

For the second quarter of fiscal year 2011, days sales outstanding increased to 177 days from 126 days last quarter. And days sales of inventory increased to 143 days from 110 days last quarter.

Short-term bank loans and long-term bank loans totaled $173m, in comparison with $177.6m on December 31, 2010.

Shareholders' equity totaled $147m.

We had $68.1m available for borrowing under its credit facility. We generated $2.6m from cash flow from operating activities in the second quarter of this fiscal year.

I would like to highlight that we have sufficient available capacity to support increase in order flow from new and existing customers. For the second quarter, the capacity utilization for our prismatic cells was about 50%. Cylindrical cells was 55% and for high-power lithium ion batteries it was 60%.

We also remain focused on our turnaround strategy and we are working towards implementing a more stringent receivables collections policy to strengthen our cash position, reducing costs in the prismatic business and increasing prices of our cylindrical products. Our planned capital expenditure for fiscal year 2011 is approximately $25m. And we believe we can finance these expenditures with cash flow from operations, cash in hand and available credit facilities.

Lastly, a few updates on our R&D efforts, which is an important cornerstone of our technology-intensive business. We have a leading team of R&D professionals, who assist in developing a strong product pipeline and [improvising] existing product offerings. To further enhance our R&D efforts, we are currently constructing a new R&D task center in Shenzhen, which will be put to use in 2012.

In conclusion, I would like to emphasize that China's central government has announced that the industry of electric vehicles will be significantly supported and developed in the period of implementing the 12th Five-Year Plan. As one of the most important segments in the EVs, we believe our high-power lithium ion batteries used in electric vehicles, e-bikes and uninterruptible power supplies will benefit from the government-supported policies. Our Tianjin facility will continue to enhance product quality, expand and strengthen our market position.

In the near term, we are also focusing our efforts to increase our market share in mobile phones -- in the mobile phone market in domestic and the notebook computer market overseas. We will take efforts to improve the profitability of prismatic cells and cylindrical cells by continued cost-cutting and yield improvements. Our management team is dedicated and focused on achieving a successful turnaround in the coming quarters.

On that positive note, I would like to thank you all for your participation on the call today. Mr. Li, Dr. Mao and I are happy to answer any questions you may have. Operator.

Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions).

Your first question comes from the line of Mr. Dave Davidson of Edge Financial. Please ask your question.

Good evening, gentlemen.

Good evening.

You're probably not going to like what I'm going to say, but I have to say it. I've been following your stock for quite awhile. And every time we have this conference call, your stock is always in a dollar price range. Are you people embarrassed that every time you have a conference call that it's at $1 per share, give or take, because I think you would probably be -- I don't think it's nothing to be proud of.

Okay. Yes, I think that's true. We had a very upset quarter.

Well every quarter you have seems to be -- it's always the same old thing. The only -- if I was in your shoes, the only time I'd be doing a conference call was if the stock was over $10. But I think to save money you shouldn't be doing conference calls anymore.

Well it's not the amount.

Excuse me?

It's not the amount [without] a conference call.

Well it's the same old, same old -- same old story. And apparently you guys aren't doing something right over there, otherwise this thing would be at $10, $20, $30 a share.

Well, currently in the management we have been trying whatever we can to improve all the numbers. Even though we had an upset quarter, as what I mentioned in my statement just now, we expect some of our business will be breaking even as early as the beginning of the fourth quarter this year. So we have implemented several measures to try to improve everything, the bad numbers we had over the past few quarters. I understand how you are feeling right now, but what I can say is we are going to try to do our best.

I want to add something else to it. Have you guys looked into possibly [stuff] to drive your cost down, maybe looking into purchasing some lithium mines, where it's under your ownership, instead of coming to second or third parties?

No, we haven't done that. Yes, that's one of the problem we need to focus on.

It's a good idea, right?

Yes. But --

You can cut out the middle man that way.

Right now, one of our top priorities to improve the financial performance is the cost cutting. That's already been penciled in our schedule. So we'll try our best.

Well all I can say is I want to thank you for answering that and I appreciate that. And I hope you guys can do everything in your power to improve the situation with the Company and your stock price. And I want to thank you.

Thank you.

Thank you.

(Operator Instructions). There are no further questions at this time. I would now like to hand the conference back to today's presenters. Please continue. Mr. Cui, please continue the conference.

Thank you all for joining us today. If we don't have any further questions, we may end today's conference call. Thank you so much.

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 second quarter fiscal year 2011 earnings conference call.

Portions of this transcript that are noted interpreted were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.