CBAK Energy Technology Inc (CBAT) 2012 Q1 法說會逐字稿

Good morning, everyone, and thank you for joining us on China BAK Batteries' conference call for the first quarter of fiscal year 2012 ended December 31, 2011.

During today's call, we will provide details on the Company's first quarter fiscal year 2012 financial results, as well as provide a corporate update about recent activities. Today's call will be limited to one hour.

Since CFO, Mr. Marcus Cui, is in hospital due to illness and is expected to recover shortly, and CEO, Mr. Li, is unavailable to attend this call due to prior commitments, unfortunately the Q&A section cannot be held as expected. Management plans to have a face-to-face discussion with investors at the shareholders' meeting next month and a conference call will be held for this meeting.

In their stead, Roger Ellis, Partner & SVP for Market Intelligence, from CCG, will offer Mr. Li's and Mr. Cui's remarks.

Before we get started, I would like to remind our listeners that management's comments today will contain forward-looking statements. 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 Securities and Exchange Commission, as well as the news release that was distributed earlier today.

Statements made on this call are made as of February 7, 2012 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 those initial formalities out of the way, it is my pleasure to turn the call over to Mr. Roger Ellis. Mr. Ellis, please go ahead. Thank you.

Thank you, operator. On behalf of the management team, I would like to welcome everyone to China BAK first quarter fiscal year 2012 earnings call.

The Company is pleased to begin fiscal year 2012 with strong revenue growth and a significant gross margin recovery, which was largely driven by its operational strategy and customer demand.

China BAK also adjusted its product mix to meet customer demand and target high potential markets.

During the first quarter of fiscal 2012, the Company increased sales of its prismatic batteries to Tier 1 OEM customers and expanded target markets for its cylindrical battery products and high-powered batteries used in electric vehicles. China BAK plans continue to seek increased market share for its prismatic battery cells to Tier 1 OEM customers in China and overseas.

In addition, the Company acquired new customers for its high-powered lithium battery sales, while retaining existing customers for electric bicycles and other electric vehicles in China.

The Company's focus in fiscal year 2012 is on sales of lithium, polymer batteries, as polymer is the most in-demand lithium-ion product in the ultra-thin smartphone and tablet computer market.

China BAK's research and development team is working on developing new cylindrical battery cell products for use in notebook computers to increase its market share and improve gross margins.

Its strategy is to pursue opportunities to help reduce costs of revenue and improve gross margin. Therefore, the Company strives to expand the use of its products in high-end markets, to increase its selling prices and reduce manufacturing cost and raw material cost.

Now, we'd like to discuss the business outlook for the next few quarters. The Company anticipates its business, including increasing competition from foreign and domestic battery cell manufacturers in China, and the weak global economy. Its strategy is, therefore, focused on product diversification, operational efficiency and developing prudent sales plans.

China BAK's strategic plan continues to target generating positive cash flow from operating activities for fiscal year 2012 and '13. Under this plan, the Company will continue to increase its presence in the OEM market, both domestically and internationally, with more aggressive marketing strategies to expand and secure its market base.

China BAK will also continue to implement reductions of both manufacturing costs and operating expenses to improve credit margins, as well as improve receivable turnover days through tighter credit controls.

As part of its sales and marketing strategy over the past few years, the Company has been actively promoting its product portfolio at several industrial conferences.

During the first quarter of fiscal 2012, China BAK attended the 2011 International New Energy Application and Battery Exhibition, hosted by the China Battery Industry Association, Beijing. The Company exhibited various cell types, including the 18650, 26650, 26700 and 36800 cells and various models for use in EVs and e-bikes.

The new single battery, developed as a result of its research efforts addressing the technical challenges associated with the internal high temperature conditions in a battery, was also displayed at this exhibition.

The Company also had on display three e-bikes and four power tools powered by its lithium batteries to enhance the attendees' experience and provide a better understanding of China BAK's products.

The Company is looking forward to additional opportunities to showcase its products at similar energy exhibitions. It believes these exhibitions provide it with a strategic platform to present its product portfolio and R&D achievements. China BAK expects that a great number of auto manufacturers and e-bike manufacturers will be able to understand its products, enabling it to expand its market share and strengthen its market recognition.

Lastly, the Company notes that it has not received any negative feedback on its battery packs from customers. China BAK is aware of the battery explosion incidents, and understands that its shareholders and investors are concerned about its impact on its products. The Company wants to assure its shareholders that China BAK is not impacted by such incidents.

Now, I will read Marcus's section, and review this quarter's financial performance in further detail.

Net revenues for the first quarter were $71.8 million, up 16.5% from $61.6 million last quarter, and up 12.9% from $63.5 million for the same period in fiscal year 2011.

Revenues from prismatic products, including aluminum-case cells and battery packs, which are used in mobile phones and certain personal electronic devices, were $55.1 million, up 16.7% from $47.2 million in the previous quarter, and up $16 million (sic - see press release) from $47.5 million from the same period in fiscal 2011.

Revenues from cylindrical cells, used in notebook computers, certain electronic devices and electric vehicles, were $13 million, up 27.1% from $10.2 million in the previous quarter, and up 23.9% from $10.5 million for the same period in fiscal year 2011.

Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $2.6 million, down 12.7% from $3 million in the previous quarter, and down 24% from $3.5 million in the same period in fiscal year 2011.

Revenues from high-power lithium battery cells, used in electric bicycles, other electric vehicles, power tools and uninterruptible power supplies and other applications, were $1.1 million, down 9.8% from $1.2 million in the previous quarter, and down 49.6% from the same period in fiscal year 2011.

Gross profit for the first quarter fiscal year 2012 was $14 million, up 69.8% from $8.3 million in the previous quarter, and up 40.4% from $10 million in the same quarter of last year.

Gross margin was 19.6%, significantly up from 13.4% in the previous quarter, and 15.7% in the same period one year ago.

The increase in gross profit was largely due to an increase in average selling price of the Company's cylindrical batteries, which significantly increased the gross margin of the Company's battery products. The Company also benefited from an increase in gross profit from sales of its prismatic battery products as a result of additional direct sales of battery packs to OEM cell phone manufacturers driven by strong customer demand.

Operating expenses totaled $11.7 million, or 16.3% of revenue, in the first quarter; down 13.2% from $13.5 million, or 21.9% of revenue, in the previous quarter, and down 0.8% from $11.8 million, or 18.6% of revenue, in the first quarter fiscal 2011.

Operating expenses in the first quarter of fiscal 2012 include an impairment charge of $2.7 million, compared with an impairment charge of $6.5 million in the previous quarter, and no impairment charge in the first quarter of fiscal 2011.

Research and development expenses were $1.2 million, or 1.7% of revenue; down 33.5% from $1.9 million, or 3.0% of revenue, in the previous quarter, and down 24.4% from $1.6 million, or 2.6% of revenue, in the same quarter of fiscal 2011.

Sales and marketing expenses were $2.0 million, or 2.7% of revenue; down 3.4% from $2.0 million, or 3.3% of revenue, in the previous quarter, and down 13.9% from $2.3 million, or 3.6% of revenue, in the same quarter of fiscal 2011.

General and administrative expenses were $5.8 million, or 8.1% of revenue; up 89.2% from $3.1 million, or 5% of revenue, in the previous quarter, and down 26.5% from $7.9 million, or 12.4% of revenue, in the same quarter of fiscal 2011.

Operating income for the first quarter was $2.3 million compared to operating loss of $5.2 million in the previous quarter, and operating loss of $1.8 million in the same quarter of fiscal 2011.

The net loss was $1.8 million, or diluted loss per share of $0.03, in the first quarter of fiscal 2012 compared to a net loss of $9.6 million, or diluted loss per share of $0.15, in the previous quarter, and net loss of $3.7 million, or diluted loss per share of $0.06, in the same quarter of fiscal 2011.

In fiscal year 2012, China BAK will continue to explore and capitalize on opportunities to generate additional sources of revenue through new product offering. The Company is confident to achieve top line growth by expanding sales in each segment, and improve the bottom line by reducing operating costs. The management team is confident that China BAK will successfully achieve a turnaround in fiscal year 2012.

And, on that note, I would like to thank you for your participation in the call today, and will remind you that the Q&A will be available at the shareholders' meeting, and also you can contact me in my US, Los Angeles, office to arrange a one-to-one conference call to follow up, or directly to management.

Operator?

Thank you. 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 fiscal year 2012 earnings conference call. Now you may all --