CBAK Energy Technology Inc (CBAT) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by and welcome to CBAK Energy Technology's Fourth Quarter and Full Year 2021 Earnings Conference Call. Currently, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I'll turn the call over to Mr. Terry Li, Investor Relations Director for CBAK Energy. Mr. Li, please proceed.

Thank you, operator and hello everyone. Welcome to CBAK Energy's Fourth Quarter and Full Year 2021 Earnings Conference Call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer and Mrs. Xiangyu Pei, our Interim Chief Financial Officer.

We released results earlier today. The press release is available on the company's IR website at ir.cbak.com.cn as well as from newswire services. A [relay] of this call will also be available in a few hours on our IR website.

On the call with me today are Mr. Yunfei Li, our Chief Executive Officer, Mrs. Xiangyu Pei, our [Interim] Financial Officer, Mr. Xiujun Tian, our General Engineer, Mr. [Wang Wenwu], our Vice President and Mrs. [Yang], our interpreter.

Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995.

Forward looking statements involve inherent risks and uncertainties; as such the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC.

The company doesn't assume any obligations to update any forward looking statements except as required under applicable laws.

Also, please note that unless otherwise stated, all figures mentioned during the conference call are in US dollars. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Li will speak in Chinese, and I will translate comments in English. Go ahead, Mr. Li.

(Translated) Thank you, and hello, everyone. Thank you for joining our conference call. 2021 was a significant year for CBAK Energy as we make major achievements in multiple fronts.

We continue to strengthen our competitive advantages through innovative technology and product developments. [As scheduled], we scale up our power production capacity to capitalize on increasing (inaudible) demands for light electric vehicles and electric vehicles.

Specifically, we began production of lithium (inaudible) at our new facility in Nanjing and expanded capacity at (inaudible) facility. We believe these developments will bring long term benefit that will extend far into the future.

Moreover, we've brought in materials from (inaudible) our inventories with an (inaudible) of [81.56%] equity input (inaudible) [high] (inaudible) [medium base weight technology] corporation, to build up and enhance our (inaudible) product ecosystem. The transaction will only have crucial strategic benefits, which will (inaudible) stable supply of raw materials, even amid rising material costs. But we also expect it will help us generate greater revenues and even better financial performance in 2022.

In 2021, we continued to see higher revenues from high powered lithium batteries, which grew 46% to $33.3 million. The merging of (Inaudible) [also] added revenues of $17.8 million from December to bring our total net revenues in 2021 to [$53.4] million, up 40% from the previous year.

This increase was from the - from the effective execution of our growth strategy, which boosted our expansion in the battery storage market. Next, let me dive into our recent developments in technology and products that will strive to become a major battery supplier for top LED producers.

Following the conviction of (inaudible) we swiftly launched a commercial production of model [26700] (inaudible) and model 2 - [32140] (inaudible). The former one is applicable to two wheel electric bicycles, while the latter serves LED and [AO operate] (inaudible) the EV market.

The [AOO great] passenger electric vehicle is a category that will [impact on many EV] - the bestselling EV in China is under.

Additionally, we will develop a customized battery pack (inaudible) research and development China, which is a final [Japan] (inaudible) produces electronics and battery control systems for electric vehicles. As the COVID-19 pandemic has delayed raw material delivery, we are now expecting to send batteries (inaudible) this April.

The battery pack will initially be used as a (inaudible) release produced by [Die Hard Supermodel Corporation], a subsidiary of Toyota Motor Corporation. This is additional evidence of the industry's (inaudible) in our solid technology capabilities and supports us in developing more innovative product for EVs.

We also continue our efforts in developing large cylindrical batteries for the LEV and passenger [great EV] markets. We will share this in more detail later this year when we see more concrete progresses.

Moving on to capacity expansion, we're very satisfied with the progress, which is totally in line with our plans and responding to growing market demand, especially for the [LGB] and [super markets].

In Nanjing, we began operations at the [leading] - in Nanjing, we began operations at the lithium battery manufacturing plant [there] last year with an initial annual capacity of (inaudible) [7 gigawatt hours] for model [32140] battery. As we gradually ramp up the output to the (inaudible) production capacity, the batteries are being - the batteries are being delivered to customers.

We remain on track and on schedule to complete the first phase by the end of this year, when its total capacity will be lifted to 2 gigawatt hour each year, mainly for the same battery model.

Meanwhile, we are also pushing the construction of the second phase, for which we will mainly produce the model 32140 battery, as well as large cylindrical batteries that we are currently in the midst of developing.

In Dalian we started a new production line with an annual capacity of .4 gigawatt hour for our model 27700 battery for the LEV and energy storage (inaudible), in addition to the plant's main production of model [2650] battery. The Dalian facility has almost reached its full capacity, therefore we see need to further expand its capacity to meet higher demands for our products.

As of March, we have outstanding battery orders worth 230 million RMB or about $36 million, of which approximately 90% end users are overseas.

With that [I've now] changed our battery material (inaudible) in late November, we finally completed the acquisition of China's leading lithium (inaudible) battery material for (inaudible). Given the closing date [of the deal], we only took (inaudible) the December results for (inaudible) emerging (inaudible) is expected to significantly benefit our financial performance in 2022 and beyond.

We are very optimistic about its future given its well established customer network. Most of [hydrogen] clients are domestic companies and is currently operating at full capacity by focusing on production and sales of [MCM] precursors and (inaudible) materials for lithium batteries.

Hitrans' great performance and advanced technologies also allow it to be among the small and medium sized enterprises that dominate major markets in niche sectors and secure increase to financial and [tax report on] (inaudible) credit [forthwith] from the government.

As 2022 evolves with (inaudible) electrification wave of new energy vehicles continuing and becoming even stronger, despite the short term impacts resulting from chip shortage and rising material costs for lithium batteries - with multiple factors such as favorable policies at home and abroad, the supply chain blockage and increasing material and components costs, we expect a new energy vehicle market will see explosive sales growth.

Based on forecasts from industry [and expectations] and financial (inaudible) [power based group] is likely to (inaudible) [450] gigawatt hours in 2022 with (inaudible) current battery supply, and it's raising battery prices. However, we expect battery prices will be more regional in the long run - [continue technology] innovations left by the development of (inaudible) large cylindrical batteries [we are also] (inaudible) lithium battery cost.

With the implementation of new national standards for LEVs, sales of this vehicle type will accelerate and drive the industry's consolidation and bring sector leaders into the spotlight. The entire industry is now evolving in the direction of lithium electrification, alongside intelligent and long range technologies.

Lithium batteries for LEVs also perform exceptionally well in vehicle sharing, batteries (inaudible) and super charging - at the same time, under the impact from the pandemic, the overseas market for LEVs has also grown, especially for e-bikes, high speed electric motorcycles and electric three wheelers.

To meet the aforementioned demands from EVs and LEVs, we will continue our focus on ramping up capacity and broadening the materials business in fiscal year 2022. First, we will accelerate construction and commissioning for the second phase of the Nanjing plant this year. At the same time, another production line of this first phase is also being built, and as noted earlier, we hope that entire first phase will be put into production in 2022.

The investment and release of Nanjing's product and capacity will further increase the company's revenues from the battery business and will be of significant support for our steady entry into the EV market.

Meanwhile, we will use the strategic value of [high] (inaudible) to expand our raw material business and integrate our upstream and downstream. We hope to not only maintain a stability of raw materials of Hitrans, but also grow the raw material business, which is now popular due to the rising material prices into one of our main business lines.

We believe this segment of revenues will play a significant role in driving up our sales in 2022. As we look ahead, we believe these growth drivers and strategies position ourselves competitively in the industry and empowers us a leader in lithium battery production and battery energy solutions.

Now, let me turn the call over to our Interim CFO [Xiangyu], who will provide details on our financial performance.

OK, thank you, Mr. Li and Terry. And thank you everyone for joining our call today. I will now go over our key financial results for the fourth quarter and full year of 2021. For the full details of our financial results, please refer to our earnings press release.

In 2021, we continued to expand revenue and gross margin levels that are driven by stronger sales of batteries [so a interruptable supply and] (inaudible), as well as the addition of the mature (inaudible) business [brought] by the acquisition of Hitrans.

We also turn to profitability in 2021 from a loss in the previous year. Notably, we continue to (inaudible) [to a new] (inaudible) - [new business], as well as research and development to [jobs for the growth]. We believe [this invest - the investments] combined with our strong financial position [and powerful] battery project ecosystem will propel us towards long term profitable growth.

Moving down to our results, in the fourth quarter of 2021, net revenues surged [18%] to $27.8 million from the same period of 2020, primarily due to strong sales [of our] high power lithium batteries and additional revenues from lithium battery materials, brought by the acquisition of Hitrans from the (inaudible) 2021 to December 31st 2021.

For the full year 2021, net revenues were up [30%] to $52.7 million, of which [$34.3 million] was from high powered lithium batteries, which grew 49% year over year, and $17.8 million was from Hitrans since this acquisition.

Cost of revenues was $26.8 million in the fourth quarter and [$47.6] million for the full year 2021, up [86%] and 36% respectively from the previous year.

Gross margin was 3.7% in the fourth quarter compared with 6.8% in the same period of 2020, as raw material costs rose. Still in 2021, a gross margin rose 350 basis points year over year to 9.7%. The improvement in gross margin was primarily attributed to the increase in the [quality of housing] rate of our project, which was a result of our quality control and upgrades on production lines.

In the fourth quarter we decreased operating expenses by 3% from the previous year to $6.8 million, as we recovered some [doubtful] accounts. And there is no impairment charge on property, [loans], and equipment, which of that the impacts [don't] include the expenses related to research and development, sales and marketing and general administration.

For the full year 2021, our operating expenses rose 15% to $16.8 million, primarily due to growing (inaudible) and the acquisition of Hitrans. Within that, our research and development expenses were $5.3 million and sales and marketing expenses were $2.3 million. Each more than tripled from the previous year.

Our R&D expenses accounted for about 10% of revenues in 2021, up from 4% in 2020, as we expanded our efforts to upgrade technology and products. Additionally, general and administration expenses included the [168% to $10 million]. Still, our operating expense [initial] was 32% in 2021, compared with 30% in 2020.

Our change in [fair value of warrants] was $4.6 million in the fourth quarter, compared to [$2.81] million in the prior year. [That's not attributable] to shareholder of CBAK Energy was $9.2 million during the period, compared to net loss attributable to shareholders of CBAK Energy over $4.3 million in the same period of 2020.

For the full year, our [change in fair value of warrants] was [$61.8] million, compared with $2.1 million in the prior year. Net income attributable to shareholders of CBAK Energy was [$61.5] million, compared to net loss attributable to shareholders of CBAK Energy of $7.8 million in 2020.

As of December 31, 2021, our cash and cash equivalents (inaudible) $7.4 million compared to $2 million as of September 30, 2021. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Thanks.

(Operator Instructions). Our first question comes from the line of Laura Liu from Stone Street Group. Please ask your question.

(Translated) Due to the conflict btw Russia and Ukraine, the price of cobalt and nickel has increased sharply, how would this impact the raw material production in Hitrans and the production of lithium ion batteries in CBEK Energy? And what measures do the two companies have in place to cope with the rise in metal price?

(Foreign Language).

(Translated) OK, with regard - yes, with regard to battery business, the materials involved in most orders and shipments of CBEK Energy are lithium ion phosphate and the price rise of cobalt and nickel has little influence on our products.

In terms of material business, the [astignation of a rise] in metal price does have some impact, but the company can navigate by picking various measures, for example, we've learned that the shelf life of nickel salt and manganese is long - is quite long compared with other metal. We have replenished the stock when the price is low and we have replenished to quite a high level, so we can log the production profits and also build a linkage between the sales price and material price.

And with all these measures, we can mitigate the impacts on our material business and even make some profit from it. And on another hand, now batteries are scarce resources in the market and the customers can basically digest the price increase caused by the external factors after we communicate with them, they can understand and the - they also told us that the impacts on the material preparation and sales is acceptable to them.

Thank you, Laura. Do you have any follow up questions?

(Translated) OK, I have a second question, how do you see the electric vehicle or electric vehicle battery market in 2022?

(Foreign Language).

(Translated) OK, so due to the price increase of raw materials, we did see some impacts to the market, however if we have a look at a long term market investment potential, we can see that the whole market is turning to electrification and but we also have [admitted] the conflict between Russia and Ukraine, together with some geopolitical issues, the price fluctuation is quite huge.

However, we are happy to see that the consumers can digest and understand and also they can absorb the pressure brought by the price increase of raw material. And if we have a look at the battery industry and EV industry in China, we can see that there is a big increase, a double or even triple increase in the domestic EV market, including we see a sharp increase in the sales of some major car manufacturer companies like Tesla and B - [BYD] (inaudible).

And if we have a look at the [AOO] passenger cars, we can see that no matter the sales at the high end or medium end or low end, our sales amount rank - always rank top three. And last year, in terms of [AAO - AOO] passenger cars, in terms of the sales volume, the total EV consumer vehicle in the sales, we also [amount] - we also occupy number one and number two in the markets.

So, if we look into the future, we can see that the EV market still maintain a rapid growth momentum and in turn, the market demand for battery will also increase correspondingly, and all [these] market situation are in line with our industrial layout and our market position.

Yes, I want to add some more information, according to the - (inaudible) - sorry, according to the industrial institution and data from the platform, it is estimated that the sales volume of new energy vehicles will reach 4.8 million and 4.4 million at home and abroad, respectively in 2022, and we have a look at the demand for power battery, it is estimated to reach 450 gigawatts.

Besides that, in terms of light electric vehicle, the sales volume of electric two-wheelers in China, amounted to 48 million in 2021 and the penetration rates of lithium battery was 2 - 25%.

And (inaudible) in 2022, with the implementation of new national standard, the [weapon] of electric vehicle will accelerate [the reshuffle] of the light electric vehicle industry and the industry will become more consolidated.

And it will be featuring lithium battery empowered electrification, intelligence, and long range. And [our - it] (inaudible) - [or add] all this together, we will see that the lithium battery of light electric vehicles will also developing rapidly in car sharing, power (inaudible) charging (inaudible). So, we believe that the market prospects will be promising in the future - in 2022.

(Inaudible).

(Inaudible).

Thank you. Your next question comes from the line of Karl Birkenfeld from (Inaudible), please go ahead.

OK, that's American Trust Investment Services - Karl Birkenfeld in New York. The question I have is - the first question I have is has the lockdowns in COVID adversely affected your production facilities in Dalian and Nanjing? And - that's my first question has COVID affected those facilities?

(Foreign Language).

(Foreign Language).

(Translated) OK, so since the outbreak of COVID-19 in the beginning of 2020, it has been over two years now, but if we have a look at China, we have to say that there is no major impacts in our production facilities in both Dalian and Nanjing, although we did underwent - undergo some shutdown, however the - it didn't last long, so it didn't exert a big impact on our production.

And if we look at this issue from the perspective of customer need, during this past two years, we witnessed a sharp increase in the need for new energy vehicle and lithium batteries, that is why our orders have been increasing. So, we have to say that there is no impact - no negative impact in (inaudible) from the perspective of consumer need.

Thank you. My second question I think was answered in the previous person asking a question, and that was the material cost increase in the lithium batteries, I guess you guys are passing the increased costs on to your consumers to keep the margins the same?

OK, so it's a question, right? (Foreign Language)...

Yes, [that's a question].

... (Foreign Language).

(Foreign Language).

(Translated) OK. So, we have been through - answered this question from [through] different business segments. First of all let's have a look at our material business. As our material business stands at the upstream of the industrial chain, so it is more easy for us to pass the price increase to the medium or the low end.

And if we have a look at the second segment, that is our battery business - battery business, we stand in -- at the medium - median end and then for the passing over of the price increase, it will be a little bit slower - there will be some latency in it. So, for - due to the increase of the price of lithium carbonate, there will be some impacts in our battery business and we are going to see an influence starting from Q4 of 2021 and then also in this year - we are going to see a passing down of the price increase to the downstream gradually.

Thank you.

Thank you.

You're welcome.

(Operator Instructions). We have a follow up question from the line of Laura Liu from Stone Street Group. Please go ahead.

(Foreign Language).

(Inaudible).

OK, I - I have...

(Inaudible).

... ah, sorry, (inaudible) [translate it first]...

(Foreign Language).

... OK so I have a question - yes, I have a question concerning the strategy priority of the company in 2022, could you give some updates?

(Foreign Language).

(Translated) OK, so if we have a - to answer this question, I'm going to say that there were two areas of priorities that we will pay special attention to in the year 2022. First of all, we are going to try to maintain our advantages in the traditional business, including energy storage and our EV. We will try to maintain a rapid growth in this area and besides that, we will also try to research and develop more high end products.

And secondly, we will also try to gain more customers, especially big customers in our [depot] business. And this year, we are going to focusing and centering on these strategies so as to ensure that these two priorities will be well attend.

And in terms of product line allocation, we will try our best to promote the construction and operation of Nanjing phase 2 project and also try to accumulate more market needs to ensure that after the expansion of capacity, our products will well meet the needs of the - of the customers, the medium and big customers.

And I also want to add that - that according to our business strategy, actually our energy storage business have witnessed big growth, especially that we have gained a lot of orders from the overseas markets. And our order scheduling have been met until 2023 already and we will also try to attend more two-wheeler and our EV customers, not only overseas but also in the domestic markets.

And we will also try to grow our business in our EV especially in some business with big profits like batteries [swapping] and battery charging. And for Nanjing, we will also have the plan to develop the large cylindrical batteries, which we believed will be suitable for the [AOO and AO] passengers - passenger cars. So, we will try our best to make all this priority well implemented.

(Translated) So, just I want to add more points, so as the previous speaker just mentioned about that our order have been received until 2023, that is to say that now the supply has outperformed the big - the big (inaudible) has outperformed the supply, exceed the supply, and in 2021, we used one year to expand the production capacity of our Dalian and Nanjing facilities, which have put us in a very good position to provide enough production capacity and on the other hand, we have already gained sufficient orders.

And all these [two favorable conditions] will lead to which we believe, are outstanding financial performance in the year 2022, and we will try our best to make good use of the existing capacity and we will also have a close look at the market need and to decide whether to expand - further expand our capacity in Nanjing or Dalian or not. So, what I've been talking about is our battery business.

If we have a look at our material business, after the acquisition of Hitrans, we have well integrate the upstream and downstream supply chain, and given that the price of raw material have - it has been increasing, the acquisition well -- also well positioned us in favorable [conviction - position], and I believe that our material business will also be a highlight in our Nanjing business in 2022.

So, with all this - adding all these sectors together, I believe that the performance of our company in 2022 can be well anticipated. We have confidence in it.

Thank you, Laura, do you have any further questions?

(Translated) I have no more questions. Thank you.

Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Yunfei Li for closing remarks.

(Foreign Language).

[All right], thank you (inaudible)...

Thank you...

(Translated) Thank you all for joining this meeting, and we are looking forward to providing you more updates in the next quarter's [in the meantime].

Thank you all again. This concludes the call. You may now disconnect.