Kandi Technologies Group Inc (KNDI) 2019 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Kandi Technologies Full Year 2019 Financial Results Conference Call. For your information, today's conference is being recorded. I would now like to turn the call over to your host, Ms. Kewa Luo. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to Kandi Technologies Group Full Year 2019 Earnings Conference Call. The company distributed its earnings press release earlier today, and you can find a copy of it on Kandi's website at www.kandivehicle.com.

With us today are Kandi's Founder, Chairman and Chief Executive Officer. Mr. Hu will deliver prepared remarks, followed by a question-and-answer session.

Before we get started, I'm going to review the safe harbor statement regarding today's conference. Please note that the discussions today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties, as such, the company's results may differ materially from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company's annual report on Form 10-K for the fiscal year ended December 31, 2019, and in other documents filed with the U.S. Securities and Exchange Commission. Kandi does not assume any obligation to update any forward-looking statements, except as required under the applicable law.

As a reminder, this conference call is being recorded. In addition, an audio webcast of this conference will be available on Kandi's Investor Relations website.

I will now turn the call over to Kandi's Founder, Chairman and CEO. Mr. Hu Xiaoming.

(foreign language)

[Interpreted] Hello, everyone, and thank you for joining us on the call today. In 2019, due to the restructuring of the joint venture company, which we now call the affiliate company, we started production of our previous EV products in order to make adjustments and upgrade the product structure. Despite these challenges, Kandi had a strong year in 2019 with solid performance. Full year 2019 revenue was $135.7 million, up 20.7%, and the gross margin expanded to 18.7%. Please refer to the Form 10-K we filed today for more detailed financial information.

(foreign language)

[Interpreted] In 2019, we laid the groundwork for growth with new product development, market expansion and implementing government-accredited ride-sharing vehicles in the third, fourth-tier cities, however, the COVID-19 crisis has delayed the progress in 2020. Once the virus situation is under control, the foundation we have built in 2019 will enable us to succeed this year. We will keep the market informed with more information as required.

Now I will answer your questions. Please go ahead. Operator, we are ready to take some questions.

(Operator Instructions) We will take our first question from Walter Hill of Carty & Company.

Regarding Kandi's expected strong balance sheet, with the full magnitude of it -- while the full magnitude may not show up until Q1 is reported in a few weeks. Due to payments from Geely and maybe Jinwa in Q1 2020, based on the $75 million, basically $1.20 in positive working capital and $221 million, about $4.25 in book value at the end of Q3 and the sale of the Jinwa facility, which appears to be priced at least 10x higher than what the Jinwa facility was on Kandi's books. It appears that Kandi's balance sheet could soar to a net book value of around $285 million or about $5.38 a share, and working capital of $137 million, about $2.85 a share. My questions. Clearly, if even close to these expectations, Kandi will have one of the strongest balance sheets relative to a market cap of any EV player in China. Do we expect to possibly see Kandi take advantage of the industry stress in China by making one or more cash acquisitions? And after the Q1 quiet period ends, and numbers are reported in a few weeks, could we expect to see a resumption of either insider or company share buybacks?

Thank you for your question. Let me translate. (foreign language)

(foreign language)

[Interpreted] Thank you for your questions. I believe there are significant impacts on all the companies as a result of COVID-19 pandemic. I don't think we are prepared for this. According to the evolving situation, the company will approximate appropriate adjustments to the strategic business planning. We should focus on having a steady growth. For now, we are not actively planning on any questions -- any acquisitions unless there are some positive companies. Otherwise, we are not planning for now.

And to answer your second question, we are bullish on our long-term outlook. But given the highly volatile nature of the COVID-19 crisis, we believe that conserving our resources is the most prudent course of action in the near term.

We move to our next question from [Frank Blatterman] of -- a private investor.

I have 3 very short questions. First question. Is the Hainan -- is the high count factory on Hainan Island presently manufacturing vehicles, and which vehicles are being manufactured there?

Do you want to finish asking all the questions and -- which we can answer all together?

Sure. Second question. Have any sales occurred to ride-hailing companies located on Hainan Island? And if so, how many? And are they continuing? And my third question, from Google Earth views, what appear to be 2 dormitories on the campus on Hainan Island associated with Kandi's plot. Do the presence of the dormitories and the use of them present any risk to the employees, if they are there from the COVID-19? And if so, what precautions has the company taken to keep them healthy?

Okay. Thank you. (foreign language).

(foreign language)

[Interpreted] First of all, thank you for your questions. Hainan factory mainly manufactures model K23. This is for the ride-share market. But because of the COVID-19 situation, the local government suggest us to put on hold for any sales to the ride-share market. Again, due to this very fast-changing COVID situation, we can't make any solid sales forecast at this time. Regarding to the dormitories and our employees there, because it's a very -- it's a brand-new building there, I believe it's a very safe place for them to be residents. And for everyone who came from the -- outside of the city, they all have to go through the 14-day quarantine. So for now, there is no expected cases happens in our dormitory.

We take our next question from [Terry Macklemore] of [Macklemore & Associates].

Thank you, Mr. Hu, for a very nice last 15 months in some pretty tough and challenging times. First, I want to tell you that I've lived in Oklahoma City, Oklahoma for all my life. But 10 years ago, I moved to a neighborhood that, believe it or not, had 2 of the Kandi Cocos. And I need to tell you that I've driven them and they are both still running today. So there's a testament to these things will last a long time. Anyway, my question is about sales in the United States. How is that going? What are any tariffs or COVID-19 problems that you're seeing? And what's your expectations for sales in the U.S. going forward?

(foreign language)

(foreign language)

[Interpreted] Actually, the dealerships are ready to distribute the Kandi EVs, and we now have about 50 dealerships. But however, the COVID crisis has delayed everything. Everything is closed now in the U.S. I think we will resume building the dealership network as the economy recovers.

Okay. Maybe a follow-on question. Which cars are being offered over here? Or which ones will be? Like the K23 or the K27? It is the K27, is that a Jinpeng-made EV?

(foreign language)

(foreign language)

[Interpreted] So right now, we are planning on selling both 20 -- K23 and K27.

Okay. Final question, real quick. Does he ever -- does Mr. Hu ever plan on coming back to the U.S. for a shareholders' meeting, like the one we had in San Francisco, 5, 6, 7 years ago?

(foreign language)

(foreign language)

[Interpreted] Definitely, I do have the plan on going if the opportunity arises. So I really look forward to our meeting with you guys again when next chance we host this kind of conference.

We move to Steve Miller, a private investor.

I have 3 short questions on totally different subjects. First one is, when will Kandi get off the Public Company Accounting Oversight Board's noncompliant list? Is that a priority for Kandi? And if it is, what are you and Henry Hu, the Head of the Audit Committee, doing to make it happen?

So I have some -- I couldn't hear you clearly.

Okay. Let me try again. When will Kandi get off the Public Company Accounting Oversight Board's noncompliant list? Is that a priority for you? And if it is, what are you and Henry Yu, the Head of the Audit Committee, doing to make it happen? Will it take more months or years?

(foreign language)

(technical difficulty)

Hello?

(foreign language)

(foreign language)

(foreign language)

Steve, my apology. My phone got some technical problems. I couldn't hear you clearly. So right now, operator, just connects me on the other line. Please repeat your question one more time.

Sure. When will Kandi get off the Public Company Accounting Oversight Board's noncompliant list? Is that a priority for Kandi? And if it is, what are you and Henry Yu, the Head of the Audit Committee, doing to make it happen? Will it take more months or years?

(foreign language)

(foreign language)

[Interpreted] Actually, right now, the -- our new auditor, Marcum, they are able to access -- have the PCAOB access of the auditors auditing draft.

(foreign language)

[Interpreted] The most important reason we changed to -- our auditor from BDO to the current auditor, Marcum, is because to provide the PCAOB access to more auditing information.

So is it anticipated that like within 6 months, Kandi is going to be off the noncompliant list?

(foreign language)

(foreign language)

(foreign language)

(foreign language)

[Interpreted] According to my accounting colleagues, she said, for now after our 2019 10-K is released, PCAOB will have the access to our 2019 financial auditing draft. But before that, for 2018, they weren't able to have the access.

All right. And then pardon my pronunciation, but whatever happened to Ms. Wang Yuanyao, the Vice President of Finance, who was appointed by Kandi's Board in February of last year? Is she still at Kandi? And Ms. Zhu Xiaoying, who was appointed as Interim Chief Financial Officer in January of last year, will she ever become the official CFO? Or are there plans to replace her this year?

(foreign language)

(foreign language)

[Interpreted] We actually right now have a very good candidate that we believe is going to be on board shortly.

Okay. And finally, I understand that one of the tasks for Blueshirt from the very start, which was several months ago, was to dramatically overhaul Kandi's websites. I've heard that they have made recommendations to you how they should be improved, but perhaps they've not been given the full go-ahead. Why is it taking so long?

(foreign language)

(foreign language)

[Interpreted] We do intend to make substantial and useful updates to both the general website and the Investor Relations section. There are a lot of work to be done, but we expect to finish before the end of the third quarter.

We move now to Arthur Porcari of Corporate Strategies, Inc.

Good evening, Mr. Hu. Hopefully, you and your family are in good health. And also congratulations on delivering a strong 2019 revenue growth while in business transition, along with the smooth auditor's conversion to the new U.S.-based global auditor Marcum. Pass that on to Mr. Hu. Can you please?

Sorry, Arthur, can you repeat your last question? Your last sentence?

All I was doing, I was just saying, let's just move on. Recently, Kandi has been given a lot of very positive shared press by Geely. While Geely in the release of the new Fengsheng Maple 30X EV, this -- both in the China media and the U.S. TV media. After subsidy pricing as Kandi and the media have reported, the cost of the average 30X is around $10,000. And some 30,000 units reported expected to be sold by Fengsheng this year. As one English media source headlined, the 30X is less than 1/4 of the price of the Tesla 3. Yet aside from speed and range, the 30X has many of the same features to include movable sunroof, autonomous driving sensors, 30-minute quick charge, full-featured touchscreen and even a feature that Tesla doesn't have, an 80-second quick battery exchange. I have a few questions. Pass that on to Mr. Hu, please, that I have a few questions.

Okay. I will, and let me translate what you have so far. (foreign language)

(foreign language)

[Interpreted] I really appreciate you asking about my family. Everybody, in summary, is doing well. Please go ahead with your question. I will answer one by one.

Okay. As past reported, Kandi had expected to...

Hello?

Yes. Can you hear me? Hello?

Yes, yes. Go ahead. Yes, yes.

As past reported, Kandi had expected to be bidding on providing parts and batteries for Fengsheng, as in the past, it has for JV-Cars. But at these low 30X prices, it would seem impossible for Kandi to make any profit bidding on Fengsheng parts. Do you still expect Kandi to provide these parts? Or are we going to pass on that for now? I have some more questions but I'll wait for...

(foreign language)

(foreign language)

[Interpreted] Yes. This is actually a very good question. As you can see, that Geely has put out a lot of efforts in promoting the 30X cars. So they do have very high requirements for the price for the EV parts. And therefore, Kandi has adjusted its business model structure to increase battery production for intelligent electric transportation products. And for this year, we do have a lot of planning for a variety of products. But due to the market uncertainties, right now, we are still waiting to see the good opportunities. Yes, that's all.

Okay. That's what I thought. Okay. Well, Kandi's 100% subsidiary, Jinwa and CALB, providing a quick battery exchange technology in the Fengsheng EVs, if not, why not? And also, what percentage of 30X sales are expected to be sold to individuals versus ride-hailing? And I still have one more behind that.

(foreign language)

(foreign language)

[Interpreted] Actually, the -- this model, Maple 30X, doesn't have the quick battery exchange feature, because this is targeting the family use of car. And also in order to be providing this car for the ride-share market, it has to have the wheelbase more than 2.65 meters, and this car doesn't meet the requirement. But however, the next model that Fengsheng is going to release later this year, is going to meet the requirements. Also Ankao's battery exchange technology will be deployed in the vehicle intended for the ride-share market, because it's very important to have the high utilization of the cars. And this year, we also see a lot of supporting policies from the government to supporting the battery -- quick battery exchange model. So we do see a lot of potential in this.

Okay. I'm sorry, I got a little hard time hearing. Did you say that the subsequent model, at least the next follow-up model, will use the Ankao's quick battery exchange or not? It came in kind of garbled.

Okay. (foreign language)

(foreign language)

[Interpreted] He is saying that the next model is going to use a quick battery exchange feature, but not necessarily only Ankao probably is going to be -- the technology is going to be available for different providers.

Okay. Do we have any other -- other than -- we're obviously using the ride share -- I'm sorry, the quick battery exchange in Kandi's own 300,000 government-approved program that we've been talking about. But other than that, do we have any other outside customers, potential customers out there that are interested in Kandi's quick battery exchange, because obviously, it's very quick. 60 to 80 seconds compared to like 6.5 minutes for Neos, and they've been very high on their quick battery exchange as a feature for the future.

(foreign language)

(foreign language)

[Interpreted] Okay. I want -- first of all, I want to confirm that our quick battery exchange takes 90 seconds. So it -- and I do believe that potentially in the future, on all the vehicles that use -- in the ride-share market, will be the potential customers for our battery -- quick battery exchange technology.

Okay. Last question. Since Geely Holding seems to have spent over $750 million on both purchasing its stock and funding the new EV for research development and other expenses. Is the Kandi option to potentially buy back that significant portion of the JV still alive? If so, when does it expire? And any additional thoughts by Mr. Hu on this subject?

(foreign language)

(foreign language)

[Interpreted] Yes. This option is still valid. And when we signed the contract, the expiration day was 2 years after the signing of the contract. So our decision on whether to execute a buyback will depend on whether it is beneficial to the interest of Kandi's shareholder at that time. And for now, it's hard to say. But if -- by the time that the buyback is not going to be beneficial for the Kandi's shareholders then it won't be something I would do.

All right. Well, thank you very much, and we look forward to hearing from you all again in a couple of weeks, I guess, for the first quarter numbers. Is that right?

Thank you. (foreign language)

(foreign language)

[Interpreted] Mr. Hu is saying that once the COVID-19 situation is controlled, I will come to U.S. to meet everyone.

We take our next question from [John Cronin] of Kandi Technologies.

One question. The Yongkang Scrou factory has just received an addition or is presently being enlarged. Will that location continue to be operated? Or the functions presently there be moved to the new Jinhua location?

(foreign language)

(foreign language)

[Interpreted] We are experiencing high demand for our motors, especially due to the growth of intelligent electric transportation products. In order to meet this demand, we are expanding that factory. We have completed the structure now. And so we are going to have 6,600 square meters of the production base. We expect to have the increased capacity input producing in the second half of this year. And also, I -- due to the increased capacity, I expect the revenue from the Yongkang Scrou is going to have a very high-growth this year.

We move our next question to Michael Fearnow of Focus Tech Investments, Inc.

I want to address the present PR regarding the 300,000 government-accredited with a third and fourth-tier city ride-hailing program using Kandi EVs like the K23 and the quick battery exchange, have been put on trial in Hangzhou suburb. This was a partnership with the giant LCV and off-road utility vehicle maker, Jinpeng. In the press release from a few months ago, it was mentioned that at some point, Kandi and Jinpeng would likely be swapping some equity. I want to break my question on 2 parts. The first part is, since this is a private and little can be found, can Mr. Hu explain more about Jinpeng? And why he feels they are a good partner for Kandi? And that's the first part...

Okay. Let me translate. (foreign language)

(foreign language)

[Interpreted] I really appreciate your question. Jinpeng is an outstanding partner because of -- they have very high value of sales and a massive distribution network. In the past few years, they have been selling over 1 million 3-wheelers and 100,000 low-speed vehicles annually. Their distribution network blankets the entire country with over 10,000 hours, of which 2,000 are at county level. Most importantly, we both share the enthusiasm for this ride-sharing opportunity in the third and fourth-tier cities, where their distribution network can efficiently reach our target customers. And therefore, we think the partnership will be a win-win for all involved.

And kind of a follow-up for this question is, is the Jinpeng equity swap still in the works? And if so, are we talking about an equity swap at the parent level? On Kandi stock? Or at a subsidiary level? And if there is an equity dilution, will it be less than 50% where we can still report consolidated sales? And then as far as Jinpeng, what exactly does Jinpeng bring to the relationship? Cash and equities or both? And then as kind of an unrelated part, do we expect any other partners in this 300,000 EV program? And then when you get that, I have a quick inquiry about if -- do we have a representative of Blueshirt on the group? On this call?

Yes, we do have there on the call, but they are not on a speaking mode.

Yes. When Mr. Hu finished his question, I would like to direct a little bit of information towards Blueshirt Group. But go ahead.

Okay. (foreign language)

(foreign language)

[Interpreted] First of all, the equity swap with Jinpeng is been discussed. If ever implemented, it will be with the subsidy company, Hainan Company. I don't think it's going to be a significant amount of percentage. But it's going to be enough to be serious about the partnership. In -- regarding to what's going to the relationships, I believe it is a strong alliance with our expertise and resources. And this cooperation brings many positive aspects, not just the cash and technologies.

Okay. And as far as Blueshirt Group, can they expand on their role with Kandi going forward? And part of the inquiry I had, I know one time, they responded to some questions that were sent by e-mail, and those were very helpful. And I'm hopeful, they'll do that in the future. And one general question for Blueshirt. On these conference -- quarterly conference calls, is it possible to use something like the Zoom video conferencing app? And possibly even get a little more efficiency on the translations?

(foreign language)

(foreign language)

[Interpreted] Blueshirt will play a very important role in helping us with the communications, especially that our team consists of all Chinese. So we like to have Americans who understand Wall Street, understand the company's operation to represent us in the market to help deliver the messaging in a very efficient way. And in regarding to whether or not having the virtual conference, I think, depending on -- in the future, if we -- if it's necessary, if it's practical, we will always keep the options open to explore opportunities.

Thank you. We have no further questions. We have no further questions at this time.

Okay. We can finish the call. (foreign language)

(foreign language)

[Interpreted] Mr. Hu is just saying that from last call, we see some feedback telling us that some investors are not able to ask questions. So right now...

Please go ahead.

(foreign language)

[Interpreted] Thank you, ladies and gentlemen, for attending today's call. On behalf of the Board of Directors and the management team at Kandi Technologies Group, I would like to reaffirm our commitment that we'll continue to work diligently to maximize shareholder value by focusing on growing our EV business strategically, while delivering strong operational results.

Thank you very much for your understanding and support. We look forward to talking with you in the next call. If you have any additional questions, please don't hesitate to contact our Investor Relations department and our outside IR consultant. Goodbye.

Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]