NaaS Technology Inc (NAAS) 2022 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the NaaS Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. I must advise you that this conference is being recorded today. I would now like to turn the conference over to your first speaker today, Ms. Gaoying Pan, Vice President of Strategy. Thank you, and please go ahead.

Thank you, operator. Hello, everyone, and welcome to NaaS Second Quarter 2022 Earnings Conference Call. The company's results were issued earlier today and are posted online. Joining me today on the call are Ms. Cathy Wang Yang, our Founder and Chief Executive Officer; Mr. Zhao Lei, our Chief Financial Officer; and other members of our team. For today's agenda, Ms. Wang will provide an overview of our recent performance and highlights, and Mr. Zhao will discuss our financial results.

Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, please note that this call includes discussions of certain non-IFRS financial measures. Please refer to our earnings release, which contains a reconciliation of non-IFRS measures to the most comparable IFRS measures. Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in RMB. I will now turn the call over to our CEO, Ms. Wang Yang whom I will translate for.

(foreign language)

[Interpreted] Greetings, everyone. I am NaaS CEO, Cathy Wang Yang, and it's my pleasure to be able to share with everyone NaaS' second quarter 2022 and first half 2022 earnings report.

(foreign language)

[Interpreted] First our financial situation. Second quarter net revenue increased by 5.9x.

(foreign language)

[Interpreted] In the second quarter of 2022, NaaS' total revenue increased by 47% and net revenue increased by 5.9x, while losses are increased by 5%, reflecting our strong improvement in operational efficiency.

(foreign language)

[Interpreted] During the first half of the year, the macroeconomic environment was complex, with frequent COVID flare-ups as well as reduced demand for travel. It is under these difficult circumstances that NaaS' overall revenue continued to increase by 90%, reaching RMB108 million.

(foreign language)

[Interpreted] In the first half of the year, NaaS' offline services -- service revenue increased by 4.3x and by 5.6x in the second quarter. This was primarily the result of strong increases in offline charging station services revenue and the growth in charger sales.

(foreign language)

[Interpreted] Second, business overview. Total charging volume reached 1.06 billion watts, an increase of 160%.

(foreign language)

[Interpreted] According to the EVCIPA. In the first half of 2022, China's public and specialized charging market volume increased by [73%] (corrected by the company after the call). During the same period, NaaS' charging volume reached 1.06 billion watts, an increase of 160% year-over-year, representing growth that was more than double than of the overall market.

(foreign language)

[Interpreted] As of June 30, NaaS' coverage extended to China's 358 primary cities, connecting 44,000 charging stations, 400,000 chargers with a charger compound growth rate over the last 4 quarters of approximately 22.4% and the number of active chargers increasing by 75% in the second quarter.

(foreign language)

[Interpreted] NaaS utilizes big data, AI technologies and comprehensive operational capabilities to work with the State Grid, the China Southern Power Grid, Tgood, Star Charge, Kuaidian and other partners to jointly help drivers quickly find quality working chargers and help relief the Chinese EV charging marker's problems of overcapacity, under utilization and a lack of quality chargers.

(foreign language)

[Interpreted] NaaS as a new energy service provider, also new energy solutions to auto OEMs, auto websites, logistics companies and major Internet companies. In the first half of 2022, working with partner Kuaidian, NaaS signed agreement and provided services to FAW, Volkswagen, Newrizon Auto, Ping An Auto, JD Auto charging and Tencent Smart Mobility. In July, NaaS reached a cooperation agreement with Li Auto.

(foreign language)

[Interpreted] In the first half of the year, NaaS charger sales reach RMB 17.84 million, an increase of 71%. As charger sales typically exhibits seasonality. We are expecting charger sales to increase even more dramatically in third and fourth quarter.

In first half of the year, NaaS provided 77 customers with electricity procurement services, enabling "virtual electricity provider" services, to offer an additional reserve ecosystem.

(foreign language)

[Interpreted] Third, the new energy market. In the first half of the year, globally, new electrical -- new electric vehicle sales increased by 71% and China's total number of EV reached over 10 million.

(foreign language)

[Interpreted] In the first half of 2022, China's new passenger EV sales reached RMB 2.34 million, representing 56% of the global total. At the end of June, China's total number of EV reached over 10 million. In July, China's total penetration rate, a new passenger EV grew 26.7% and over 25% in 88 cities. In August, the CPCA raised its forecast for China's total passenger EV-sales for the year to RMB 6 million from RMB 5.5 million.

(foreign language)

On August 18, Premier Li Keqiang of the State Council, at a meeting of the State Council, confirmed the EV purchase tax, auto tax and consumption tax moratorium as well as other supportive policies.

(foreign language)

[Interpreted] Carbon neutrality is a core concern for all mankind and the international new energy market is experiencing similarly rapid growth. In the first half of 2022, total global EV sales reach RMB 4.21 million, an increase of 71%. The European Union proposed rules banning the sales of ICE passenger vehicles and light business vehicles by 2035 aimed toward achieving carbon neutrality by 2050.

President Biden in the U.S. has also announced that by 2030, 50% of all new cars should -- so it should be zero emission vehicle.

(foreign language)

[Interpreted] Currently, multiple countries are facing challenges from high temperatures, adding an additional layer of energy risks to different regions. China is also encountering rarely encountered high temperatures, causing several provinces to restrict or stop electric use.

(foreign language)

As compared to the U.S. or European private charging market, China's charging market will require that public charging become the main form of charging. And as a result, will result in a highly fragmented market. In 2030, China's total number of EV may reach 80 million. And with a 5:1 charger ratio, the market may require 20 million charger -- charging piles. When the time comes, China's charging supply may face an enormous challenge.

(foreign language)

[Interpreted] Building a smart charging network and a virtual electric providers to enable distribution and transaction represents a difficult task, but also the right thing to do and will require a company like NaaS a to work with everyone to improve efficiency in different parts of the market.

(foreign language)

[Interpreted] Fourth, guidance. NaaS' full year charging volume will reach over 2.7 billion watts, 2.2x the 2021 volume.

(foreign language)

[Interpreted] As China's first listed EV charging stock, NaaS will continue to deepen our involvement and engagement in market by providing a wide range of services, including site selection, consultations, charger procurement, electricity procurement, full station operations and station maintenance, providing a one-stop solution to all potential EV-charging needs.

(foreign language)

[Interpreted] We anticipate that in the second half of the year, NaaS' total electricity charged will increase by 99% year-over-year, reaching 2,700 gigawatts, 2.2x 2021's charging volume.

Total charger sales for the year are expected to reach RMB 130 billion to RMB 150 million, representing an increase of 2.5 to 3x versus 2021.

(foreign language)

[Interpreted] China's transportation carbon emission represents 10.4% of all carbon emissions. NaaS' dream and ambition is to make [transportation] (added by the company after the call) energy more efficient, reduce carbon emissions by 10% and to lower China's [transportation] (added by the company after the call) carbon emissions by 1%.

(foreign language)

[Interpreted] Next, I'd like to invite our CFO, Zhao Lei, to discuss our financial performance.

Thank you, Cathy. As mentioned, we are very proud to announce a record second quarter for our first reported quarter as a public company. In the interest of time, we will now go over each individual line of the financial statement and instead will focus on the key highlights.

For additional details, please refer to our earnings press release. Our total gross revenue for the first half reached RMB 108 million, representing year-over-year growth of 90%. Net revenues grew by 4.5x year-over-year to reach on RMB 18.1 million for the first half of the year. It should also be noted that our final results were also impacted by the onetime costs associated with our merger and the listing.

Our non-IFRS loss for the first half -- for the first half was RMB 140.3 million, representing year-over-year growth of 19%. Our non-IFRS loss rate was up -- was 130%, decreasing from 209% for the same period last year. In addition, I'm also pleased to announce that we have secured an additional RMB 400 million in financing from the China Construction Bank.

The proceeds from this financing will be used to further develop our charging operations and services as well as to improve our charger sales. With that, I conclude our prepared remarks. Operator, please proceed with the questions-and-answer session.

(Operator Instructions) Please ask your question in Chinese if you can, and then kindly repeat the question in English. And our question today will come from [Scarlett] (corrected by the company after the call) with Credit Suisse.

(foreign language) My question is about, could you please elaborate on the role of the company in the cooperation with charging operator like Tgood, TLD and the downstream OEMs like Li, XPeng and Nio.

[Interpreted]

Thank you for your question. In terms of who we are, we're a service provider within the industry value chain. And first, in terms of some of the companies you mentioned, for the upstream, we're partners. We're partners whether it's the State Grid Tgood or with Star Charge.

So first, with regards to how we serve players in the upstream, we have strong relationships with over 1,000 partners. And what we're essentially offering is a one-stop solution to address all their needs and problems. We can help them with site selection for the development of a charging station, additional consultation. We can help them with procurement, and this procurement extends not only to purchasing chargers and charging pipes but also with electricity procurement.

We can also help with their daily operations, including full outsourcing as well as provide additional retail, including such things as for example, F&B and massage chairs. So ultimately, what we're offering is a single-stop solution, offering everything.

So given that we provide a full menu of services through our one-stop solution. So naturally, getting back to your question, where we position ourselves and what we offer to the players is going to be different depending on each individual play. So for example, a SME or a smaller player, they may choose 5 or more services from us, whereas a larger player, a regional player, may do the same or they may offer less.

So for downstream players such as auto OEMs, logistic companies and other similar type large companies, we provide digital solutions and the ability to digitize.

So for the major auto OEMs, whether as people have mentioned, [Li, Nio, Dongfenglantu] (corrected by the company after the call), and others what we offer is a one-stop solution to help address their key concerns when it comes to new energy vehicles. So for example, specifically, for a purchaser, they don't go Dongfeng automobile, they will be able to access the charger stations through their platform and their app and find the chargers that they would need in order to charge their car, addressing some of the anxieties associated with purchasing the vehicle.

So in the back end for a lot of these companies, a lot of these OEMs, the wheel engine if you will, that's providing the services, is us.

Well, in the future, as we continue to expand our relationship with OEMs, we'll also participate in their self-driving efforts and offer new solutions. We can see from various surveys of potential EV purchases that their main concern has historically been inconvenience when it comes to charging. And hence, in the future, we will provide additional solutions to address these issues.

So to summarize, ultimately, NaaS is an industry service provider connecting all different types and segments of the industry, whether it's the OEMs, upstream companies, the different major platforms, we are interconnected. We are the industry service provider, and we are first in providing these things to everyone.

Thank you for your question, and I hope we've addressed your question.

Our next question will come from [Bi Ling Qiu] with CICC.

(foreign language) How do we expect the price war in this market?

[Interpreted]

Thank you for your question. So first, the Chinese market is undergoing a transition from oil to electric. So currently, we're looking at 400 million ICEs, 300 million cars. In the future, we will be reaching [550 million to 600 million.] (corrected by the company after the call)

It's okay.

[Interpreted]

Okay. So I think it's important to emphasize in the current situation that we are undergoing a transition, a transition from oil to electric. So on one hand, maybe we should not describe ourselves as a challenger or disruptors. But as the transition is occurring and as we have to encourage more people to adopt the new model, obviously, electric prices will be affected as a result. But ultimately, the growth is the key, especially in the longer term.

So if we look at the comparison of cost though, when we talk about a cars --set our vehicles that are being used publicly, in terms of their charging cost or their costs, it could be 1/4 of gas. Now for private cars, those that can charge, say at home, it could be 1/10 of gas.

So I think as the transmissions occurring, you will continue to see these trends. But before the transition ends, we do expect some of the price wars to end. And as the saturation or penetration rate for EV vehicles as a whole in the market reaches a certain stage, we believe that the electric prices will begin to return to a more rational or normal level.

So I think when we look at the 10 million EVs sold in China for a lot of the public charging and for battery in the majority of charging, it is for, if you will business use. So these are not private cars, but rather as I always say, business or shared or light hailing type vehicles. And for some of those available with private charging, we believe that will not be the mainstream. The mainstream will continue to be public and business use.

Now another way to look at the issue of pricing is that as the number of private EV vehicles increase moving away from the business, you can also see that the private vehicle owners and they are, in fact, not that sensitive to the price unlike the business users, which is easy to understand. Instead, they are sensitive to things like time and the services that are available when they are charging.

So if they want to find that when they are charging that there are, for example, F&B services available that potentially they have a place to do their nails or other ancillary services. So they're not sensitive to price, they are sensitive to whether or not there's these other things that can be provided, so that they can better use their time. And this -- these are the things that NaaS is able to provide and is ready to provide right now.

So to summarize and going back to your question directly, we believe in 2 things. One, as the market increasingly transitions from traditional ICE to EV, once the transition reaches a certain point, the electric prices will become much more rational. Also, as a number of private cars continues to increase, we should see less sensitivity to pricing for the electricity and hence, as a result, also better pricing for the electricity.

(Operator Instructions) And our next question will come from [Sewan Gong] with Caitong Securities.

(foreign language) So my question is the cost advantage available to the company being centralized power procurement.

[Interpreted]

Yes. Thank you very much for the question. I think first, it's important to point out that the liberalization of the market has only occurred recently, is in the liberalization of the electricity market. And very importantly, different provinces you are going to have different levels of restrictions on liberalization.

So some provinces, for example, you need to have a certain amount of value, let's say, over 50 million. Other is perhaps more liberal. Currently, we are doing transactions and involved in this procurement in Shanxi and Sichuan provinces. And there, we have done centralized purchases, where clearly we can potentially save on the procurement costs for various parties. But however, as mentioned, because there's different levels of liberalization of the different provinces, you're going to see different levels of savings across different provinces.

Yes. So through this, we can lower costs for our customers and partners. But there's going to be differences depending on the usage time, say peak usage and location, and it can range very greatly from, say, several multiple renminbi or alternatively maybe only in the cents.

We believe that actually, in the bigger picture, when we look at ways of reducing the cost of procurement or electricity, these types of centralized procurement, if you will, is only one method.

Yes. Ultimately, we believe that there's other areas that will generate greater savings for our customers and partners, whether it's working with, for example, PV, sort of Various sources or having a virtual power generation or alternatively other network solutions. We believe that those particular types of methods in the longer term will be the larger sources of cost savings.

I'd like to share a little story or video that I saw earlier today in one of our user groups. So I think as many of you know, due to the current conditions, in certain provinces, there are limits when it comes to the electric use. So I saw a certain video where 2 EV drivers, they basically got into a tussle or a fight over a single charger.

So we can see that -- or we can imagine that in 2030, when there are 80 million or so EVs, at that time, you're going to need [140TWh to 200TWh](corrected by the company after the call).

Well, I think the charges we need at 2030 is about maybe 20 million.

Yes. Okay. I thought we mentioned the charging amount. But yes, we need 20 million chargers.

[Interpreted]

So in a few years, we'd like to be looking at the requirement for [8,000TWh] (corrected by the company after the call). And as a result, you're going to see tremendous pressure on the electrical grid and the network.

So ultimately, when we look at the longer term and what is needed to lower cost, the upstream procurement that is needed, that is one part. But we feel that in terms of the longer term, being able to provide virtual electric generation, better supply management through AI and greater efficiencies within the downstream through digitalization and technology, those will actually be the bigger or the biggest cost savings.

So to summarize, yes, while these current types of procurement that we are doing does lower costs for our customers. But ultimately, longer term, the bigger savings, we believe, will come from virtual power generation or virtual electric factories as well as greater transparency and more and more connections or liquidity between the downstream and upstream.

And ladies and gentlemen, that does conclude the question-and-answer session, also concluding today's conference call. Thank you for participating. And at this time, you may all now disconnect.

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