NaaS Technology Inc. Q1 FY2024 earnings call

Key Points:

• Revenue in Q1 was RMB 96.24 million, up 156% year-over-year, with gross margin at 25%, an 8.4 percentage point increase year-over-year.
• Photovoltaic operations in Hong Kong continued to drive growth, and EV services in Hong Kong were piloted starting April 2024.
• Established a partnership with Chaoran New Energy Technology in March 2024, leveraging AI analytics for site selection, hardware integration, and enhanced site operation efficiency.
• Filed over 250 patent applications across more than 10 countries and regions, joined the Open Invention Network (OIN) to protect open source and enhance intellectual property and R&D capabilities.
• Charging volumes through NaaS' network increased 19% year-over-year to 1,216 gigawatt hours, gross transaction value up 17% to RMB 1.2 billion, and orders up 13% to 50.4 million.
• Gross profit increased 4x year-over-year to RMB 24.3 million, gross margin at 25.3%, with improved gross and net take rates, and NTR positive from January with a record high in April.

In the first quarter, NaaS achieved revenue of RMB 96.24 million, a 156% year-over-year increase. The energy solutions business contributed RMB 47.2 million, which is approximately 49% of the total revenue. Photovoltaic operations in Hong Kong drove revenue growth, and EV services in Hong Kong were piloted starting April. A partnership with Chaoran New Energy Technology was established in March 2024, involving site selection, hardware supply, and asset operation.

Forward-Looking Statements:

• Aim to turn single month EBIT positive by the end of 2024.
• Continued focus on cost control and revenue growth, with a disciplined approach to expanding revenue and strategically reducing costs.

Q: Could you share some color on the gross profit margin on different business lines and their trends?

A: Alex Wu explained that connectivity business margin is expected to improve as scale increases, energy solutions business has an average margin of 10%-20% with Sinopower solar in Hong Kong and overseas achieving 30%-40% margin, and fuel station operations, in an early stage, aiming for a 15%-20% margin.

Q: With regards to the EV charging market, can you share more color on the market trends? With the EV penetration path to 50% in the new car sales, how is the sentiment in EV charging station investment? And what's your strategy to capture this fast-growing market? And second, sales and marketing expenses have been significantly reduced quarter-over-quarter. So how are you able to achieve that? Can we expect the continued improvement in S&M efficiency?

A: Vivian Wu stated that increasing EV penetration and low EV conversion from ICE (only 6%) create huge market opportunities. NaaS' strategy includes leveraging AI analytics for location selection, a large network of CPOs, and connectivity. For sales and marketing, ecosystem synergies, organic user acquisition through parent company NewLink Group, AI-based retention, and expansion into 2B business lines contribute to reduced S&M expenses and continued improvement.

Q: Can you discuss the pricing trend in the charging services market for both short-term and long-term perspective?

A: Cathy Wang said short-term charging prices are generally stable, but long-term has upside due to EV cost per mileage advantage, increasing EV penetration, and potential policy-driven pricing freedom.

Q: Your management, I have one question. You have highlighted the progress in your patent and intellectual property in the earnings release. What will be your R&D focus in the next 1 to 2 years? And how that could translate to your business growth and efficiency improvement?

A: Cathy Wang mentioned R&D focus on AI models for location selection and dynamic pricing, which can enable business expansion, monetization through digital analytics, and improved operational efficiency in charging station operations.

Q: Regarding the take rates. So we have noticed some positive trends regarding your Q1 net take rates and gross take rates. So how can we expect these take rates to perform in the second quarter as well as the rest of this year? And second question is regarding the synergies of your business with your parent group. So how we should see this contribution from your Newlink parent, NewLink Group, to drive your business in this year?

A: Alex Wu said GTR and NTR are expected to continue improving with enhanced bargaining power and AI optimization. Vivian Wu noted NewLink Group's net profit breakeven (excluding NaaS), organic traffic conversion from parent group, and similar business models aiding cost control and business growth.