Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technologies 2nd Quarter and First Half of twenty twenty one Earnings Conference Call. Currently, all participants are in a listen only mode. 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 Terry Bi, Investor Relations Director of CBAK Energy. Mr. Li, please proceed.
Thank you, operator, and hello, everyone. Welcome to Cibank Energy's 2nd quarter and first half of twenty twenty one earnings conference call. We released results earlier today. The press release is available on the company's IR website at ir. Sleepab.com.cn as well as from Newswire services.
A replay of this call will also be available in a few hours on our IR website. On the call with me today are Yun Fei Li, who is our Chief Executive Officer Mr. Yuna Pei, who is our Chief Financial Officer Mr. Shoujun Tian, our General Engineer and Mr. Bin, our interpreter.
Before we continue, please note that today's discussion 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 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 obligation 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 U. S. Dollars.
With that, let me now turn the call over to our CEO, Mr. Jun Fei Liu. Mr. Liu will speak in Chinese and I will translate his comments in English. Go ahead, Mr.
Li. Thank you, and hello, everyone. Thank you for joining our earnings conference call today. We are very pleased with our solid financial performance for the first half of twenty twenty one. Thanks to the robust sales growth for uninterruptible power supply batteries.
Net revenues grew to RMB5.9 million in the 2nd quarter and RMB15.3 million in the first half of twenty twenty one, up 27% and 33% year over year, respectively, reflecting the strong market of pure for our industry leading base with products and our effective business strategy execution. Our gross margin increased by 16.6% from the prior year to 19.2% in the first half of this year. During the first half of twenty twenty one, we continue to leverage our advanced research and development capabilities to innovate our products, which then help us broaden product applications. With additional capital raised from new financing, we are well positioned our business plans such as capacity expansion. Moreover, we made a strategic consolidation across the supply chain for great synergies.
I would like now to share with you more information on these recent developments, which have further our mission to become a leading innovative energy storage solution provider and medium ion battery producer in China. First, let me dive into the remarkable strides that we have made for product innovations during this period and our future development plans. We have successfully developed a special 26,650 26650 battery, especially for ultra low temperature applications. This new battery is designed to operate in temperatures as low as minus 40 to minus 50 degrees Celsius and discharge at a maximum C rate of 60 C at room temperature. On top of positive test performance results, the special 26,650 battery is highly attractive for products used in extremely low temperature conditions such as in China's northern region, harsh weather conditions as well as for the aviation and aerospace industries.
At this point, our clients have all given very positive initial responses, and we are anticipating mass production of the special 266 50 battery at the end of this year as well as expecting its meaningful contribution to production volume in coming years. Meanwhile, we are actively developing a series of large cylindrical batteries for the LEV market. The batteries for light electric vehicles have a capacity of nearly 4 times that of regular batteries and 20% lower in cost, making this product a perfect solution for the LED market. We aim to be a major battery supplier for top LEB manufacturers and expect growing traction among an expanding customer base with our high price to performance ratios and strong ability to adapt to customer needs. We were capable of broadening use scenarios by the support of our high quality and dependable battery products.
Earlier this year, we started cooperating with Chengdu Rajan New Energy Automotive Technology Corporation to jointly develop a factory scrapping project for food delivery and the logistics industries as well as an uninterruptible power supply project for Chabik Life. As delivery services are becoming an increasingly indispensable part of life, The battery's weapon project aims to provide solutions for delivery riders that suffer from more battery weight as well as inconveniences and risks in charge off. The UPS project for traffic lights, on the other hand, keeps roads safe by ensuring the traffic light stays on during power outages. So far, our cooperation with Raja went well and we will provide updates in the following quarters should there be any new progress. In addition, we also focus our R and D efforts on developing next generation batteries to enable EVs faster acceleration and longer ranges in driving.
The batteries will have lower loss rate and lower costs and present a huge opportunity in EV market. Our strong research and development capabilities are driven by continuous product innovation. Our product development roadmap is led by the new generation of technologies and market potential in the clean energy sector. We have established partnerships to develop hydrogen fuel cell and solid state batteries. And these initiatives will allow us to maintain the mid long term industry advantages through technological innovation.
Going ahead, we will continue expanding our operations in China and establish our foothold in the global market through an increased investment in R and D and the company's technical advantages in cylindrical batteries. 2nd, a strategic capacity expansion in the growing addressable market. With continued new product developments and increasing customer demand and orders, we are ramping up our production capacities. Two major projects are underway. The first being the target plant expansion mainly for products used in energy storage sector.
We plan to invest RMB15 1,000,000, which is equivalent to USD7.4 million to add the additional product line in our diamond plant. The new production line has an annual capacity of 0.4 gigawatt hour and is expected to be completed by the end of 2021. The total annual capacity in Dalian plant will increase to 2 gigawatt hours in 2021. This expansion allows Japan to produce an additional 100,000 units of Model 26,650 batteries per day. Secondly, Nanjing plant will be established in 2 phases to mainly produce products for the EV and LED market.
In Phase 1, we plan to invest a total of RMB70 1,000,000, which is around USD11 1,000,000 in a 10,000 square meter space to develop a production line with an initial capacity of 0.7 gigawatt hour. Both projects are on the right track of expansion, and we are pleased with the progress. The USD70 1,000,000 we raised in February supports our business expansion strategies and accelerates the product to go to the market. Next, through a strategic consolidation across the industry supply chain, we are pursuing remarkable synergies, which will further drive the company's future growth and expansion. As a part of this strategy, we decided to buy 81.5 6% of HiTrent's equity interest via our subsidiary, Dalian CBAK Power Battery Corporation.
Haitians is a leading developer and manufacturer of turnery precursors and cathode materials in China and is one of Seebank Energy's key suppliers. In the production of lithium ion batteries, the cost of cathode materials accounts for about 40% of the total cost. So we believe this acquisition for a reliable raw material supply will place Hytrends as a strategic and complementary addition to fuel the continuous expansion of Seabed's production and unlock potential for cost control. It will complement Seabed Energy's business portfolio, forming an innovative ecosystem across all our businesses. This move will also advance the company in diversifying product strategy and support continued improvement iterations to maintain our market competitiveness.
This transaction is still subject to certain closing conditions and is expected to complete in the Q3 of 2021. Above all, our goal is to build an innovative ecosystem based solution to power electric storage facilities and electric vehicles. We are moving forward to drive profitable growth as we increase our investment in expanding our capacities and R and D capabilities. Our innovation further strengthens our existing product portfolio and drives growth in our addressable market with new products. We are confident in taking our business into new areas that will better serve our customers.
By leveraging our core competencies and deploying new products, we are well positioned to ensure rapid growth in the battery market. Now let me turn the call over to our CFO, Eunha Pei, who will provide details on our financial performance.
Thank you. Thank you, Mr. Yun Fei Li and Terry. Thank you everyone for joining our call today. I will now go over our key financial results for the second quarter and first half of twenty twenty one.
For the full details of our financial results, please refer to our earnings press release. Our solid financial performance demonstrated a strong market resonance to our high quality and reliable batteries. Compared to the same period of last year, our net revenues increased 27% year over year to US5.9 million dollars in the Q2 of 2021 and 30 3 percent to US15.3 million dollars primarily driven by growing demand in batteries and our ability for an interruptible supply. Fueled by the increase in the sales volume, our cost of revenues grew to US4.8 million dollars in the second quarter and $12,400,000 in the first half, up 6% and 10% year over year, respectively. Compared to the revenue growth, Westfield generated positive operating leverage of 21% and 23% respectively, reinforcing our confidence in our growth strategy.
Driven by higher sales volume and cost management efforts, our profitability also increased. Gross profit was US1.1 million dollars in the second quarter and US2.9 million dollars in the first half, an increase of 1148 percent and 899 percent year over year, respectively. Also, on a year over year basis, our gross margin also increased by 1670 basis points to 18.6% in the 2nd quarter and 1660 basis points to 19.2% in the first half of the year. The margin increase is primarily driven by higher utilization of plant capacity and optimization of manufacturing engineering. Total operating expenses were US3.8 $1,000,000 in the 2nd quarter US5.7 million dollars in the 1st couple of years, increased 2 83% and 79% from the previous year respectively.
We increased our research and development expenses by 171% year over year to US1 $1,000,000 in the 2nd quarter and 100 and 24 percent to US1.5 million dollars in the first half of the year. The increase was primarily related to the expiration of Chinese government COVID-nineteen relief policy aimed to relate to corporations' social insurance burdens and increase in talent in our R and D. In addition to that, the company increased the research expenditure into new model of batteries for live electric vehicles, electric vehicles and batteries for ultra low temperature environment. The sales and marketing expenses were US0.5 million dollars in the 2nd quarter and US0.8 million dollars in the first half, an increase of 4.35% and 2.88% year over year, respectively. Our general and administrative expenses were US2.3 million dollars in the second quarter and $3,700,000 in the 4th half, up 2 0 9% and 96% respectively.
Apart from the aforementioned exploration of Chinese government's COVID-nineteen release policy. The increase in G and A expenses was also a result of increased employees of the new plant construction in 2019. As the 1961 project and additional product line in Diamian will be completed and in production by Q4 of 2021. We expect to ramp up the production with customer orders and the generated sales volumes. We continue to manage and improve customer relationship and the quality of our customers.
Our recovery of doubtful accounts was $100,000 in the Q2 of 2021 compared to $200,000 in the same period of 2020. In the first half of twenty twenty one, the recovery of doubtful accounts was $300,000 compared with a provision for doubtful accounts of $400,000 in the previous year. Our change in value of volumes was $5,800,000 in the 2nd quarter and $34,200,000 in the first half year compared to $4,000,000 in the prior year. Supported by our growth in revenue improved the gross margin, the positive change in value of volumes, we were able to generate net income of US2.7 million dollars in the 2nd quarter and $32,300,000 in the first half compared to net loss of $1,200,000 and US3.6 million dollars in the same period of 2020. As Zixin Liu mentioned earlier, in February, we successfully raised the $70,000,000 in direct offering of ordinary shares to finance our business and working capital.
As of June 30, 2021, our cash and cash equivalents reached US33.3 million dollars compared to US11.7 million dollars as of December 31, 2020. With strong cash position and our improvement in financial results, we remain confident that we are on the right path for accelerated growth. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
Thank you. Our first question comes from the line of Karl Bertrand from American Trust. Please go ahead.
Good evening, management there. Does CBAK business involve sensitive technology that might cause the Chinese government to terminate its exports listing status in the U. S. And I have a few more questions to ask.
Thank you. Thanks for the question. And I'm translating your question to our management thesis at this moment. Thank you. Thanks very much for the answering.
And actually, as the Director mentioned, actually the new what we are dealing with is the industry of the new energy. In this term all the relevant technologies are open to the public around the world and actually there's nothing related to the sensitive technologies. And also on the other hand, the Chinese government is giving the largest support to the development of the new energy and the relevant development of the business globally. So we don't have to worry about any sensitivities in terms of the technology. Thank you.
And we will have another director to also add some more information for a reference. Thank you. And Mingxia?
Thank you. Thank you for putting my investors at ease. I have other questions here.
Just a moment because we have another manager to add more information for in this term.
Okay, great. Thank you.
And also additional information for your kind of reference, actually in August 11, the Chinese Central Committee or the Central Government issued a very important file. In this file, there are some several key points are taken into the key considerations and the monitoring in terms of the cross border business. They are like big data, fine tech, cloud computing and the relevant business And we have to say the new energy, what we are dealing with now is not included in those businesses which are under very strict monitoring of the China Central Government. So that's also additional information for our kind of reference to where you could totally be relieved from the any government level monitoring or sensation? Thank you.
Thank you very much for putting us at ease here. Who are the who are Seabed's direct competitors, peers in each business segment? The battery materials, electric cars, LED and batteries for ultra low temperature applications.
Thank you. Thanks for
your question. Domestic
and forward. Okay. And And our director is going to give you the answers from the 3 main aspects. The first one is the storage energy as one of the key pathways for our business. The other one is also the transportation and the third one is the ultra low temperature.
And our Director just gave the answer for the first point that is the STORI Energy. In terms of the STORI Energy domestically or globally there are 2 competitors. The 2 competitors are both from China. The first one is Shandong Jing Gong. The other one is Dongguan Li La.
And but though we have the 2 main competitors, but our output which means while our shipment is larger than them in terms of quantity and also our business, the CBA case business is largely connected to the global market and we have many Fortune 500 partners and customers and key accounts for example Schneider. So with the solid foundation of the global key accounts, we are surpassing the 2 main competitors as I just mentioned in terms of output and the business. Thank you. This is for the first one in terms of storage, energy storage. And we are going to share with you about point
2. Okay.
And for the second one that is about the power or electric power driven transportation that is many actually are EV as we shared before. And in this term globally or domestically there are 2 main competitors. The first one is Xingheng, the other one is Tianan and Chaohui and also the 2 actually local their business in China. And comparing to them our more main competitiveness is that first one our products is more easy to use or to be stored because we are producing the cylindrical battery that is the lithium iron phosphate and comparing to the competitors' prismatic batteries it is more easier to use or to being stored. And because we are using the lithium iron phosphate and also its design, we are safer than the competitors' products.
So our main competitiveness is flexibility and safety. Thank you. And we are moving on to the 3rd point. And 31 is the ultra low temperature application. And our main or key markets is first one is the extreme cold areas in American in the macro area and also in European area.
And also the other key market is in the north part of China which is very cold especially in winter. So we are facing these main markets and also our technology developed by ourselves, we could see it currently has no various competitors in this term domestically or globally? Thank you.
Great. Now my next question and my last question is actually my next and last question is the CPAC has announced numerous business partnerships and investments in factories and new products. What is the capital expenditure required to meet the commitments in 2021? How much has CEBAC invested so far? And how much does it plan to invest?
What are the expected sales or revenues for that they expect to get from this additional investment in their
Thanks very much for the explanation. And as you may already heard from the previous introduction that we have put into the construction the plants in Nanjing and plants in Dalian cities. And now we have invested almost RMB100 1,000,000 and we plan in this year to invest another around RMB50 1,000,000 to RMB100 1,000,000. And we expected that 2 factories are going to be put into the operation in the 3rd or at least in the Q4 of this year and we expect to generate the revenue or profits in the next year in 2022 when the 2 factories capacity are put into the full usage during a certain time of operation? Thank you.
Okay. My final question is, does the company have a plan to raise capital again? And what's the estimated size of the raise? And when will it be used and for what purpose?
Thank you. Thanks very much for the Director Pei's detailed explanation. In terms of the final question And actually, as we mentioned, the Nanjing and Dalian plants is going to be put into the operation around the 3rd Q4 of this year. That is going to be the Phase 1 plants. And with the Phase 1 plants in Nanjing and Dalian are going to be put into the operation And we could say currently according to our calculation, the fund raised before have been enough to cover our Phase 2 construction and operation in both Nanjing and Dalian.
And we expect to do more analysis about the quality of our products, capacities and also acceptance of the market of our products manufactured from the new 2 new factories in Nanjing and the Dalian. And with all this data to be collected at the 2 factories putting to the operation, we could understand that how the Phase 2 in Nanjing's factory is going to be expanded and how much fund needs to be raised. And so basically we will need the 2 factories to be putting into operation and collect more information through the operation and give you all this data you are interested in? Thank you.
Thank you very much for supplying me with full disclosure and a concise description of your intentions. Thank you.
My pleasure.
Thank you. Our next question comes from the line of Howard Yu from Aladdin Capital. Please ask your question.
Thanks very much for your question. And we have a question about that when reading the report issued that the CPAK have established a corporation, a partnership with JSA by signing agreement. And according to this agreement, it's going to be a 3 years partnership to develop new products. And the question is about how much revenue could be generated through this corporation? And also, if there is any further commitment in this agreement for the partnership like the financial commitment?
And third one is that in terms of the IP for the co designed or developer products, who is going to be the owner of the IP? Thank you. Thanks very much for the direct answer for this question. And we first have to mention that this cooperation with the GAC by CBAK is now on the right track of the R and D or DM stage. And but one thing we'd like to point out is that this corporation is focusing on the development of a vehicle and a vehicle it is it generally needs at least 2 years for the R and D to be finished and now we are on the right track in the process of the R and D development.
And also from the current progress, we say JSA is very satisfied with it. And also the product we are co developing is also a hot product that is the 4,680. And this product is its IP is owned by us. And also this product is not going to be only to be supplied to JSA. It is also only going to be provided to other vehicle manufacturers and the producers.
And I believe that will help us to generate the progress of profits in the long run. And currently we could see in conclusion, the development or the partnership is on the right track. Thank you. Thanks very much for your question. And also from the previous introduction, we come to notice that CBAK is going to acquire a company called Hytron, which is an upstream manufacturer for the lithium batteries.
So would you like to share with us if available the scale or the revenue of this company, the Hytron that we are going to be to acquire and after acquisition, merger and acquisition, if Haixance is going to be integrated into CBA Kids Who Business Map or it is going to operate on its own sales? Thank
you.
Thank you very much for Ms. Pei's very detailed explanation in this term for this question. First that after merger and acquisition to be finished in terms of the general management and the finance and also the risk management of the Hytron is going to be integrated into the CBA case, who management and operation management scheme. But on the other hand, we are going to lift the Hytron after merger and acquisition or certain independence in terms of the business development and the business operation that is going to be many administered by their previous technology team and management team for business and business operation. So that is going to be a good complementary of our support and also their long years experience and technology accumulation.
On the other hand, in terms of the financial and finance data and because we are still in the progress of finishing the exchange and the transaction with them. So I think we are going to share with you the detailed data and information in the next Times meeting and conference for your reference. Thank you.
Thank you. Our next question comes from the line of Laura Liu from Stone Street Group. Please ask your
question. Thank you, everyone. So my question is about the revenue growth for different business segments. So can you tell us more about the strategy for the growth going forward? And also what's the rationale behind it?
Is it going to be merger or launching new technologies?
Sorry, can I confirm with the last point, do you mean the rationale of the strategy and because of signal issue, I'm not quite catch up all information, especially the last sentence? Thank you.
Yes, sorry about that. Yes, so what's the rationale behind that, the growth strategy? Because I saw the company will do some mergers and maybe potentially launching some new technology. So what is the major one between yes, between the and also behind the growth? Thank you.
Thanks for your clarification. Thank you.
Okay.
First, that because we will have another director to also answer your question and first, Mr. Tim share his answer to your question is that in the long run that is definitely CBAK is going to be focusing on the technology driven business and especially for the batteries, new technologies, update and development. We like the merger acquisition as kind of support. So this is our main strategy and the rationale. And of course we will have some niche markets, but because of time limit I do not expand upon here.
Thank you. Thanks very much for the further explanation and added information. And also because as we mentioned before, we are technology driven company and it is also our main stream for the development. And also that merger and acquisition, for example, the Haiqing case is also because they are the ones could help us to provide stable supply of the key materials for our batteries. It is of great importance strategically.
So that's why we issued this merger and acquisition case. And so we could say this is not just a merger acquisition. We are not just taking it as a driving force for our business. It is because it could add up to our technology driven strategies to further strengthen our foundation in technology. Thank
you.
Okay, great. Thank you. That's my question. Thank you.
Thank you.
Thank you. Our next question comes from Wissi Liu from Valuable Capital. Please go ahead.
Good evening and good morning, everyone. I had a question about the EV and speeding up their production capacity expansion, while CBAK just decided to return to the EV and LED market. Isn't this sort of late?
Hello? You can move on.
Hello?
Hello?
Hello?
Sorry.
Hello, can you hear me?
Yes, we can hear you. We heard that you're talking about the EV and there are also a lot of the players have been expanding their capacity. But on the other hand, maybe CBAK is just entering into this business and then the signal lost?
Okay. Let me repeat the question again. Thank you. At present, all major battery manufacturers are speeding up their production capacity expansion, while CDK just decided to EV and LED market. Is this sort of late?
Hi, Wednesday. Looks like you disconnected from the call.
Hello?
Hello. Sorry for the signal issue.
Okay. Let me answer the question again. Sorry, maybe the signal is not good.
No problem.
So at present, all major battery manufacturers are speeding up their production capacity expansion, while CDI just decided to return to the EV and LE market. Isn't this sort of late?
This is the audio operator. Maybe I can repeat a question. It's about whether is it too late to enter LEV market?
Okay. Thanks very much for the detailed explanation for our director. And actually one thing we would like to clarify is that we are not a newcomer to EV and Air EV market. Actually we are back just like the very famous grid, we are back from this market because years before we strategically decided to exit the EV and EV market because at that time we analyze the policies of the government and also the timing we thought that was not quite as supportive for us to develop our business or generate profits in EV and AIO EV and that's why at that time we decided to put more energy into the development of the energy storage market which do generate profits for us to sustain our development. But on the other hand now with the continuous understanding of the market, we say it is a good time for us to reenter or back to the EV and Air EV market.
So we say we already have the accumulation no matter of the technology or the experience in this term? Thank you. Thanks. And also one thing we'd like to emphasize is that now we are back to this market. It is because we have the strategic understanding about the market.
So at first we would like to share with you some additional information. Actually previously years before, before we exit the EV and LEV. We are the one we were the ones taking part into the standard making up for the EV and LEV. But at that time, this was only a standard that we only have the head of the standard for the industry, but now we have China's national level standard and we are also one part of it of the standard making up. And also years before we saw that EV and L EV though grew very fast, the industry is hard to make profit.
So that's why we decided to temporarily exit from that market by focusing on a business that can generate profits and sustain our long term development. So that is our actually policy or for the development that is find the right business or industry to generate a profit. With the profit we can take steady steps to move forward. And following these policies we now see the home market after years development has been more mature and so that's why we decided to go back. And also we are not just back to a market to compete with those top level players focused on AB, a big player, but they are more focusing on the A model cars.
But we choose another niche market that is the A00 model and also the LUV mainly the 2 wheels vehicles, which means we focus more on to the light and the light type and model vehicles, we focus on different niche markets comparing to other key players. Thank you. This is it.
Thank you. Wensley, do you have any follow-up question?
Yes. I have a second question. The company received government subsidies And what's the regulation and incentive for better risk base?
Sorry, this is not quite good. Would you like to repeat it again? Thank you.
Yes. That's the company received from government subsidies and what's the regulation and the incentive for battery
space? And first, I think thanks very much for your question. I think maybe because we are in the new energy market, So we are currently affected or impacted by the general image that the Chinese government has given a lot of subsidiaries or incentives for the new energy business. And actually there is no incentive or subsidiaries in China from the government level to battery manufacturers. This is one thing I'd like to clarify.
But on the other hand, we are provincial level high-tech enterprise. So we do receive some incentives from the local provincial government. This is one thing I'd like to clarify. And also as we mentioned before that we are the provincial level high-tech company and we do see receiving incentive from them. For example, that the local government gave us the fund that is could only be specially used for the upgrading and expansion of our production lines and our capacities.
So we do receive some subsidiary incentives from the government for the special purpose. This is also one thing we'd like to clarify with you. Thank you.
Thank you. We see, do you have further questions?
Thank you. Thank you for the answers and that's all my questions. Thank you.
Thank you. Thank
you. Seeing no more questions in the queue, let me turn the call back to Mr. Yoon Fei Li for closing remarks.
Thank you, operator, and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.
Thank you all again. This concludes the call. You may now disconnect.