Greetings. Welcome to Kandi Technologies' second quarter 2021 financial results call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to Kewa Luo. You may now begin, Kewa.
Thank you very much. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the second quarter of the year 2021. We issued a press release covering the results earlier today. On the call with me today are Mr. Hu Xiaoming, Chief Executive Officer, Mr. Alan Lim, Chief Financial Officer. Mr. Hu will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&A session. 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 does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in the US dollars. With that, let me now turn the call over to our CEO, Hu Xiaoming. Go ahead, Mr. Hu
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Hello, everyone, and welcome to our conference call today. We're excited about second quarter results. First and foremost, revenue was strong, driven primarily by growing sales in the intelligent mobility sector. Recall that the last year, when COVID-19 broke out, we made a strategic decision to find new markets for our technology. We identified the intelligent mobility sector as a great opportunity, especially since we believe our technology is better than our peers for this application. Today, you can see the wisdom of this decision in our sales number of the second quarter.
Of equal importance was the completion of the Jinhua facility relocation, which entitles us to the final payment, resulting in a significant increase in net income. This was a substantial inflow of cash, which we will deploy to grow our business. As a reminder, in March 2020, we entered into this repurchase agreement with Jinhua Economic and Technological Development Zone. In the second quarter of this year, we vacated our old property and returned it to Jinhua Development Zone on schedule. We also completed the move into our new facility thanks to the efforts of our team members. This funding will support our R&D and other efforts to capture new growth opportunities. We believe that with a solid strategy and government support, our business can stimulate the local economy, creating new jobs for the people. We are proud to operate in this socially responsible manner.
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Talking about growth opportunities, I mentioned in our first quarter conference call that we see huge market potential in short distance electric vehicles in China and UTVs in the U.S. market. We have been investing in R&D to further develop these two product lines and made progress in the second quarter. In May, we announced our K32 premier fully enclosed electric four-wheel drive utility terrain vehicles. Early prototypes were produced at our factory in Hainan, China. The fully enclosed cockpit creates delightful comfort, not typical for a UTV, including a built-in intelligent interactive system, integrated infotainment, and refreshingly strong air conditioning. We intend to sell these K32 in the U.S. by the end of this year. We will provide updates later this year.
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Last, I would like to update you on acquisitions. As you know, for our last call, we were looking for targets suited to Kandi's long-term development roadmap, who shares the same vision. In July, we closed the acquisition of Jiangxi Huiyi, headquartered in [Non-English content] Even though they are not large, they are one of the leading battery cell producers in the industry. Jiangxi Huiyi's core technology of lithium iron phosphate is among the industry's most advanced level. The acquisition fits Kandi's vertical integration strategy and is a good channel to extend our battery cell footprint. We will focus on EV and power battery for now, while keeping our eye on other consumer applications and acquisition targets that align with our strategies and long-term growth.
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Let's now start the Q&A session, and the CFO and I will answer your questions. Operator, please go ahead.
Thank you. Thank you. I have our first question coming from the line of Walter Hill with Carty & Co mpany. Please proceed with your questions.
In recent announcements, Kandi's U.S. sub, Kandi America, has released both an electric mountain bike, the Trail King, and a high-end air-conditioned premium K32 UTV. My question: The electric mountain bikes are very hot items. Is the Trail King still being developed, or is it available right now? If so, what is the MSRP? Secondly, the PR stated that the K32 would be on the market later this year, and I believe Mr. Hu just referred to that. The specs reported in the PR, such as a weight of over 5,000 lbs, 18 ft long, but only a range of 60 mi seem confusing, if not problematic. If it's over 5,000 lbs, it seemingly would be too heavy to tow. So the short range would seem problematic to get to the wilderness. What would the MSRP be for the K32? Thank you.
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[Non-English content] First of all, the question about the electronic mountain bike. Our U.S. subsidiary SC has indeed conduct a research of the marketing about the mountain bikes, and we know that this market is really hot indeed. Currently there are two models, one is for the adults market, another one is for the children market. Both models have already been developed and would be available in the market. As for the first model for the adult market, the production is done and expected to be launched in the U.S. market in September this year. As a matter of fact, it's available for customers to order at the moment already. As for the adult model, the MSRP will be $3,599. As for the junior version, means for the children model, the MSRP will be $2,099.
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OK, as for our model K32, the specs you mentioned are not finalized. As a matter of fact, we are still currently optimizing the K32 UTV. Our U.S. subsidiary has been working on the market research and collecting the feedback from the market, that we can have certain parameters and the functions to be adjusted. We thought that usually from our point of view UTV, the range should be fine for around 100 km, which is probably over 60 mi. We believe that should be enough. Although we are still trying to collect enough data that we can finalize all the parameters and the functions. After all the parameters and the functions to be finalized based on the market research, we will come up with the final MSRP based on the adjustments. That should be it for your last two questions. Thank you.
Thank you.
The next question is from the line of Mike Pfeffer with Oppenheimer. Please proceed with your question.
Hi. Thanks for taking my call. A few questions regarding full-speed passenger EVs in both China and the U.S. There have been several articles recently out in China that report a renewed interest by smaller EV companies to step into the ride-hailing business since DiDi's proprietary rider app has been at least temporarily restricted and likely going to have to be significantly modified. While Kandi has nothing to do with the rideshare app for the 300,000 government-accredited EV-only ride-hailing program, its partner, Ruibo, might be involved. Is what happened to DiDi going to be a plus, a minus, or a non-event for the program that Kandi will provide cars? Then I have a few other questions. Thanks.
Okay. Let me repeat your questions to Mr. Hu. [Non-English content] For Mr. Hu, that is definitely positive to us. Our car-hailing platform company, Ruiheng, is involved in the whole market, and because DiDi used to occupy over 80% or 90% of the whole market, which is rather monopoly in the China PLC market. Now it's more open to different other platforms, to involve in this business, so definitely is positive to us.
Okay, thank you. Where does the overall program stand? I have a second question, please. Thank you. Okay. The kandiamerica.com website seems to now have, under vehicles, both the K32 and K27 NEV plus, the K32 and K27 full road speed passenger car available for deposit. Is this a sign that Kandi is close to releasing the new 2022 model passenger EVs for U.S. sales? Is this the reason that there has not been an official grand opening for the new 60,000 sq ft Dallas showroom bought by Kandi?
Okay.
As for our new venue in Dallas, it's already in use. Due to the pandemic, we did not hold an official grand opening ceremony. It's not correlated to any launch event of our upcoming models. It's just with the pandemic. That's why we didn't have the ceremony earlier of this year.
Okay, thank you. One last question, what is the status of the Kandi design new sports car costing Kandi close to CNY 40 million in R&D this year? Thanks.
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[Non-English content] As for your last question, the CNY 40 million R&D expense that we spend this year is not solely about the sports car model. Indeed, apart from the sports car, we also invest our R&D amount into different other models, such as UTV, such as the compact EV models. We expect, for example, the upgraded version of the K32 should be available by end of the year. Basically, our R&D for different models is progressing in an orderly manner. Thank you for your question.
Thanks.
Next question is from the line of Karl Scherer with Rang Ring Consulting. Please with you.
Good morning or good evening, everybody. Regarding the hoverboard parts business, when Kandi first got into this sector late 2019, it was manufacturing the complete hoverboards for U.S. export for Walmart and others. As of last year, it appears Kandi thought its subsidiary was making parts and became a supplier to an assembler. A few questions. A, is Kandi still just making parts, or is it still in the complete assembly business? B, referring to the parts, are they just the battery, just the motor, or both? Is Kandi still on track for 3 million units to be delivered this year? Any idea or projection for next year already?
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[Non-English content] Okay, regarding our company's hoverboard parts business, we are still primarily making the parts instead of the complete assembly business. As for the parts, they are both the battery and the motors. Finally, about our sales target. As you may know, last year our company has sold over 500,000 pieces of the motors. This year, our 3 million units motor target, we are on the way to achieve and we are trying very hard to do so. Considering there are some constraints about the global shipping issues, that may slow down our sales a little bit. However, we are trying our very best to meet the 3 million unit motor sales target. Based on this fundamental, we expect the sales will be more for next year. Thank you for your question.
Thank you. Could I add another question to that, please?
Sure, please.
For the third quarter, do you have any projections of how many units you will deliver for those hoverboards?
For this current quarter, the third quarter, we estimate the sales for the unit of the parts may probably as much as 1 million unit.
That's impressive. Thank you. That's impressive. Touching on what Mike from Oppenheimer already asked about DiDi, since DiDi seems to be having obstacles in its continuing growth, do you think this would help Kandi to roll out their QBX quick battery exchange model in any better speed than so far?
Oh, okay. You mean our models, but not the whole battery swap system, right?
Yes. The QBX for the electric vehicles for the ride-hailing business.
Yeah. As for your question, that will help. Again, because of the constraint from DiDi, it opens the market opportunity for different other car-hailing platforms. Like us, we are primarily focused in the exchange battery car-hailing platform. That will help us, although it would take a while and take some time for such progress, but definitely it will help.
Thank you so much.
Thank you.
The next question is from the line of Mark Kahnau with Swiss Liquid Future. Please proceed with your question.
Yes. Good morning. Good evening, everybody. My question has to do with Kandi's grossly undervalued share price. Despite the massive EV sector correction underway from early irrational enthusiasm for any company touting EV affiliation, at current price level, there's only one company, in the EV sector that stock is trading below Q1 2021 book value. Kandi, with $5.33 per share, and that book value includes around $2.42 a share of cash and short-term investments. Additionally, Kandi has no debt. The next closest is still trading over 2x book value with an average of 3x-6x times book. Likely the reason why in this current market environment, we have not heard of any EV company or their top management buying back their shares.
In Kandi's case, a couple of years ago, when it had negative working capital and a $3.50 a share book value, both the company and Mr. Hu individually bought open market shares at a high as mid $5. Here's my question to Mr. Hu. Does Mr. Hu think Kandi stock is a good buy at $5? And if so, will either Mr. Hu or cash-rich Kandi itself buy stocks at these below book value levels? If buying under book value is not a good deal for the company, why would any shareholder want to buy the stock here right higher?
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[Non-English content] As per question, Mr. Hu thinks that definitely the Kandi stock is a good buy at $5. Depending on the upcoming market condition and situation, the company will definitely consider the issues related to the stock buyback at the appropriate timing. Basically our consideration will be based on upcoming condition and we will definitely consider in the appropriate time. Thank you for your question.
Thank you.
Our next question is from the line of Frank Blatterman, private investor. Please proceed with your question.
Yes, good evening, gentlemen. As I understand it, the Jinhua factory is being used to manufacture off-road vehicles, battery and motor assemblies for hoverboards, as well as doing battery assembly for the electric vehicles. Is this correct? Are motors and controllers for electric vehicles being made at the Yongkang facility? Also, are any automobiles presently being manufactured at the Hainan facility? If so, how many per month? I'll have a second question when this is answered.
Hello?
Hello.
Hello.
Hello. My question to confirm your understanding is that, you're asking about the products being made at our Hainan, Yongkang and Jinhua facilities. If that's the case, what is about the monthly output and export plan from our Hainan facilities? Is that your question?
Yes, that's basically it.
Okay.
What product-
We can answer your next question after the first input from Mr. Hu.
Okay, go ahead.
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[Non-English content] As to your questions, our Hainan facilities, first of all, mainly manufacture the whole vehicles, such as the electric vehicles like K32, K27 and our UTVs, the utility terrain vehicles. As for Yongkang facilities, it mostly manufactures the motor parts and the product. As for Jinhua facilities, it mainly manufactures the battery packs, the ATVs, and the equipment for the smart battery swap systems, and some other old products that we have in the past.
Okay, thank you. My second question, Google Earth is showing a major highway under construction from the industrial park in which the Kandi factory is located to the seaport at Haikou about 15 km away. Do you have plans to ship from that port to other Southeast Asian countries, or only to China and the U.S. at this time?
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[Non-English content]We definitely have the plan to have our sales expanded to the Southeast Asian market in the future. Currently, we are working on some market research because of the demand and the regulation is different from the China and U.S. market. It will take us some time to finalize our research at those regions. Although our sales or the export will not have an entire relationship with the deep water port from the Haikou, but that will be handy for us to do so. It's not really there's a direct correlation between the export and the port at Haikou. Hopefully that addresses your questions.
Yes. How many vehicles are being manufactured right now, motor vehicles at the Hainan facility? That's per month?
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[Non-English content] Our production capacity is quite large as our Hainan facilities. There are different models is being the production initiation process. At the moment our production is not in line with the capacity yet. The figures is uncertain at the moment. For our upcoming sales, you may refer to our financial statements to be released in the future timing. Thank you.
Thank you.
Our next question is from the line of Urj Suresh with Private Investor. Please receive your question. Our next question is from Arthur Porcari with Corporate Strategies. Please receive your question, sir. Please stand by while we get Mr. Porcari's line back. Hi, Mr. Porcari, your line is open.
Hello, Mr. Hu and all members of the company there.
Pleasant surprise on the numbers today, though maybe not so surprising if people have just been following what you've been saying the rest of the year. I'll keep my question somewhat brief here because you've already kind of covered part of it in your opening. About three weeks ago, the company announced the acquisition of Jiangxi Huiyi, a young lithium battery producer, which according to their own website, and by the way, they have a very nice website, I wish you would have put a link to it, already has over 300 employees to include 40+ researchers and some 50 battery-related patents producing, as you did say in your press release, I think 90 million batteries a year. Most important, though, correct me if I'm wrong, but this brings the coveted China battery manufacturer's license along with it, which I don't believe that Kandi had up to this point.
The company's website is loaded with awards in just a few years since it started in 2016. What's amazing is how Kandi was able to acquire this gem so cheap for a price of only $7.7 million cash, and what appears to be a contract that you have on your SEC site, a strict three-year earn-out, which they could get up to 2.5 million Kandi shares, but would require a minimum annual net profit contribution of $2.3 million each year, including this year, or else each year they miss, they lose a third of the 2.5 million. With that said, a couple of questions. Will Jiangxi be joined in the recently formed battery subsidiary along with Jinhua Ankao and Yongkang Scrou, which is the sub you intend to spin off as a separate trading entity as previously announced?
It has two parts, about four questions here, but I'll put the second one, too. About how much revenues is Jiangxi expected to generate this year, for the balance of this year? That's the first part of my questions.
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[Non-English content] As for your question. The newly acquired company, Jiangxi Huiyi, will not be joined into the recent reform company, which is the Zhejiang Kandi Smart Battery Swap Technology Co., Ltd., which include our primary subsidiary Yongkang Scrou. Of course the Zhejiang Kandi Smart Battery Swap Technology Co., Ltd., we plan to list on the China main board market ongoing. As for the Jiangxi, it will not be part of this plan. However, we have a strong belief in the upcoming future of Jiangxi Huiyi. In about three to four years, based on the expansion of the production capacities, we believe that it will manage to be listed in the main board market in China individually in the future. As for the revenue expected to be generated in this year, we expect that the total revenue for this year is roughly around CNY 250 million.
OK, which is, let's see, if we do a quick calculation about $40 million?
Yes, more or less $40 million.
Which is more than the total revenues that Kandi itself has. From this quarter on, we're going to finally see some serious revenues coming into Kandi. On a company you just were able to acquire for $7.7 million cash and promising profitability, even so far as to have their own CEO put a quote in the press release, which, by the way, the press release on their website is even more bullish about the acquisition. Let me move on. Okay, how soon before Jiangxi will be expanding its current battery line from the announced current 18650 lithium-ion rechargeable cells to actual road certified EV batteries?
The second part of that, you kind of somewhat answered this already. Speaking of the battery spin-off, what's the latest intentions for bringing public the actual subsidiary, the first subsidiary? Now it looks like you may be doing two subsidiaries, which is great, spinning them off, but this first one. If I need to repeat that, if I got confused of the two, the main question is, again, how soon before Jiangxi will be expanding its battery line from the 18650 small charges to actually road certified EV batteries for real cars? Speaking of the battery spin-off, what's the latest intention of such as timing for the public battery subsidiary spin-off?
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[Non-English content] As for the first question in the prior section, it will take roughly half a year to expand the battery line from the current 18650 lithium-ion rechargeable cells to the actual road-certified EV batteries. Roughly half a year. As for the second question, the purpose and intention to bring our battery subsidiary public, of course, it will expedite and promote our company's development and operation in the future.
Okay. Just a couple of follow-ups on stuff that either have already been said or appeared in the numbers that came out today. I can easily see why this is the first time. He gets asked this question a lot about the company buying back shares or he himself. The few times in the past, he's given a similar type announcement. He actually has bought stock either for himself and/or the company. I could see why. Earlier, one of the questioners made the comment about how undervalued we were and talked about having about $2.45 a share in cash in the company. According to the numbers you just put out today, it jumped to $3.90 per share cash, and the book value jumped to $5.76 per share. Now, that's pretty impressive numbers considering we're grossly trading under book value considerably.
To tie all that in, you got an analyst out there that estimated that we're going to do about $20 million in revenues this year, which was easily beat by over 50%, but was estimating for this quarter to lose $0.18 a share. I think that's because the company doesn't give guidance, and it's hard to get analysts to come on board a stock until a company is willing to at least commit to some type of a number so they don't create an embarrassment like this analyst probably has just been hit with. I mean, even without the extraordinary, we blew away her numbers easily. Any comment on that? You as the Chief Financial Officer as well.
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[Non-English content] As for the question, well, our company's model is always trying to do our best in our own operations, or probably we have not paid too much attention or exposure to different market analysts, even though we are working with some. However, probably the communication may not suffice in the past. We will try to do better communication with different parties in the market ongoing. That will be our plan.
Okay. Just two really short ones here. You mentioned the K32 later this year in a subsequent question, not in the question that kind of alluded to releasing it into the U.S. market. Just for clarification purposes, for those that don't understand, the K32 is the U.S. car, and I believe it's for U.S. and China, but are you talking about the K32 release this year for China, or are you talking about the K32 later this year for the U.S. market, or both?
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[Non-English content] Pardon us for the critical error. We actually meant the K32. It may be confusing, but K32, that's the UTV we have finished developing, and we plan to promote the sales and launch the K32 model in the U.S. market. This UTV basically is for the U.S. market, and we plan to launch by the end of the year.
Okay. I understand the last comment. Earlier on, the quality of this conference call has been very poor, at least it has been for me. A lot of times I can't even either side of it. It's just going blank. If that's the way it is across the board, apparently you all can hear it, and I think you should go back to doing your own transcripts again because I can't even imagine what is going to look like, seeking Alpha is left alone to just be the only provider of this. So for the few extra minutes involved in taking the automated transcript, I think you should really go back to the company version of the transcript as well. With that, I will just say it was a great quarter and just like the rest of the year, it's going to look pretty strong as well.
Hopefully the analysts will realize it and give the major upgrade it deserves. Great job! Thank you.
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Mr. Hu would like to thank you again for your comment and questions. As for the transcript, we will consider that ongoing and how to adjust to a better version to be circulate online. Thanks again for your question and comment and your support.
Thank you. We've reached the end of our question-and-answer session, and I'll hand the floor back to management for closing remarks.
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Thank you again for attending today's conference call. We are confident that we are going closer to the multiple targets spreading our EV product, battery swap business and market expansion. We look forward to sharing with you more positive news in our next call. This concludes our call today. Thank you very much.
Thank you. You may disconnect your lines at this time. Thank you for your participation.