Author: Kim Ping Media JPM
Nenglian Zhidian Technology Co., Ltd. (NaaS.US) announced the main operating data for the first quarter of 2024:
1. Revenue growth: The company's revenue increased by 166% year-on-year to RMB96.2 million (US$13.3 million).
2. Gross margin: The gross profit margin in the first quarter of 2024 increased to 25.3%, up from 16.9% in the same period in 2023.
3. Gross profit: Gross profit increased fourfold year-on-year to RMB24.3 million (US$3.4 million).
4. Operational indicators:
Charging volume: 1,216 GWh of charging was transacted through the NaaS network, up 19% year-on-year.
Total transaction value: 1.2 billion yuan (about 160.1 million US dollars), up 17% year-on-year.
Number of orders: The number of orders transacted through the NaaS network reached 50.3 million, up 13% year-over-year.
5. Costs and operating expenses:
Cost income: increased by 139% to RMB71.9 million (US$10 million).
Total operating expenses: increased from RMB119.7 million in the first quarter of 2023 to RMB215.7 million (US$29.9 million) in the second quarter of 2024. 6. Net loss: Net loss attributable to ordinary shareholders in the first quarter of 2024 was RMB227.4 million (US$31.5 million), compared to a net loss of RMB109.7 million in the same period in 2023.
Despite the ostensibly lower profit in the first quarter of 2024, after communicating with the company's management on a conference call, TimesWell analyst Daniela Guerrero found after digging into the financial details that this was mainly due to the widespread exercise of employee stock options. This incident should be interpreted as a vote of confidence in the future within the company, which indicates that the apparent increase in operating costs is a transient phenomenon and does not indicate potential financial instability.
In addition, in the first quarter of 2024, Highbridge Capital, a subsidiary of J.P. Morgan Asset Management, made a significant investment in Nenglian Zhidian (NaaS.US), purchasing 4,761,905 American Depositary Shares (ADSs) worth about RMB 43 million. The investment also includes the option to purchase an equivalent amount of ADS in the future, and the decision of these institutional investors to partner with Nenglian Zhidian (NaaS.US), especially during a period of general decline in similar investments in China, speaks volumes about N NaaS.US englian's unique market position and expected strong growth trajectory. This contrarian approach emphasizes an underlying market sentiment that may not be immediately apparent by just a cursory glance at stock price movements.
In addition, Nenglian Zhidian's (NaaS.US) mastery of China's complex regulatory and operational environment further solidifies its potential to dominate the industry. Unlike the popular charging model for home EVs in the United States, the company has strategically positioned itself as a core player in China's centralized charging solutions market. Not only does this work seamlessly with the dominant urban infrastructure setup and driving habits in China's cities, but it also leverages the government's push for cleaner urban mobility solutions.
Company Overview
Nenglian Zhidian (NaaS.US) has carved out a unique niche in the electric vehicle (EV) charging industry by strategically focusing on centralized charging solutions rather than the home model popular in the United States. This approach is tailored to the urban infrastructure and driving habits that are prevalent in China, differentiating NaaS from its U.S. counterparts in several key ways.
In the U.S., EV charging infrastructure is designed primarily around individual ownership and usage, with a focus on residential charging stations. This model is consistent with the suburban lifestyle, where individual homeowners often have private garages, making home charging both feasible and convenient. Conversely, the city-centric lifestyle of many Chinese cities, coupled with higher population densities and fewer individual private garage ownership, requires a different approach. Nenglian Zhidian (NaaS.US) meets this unique market demand by providing centralized charging stations that are more similar to traditional gas stations, serving multiple vehicles in one location.
This operational focus on centralized charging stations allows for efficient use of space and resources in densely populated areas. It is also closely linked to government policies aimed at reducing pollution and traffic congestion in cities, which encourage the use of electric vehicles. By strategically located charging stations in cities, often close to public transportation hubs or popular business districts, Nenglian Zhidian (NaaS.US) maximizes the accessibility and convenience of EV users, which in turn enhances the appeal of EVs as a viable alternative to fossil fuel vehicles.
In addition, Nenglian Zhidian (NaaS.US)'s business model leverages the scale of operations. Centralized charging stations can serve more vehicles per day than home chargers, potentially generating more revenue per unit of infrastructure. This scale is not only economically beneficial, but also beneficial from an environmental point of view, as it utilizes shared facilities to reduce the charging carbon footprint of each vehicle.
The strategic positioning of Nenglian Zhidian (NaaS.US) in the electric vehicle market is supported by strong technological innovation, the company has developed proprietary technology that optimizes the charging process, reduces the time required to charge each vehicle and improves the user experience, this technology includes an advanced battery management system that ensures the safety, efficiency and longevity of the battery life during charging.
In addition, unlike many U.S. companies that are primarily focused on the consumer market, Nenglian Zhidian (NaaS.US) has also established strong B2B partnerships. These include partnerships with commercial fleet operators, public transport systems, and local governments, which not only diversify its revenue streams, but also stabilize its operating model in response to market volatility typical of consumer-driven markets.
The integration of these operational strategies and business priorities sets Nenglian Zhidian (NaaS.US) apart from its U.S. counterparts, putting it in a strong position in China's booming EV market. This strategic differentiation is critical not only to its current market dominance, but also to its potential growth trajectory, in line with both the Chinese government's ambitions and the needs of Chinese consumers.
Market Comparison & Competitive Advantage
In order to effectively analyze the competitive advantage of Nenglian Zhidian (NaaS.US) in the global market, it is important to understand the different market environments in China and the United States. These differences not only affect operational strategy, but also shape the potential of the business model.
In the U.S., electric vehicle (EV) charging infrastructure is primarily focused on individual consumers. The market is characterized by a large number of private car owners who prefer to charge their electric vehicles at home. This is driving the demand for residential charging units, which is supported by policies that encourage charging units in homes. In addition, the U.S. market is fragmented, with numerous players, including ChargePoint, Blink, and Tesla, competing not only for coverage, but also for technological advancements in charging solutions.
In contrast, China's attitude towards EV infrastructure is more collectivist, largely due to its urban planning policies and government-led EV adoption. Most Chinese cities are densely populated and have limited parking, which makes home charging stations less viable than in the United States. As a result, China has cultivated a centralized EV charging station model that can charge multiple vehicles in one location. This model is especially suitable for commercial fleets and public transportation systems, which are areas where Nenglian Zhidian has a strong positioning.
Nenglian Zhidian (NaaS.US) focuses on centralized charging solutions rather than individual charging points, which gives it a clear advantage in the Chinese market. By targeting fleets including buses and commercial vehicles, a less volatile customer base is leveraged that benefits from predictable and sustained demand. This is in line with the government's strategy to promote cleaner public transport solutions in urban areas, ensuring a stable regulatory environment and a potentially more stable source of revenue.
In addition, the deep integration of Nenglian Zhidian (NaaS.US) strategy and intelligent technology has added another layer of competitive advantage. The use of data analytics and Internet of Things (IoT) technologies in their charging stations can enable smarter energy management, reduce operating costs, and improve service reliability. These technological advancements are crucial in China's rapidly evolving technology landscape and provide a competitive advantage for Nenglian Zhidian (NaaS.US), whose competitors may still rely on more traditional operating models.
In addition, the Chinese government's supportive policies for electric vehicles and the infrastructure required for their maintenance, such as subsidies for the purchase of electric vehicles and investment in the construction of charging stations, have created a favorable environment for the business model of Nenglian Zhidian. In contrast, the U.S. market faces a relatively diverse regulatory environment across states, which could complicate charging network providers' national deployment strategies.
While it's important not to underestimate the potential of the U.S. market, Nenglian Zhidian's (NaaS.US) special focus on centralized charging solutions and strategic alignment with China's national policy present unique advantages that are not easily replicated in the U.S. environment. This strategic differentiation not only helps reduce direct competition with major U.S. players with entrenched roots in the home charging market, but also enables Nenglian Zhidian (NaaS.US) to become a frontrunner in industrial and public transit charging, a niche but fast-growing segment in the EV infrastructure space.
Investment insight and forward-looking confidence
On March 13, 2024, J.P. Morgan Asset Management's Highbridge Tactical Credit Institutional Fund made a significant investment in Energy Chain Zhidian (NaaS.US), a bold move that comes at a time when many large investment banks are pulling out of China-backed projects due to heightened political sensitivities between China and the United States, Highbridge's investment decision, as well as the option to purchase an equal number of ADSs in the future, Highlights strategic confidence in the company's growth trajectory and its governance.
From an investment perspective, with such significant financial commitments made by well-known institutional investors like Highbridge, they often have the resources to conduct in-depth analysis and access to comprehensive market insights and insider data that typical retail investors may not have. They are willing to invest heavily and can often send a strong signal to the market about the company's potential. This can serve as an indicator of the investment fund's broader strategy to capitalize on market inefficiencies and support companies they believe are capable of delivering significant long-term growth.
Investor confidence, represented by Highbridge, may also attract additional interest from other institutional investors, which could lead to a revaluation of Nenglian Zhidian (NaaS.US) shares as the market adjusts to new developments and the company's strategic initiatives. This could catalyze a positive feedback loop in equity valuations, further stabilizing the company's financial fundamentals and enabling it to pursue aggressive expansion or innovation strategies.
In addition, for existing and potential investors, these investments often come with strategic advice and oversight, which can greatly benefit Nenglian Zhidian (NaaS.US) to address market challenges and capitalize on growth opportunities.
Operational challenges and strategic responses
While its investment inflows and strategic partnerships reflect strong support and market confidence, Nenglian Zhidian (NaaS.US), like many Chinese companies operating internationally, faces a number of operational challenges, particularly in terms of financial operations. These challenges stem primarily from a lack of familiarity with U.S. financial standards and practices, which can lead to lapses and miscommunication, which can affect investor confidence and complicate fundraising.
One of the most significant financial operational challenges faced by Nenglian Zhidian (NaaS.US) is to comply with U.S. financial regulations and standards, which are very different from those in China. The U.S. financial market operates according to Generally Accepted Accounting Principles (GAAP), while China uses Chinese Accounting Standards (CAS). These standards differ in many areas, including revenue recognition, asset valuation, and financial performance measurement. Such discrepancies can result in material changes in the financial statements that make it difficult for U.S. investors to accurately assess the company's financial condition and performance.
In addition, Nenglian Zhidian (NaaS.US) does not have as in-depth understanding of the complex financing mechanisms often used in the U.S. market as local companies. This includes a range of financial instruments, such as convertible bonds, preferred shares, and various types of derivatives, which are commonly used in the United States to manage financial risk and raise capital. The lack of deep expertise in these areas may limit the company's options in terms of financing and risk management, potentially putting the company at a disadvantage over its U.S. peers.
In order to cope with these financial and operational challenges, Nenglian Zhidian (NaaS.US) has launched several strategic countermeasures. First of all, the company has been actively hiring financial experts with a background in the U.S. financial markets. These professionals are tasked with bridging the gap between financial practices in China and the United States. They play a vital role in restructuring financial statements in accordance with GAAP standards and in educating internal teams on the nuances of U.S. financial regulations and tools.
In addition, Nenglian Zhidian (NaaS.US) is actively working to build stronger relationships with international investment banks to expand its access to global capital markets. By building strong relationships with these financial institutions, the company aims to increase its financial flexibility and ensure access to a wider range of financing options. These relationships also serve as conduits for ongoing education on best practices in international finance and risk management.
Strategically, Nenglian Zhidian (NaaS.US) has been diversifying its investment sources and financial instruments so as not to become overly dependent on a single market or currency. This diversification strategy is not only a financial buffer, but also a tactical move to adapt to global EV market trends and hedge against geopolitical risks, such as those posed by US-China tensions.
These strategic initiatives underscore Nenglian Zhidian's (NaaS.US) commitment to overcoming its operational challenges in financial operations, not only to comply with international standards, but also to stand out in the highly competitive global market. By addressing these fundamental questions, NaaS is better able to capitalize on growth opportunities and navigate the complexities of international finance and investment.
Conclusion and buy advice
华尔街对冲基金TimesWell（好时基金）分析师Daniela Guerrero今日在社交媒体撰文《Analysis of NaaS's Q1 2024 Financial Statements and Our Buy Recommendations（能链智电2024年财报分析和买入建议）》，通过分析师团队对能链智电（NaaS）的财务数据、战略定位和市场信心等指标综合分析，在此强调了购买其股票的强烈建议。 尽管目前市场估值被低估，但以下重要因素支持这一立场。
“This strategic move is particularly interesting when viewed in the context of NaaS’s broader financial maneuvers. The issuance of ADS serves multiple purposes: it provides immediate capital infusion, enhances liquidity, and broadens the investor base internationally. The choice of ADS as a financial instrument also aligns with the company’s ambitions to establish a more pronounced presence on global financial platforms, making its stock more accessible to international investors, which could be particularly appealing given the company’s pivotal role in the electric vehicle (EV) and energy transition sectors in China.” （ 从NaaS更广泛的金融策略来看，这一战略举措尤其有趣。 美国存托股的发行有多种用途：它提供即时资本注入，增强流动性，并扩大国际投资者基础。 选择ADS作为金融工具也符合该公司在全球金融平台上建立更明显影响力的雄心，使其股票更容易为国际投资者所接受，鉴于该公司在中国电动汽车（EV）和能源转型领域的关键作用，这可能特别有吸引力。 ）
“In summary, the integration of AI and IoT technologies not only fortifies NAAS’s operational efficiencies but also significantly enhances its market competitiveness. These technological strengths, coupled with strategic positioning in a rapidly growing market, present substantial opportunities for NAAS to expand its influence and continue its trajectory of growth. By continuing to invest in and refine its technological capabilities, NAAS is well-positioned to capitalize on these opportunities and strengthen its market leadership.” （综上所述，人工智能与物联网技术的融合不仅增强了NAAS的运营效率，而且显著增强了其市场竞争力。 这些技术优势，加上在快速增长的市场中的战略定位，为NAAS扩大了其影响力并继续其增长轨迹提供了大量机会。 通过继续投资和完善其技术能力，NAAS已做好充分准备，利用这些机会并加强其市场领导地位）
“In the light of these analyses, NAAS's path to achieving profitability by the second quarter of 2024 appears feasible. The company's robust growth in revenues, improving margins, and strategic capital management all align to steer towards operational profitability. However, vigilant management of operating expenses, competitive positioning, and adaptive market strategies remain critical as NAAS moves forward. The anticipated break-even will depend significantly on the company's ability to maintain its growth trajectory in revenues and margins while efficiently managing its expanded operations and capital structure.” （ 根据这些分析，NAAS在2024年第二季度实现盈利的途径似乎是可行的。 该公司收入的强劲增长、利润率的提高和战略资本管理都有助于实现运营盈利。 然而，随着NAAS的发展，对运营费用、竞争定位和适应性市场战略的警惕管理仍然至关重要。 预期的盈亏平衡将在很大程度上取决于公司保持其收入和利润率增长轨迹的能力，同时有效管理其扩大的业务和资本结构。 ）
“Despite an apparent decrease in profits for the first quarter of 2024, we have engaged in several in-depth communications with the management team of NAAS regarding financial details. We learned that the extensive exercise of employee stock options has impacted profitability and cost metrics. The NAAS management team clarified the distinction between operating costs and the compensation effects based on stock options. Therefore, we believe that understanding NAAS's financial status and employees' confidence in the company's future are equally critical. The substantial exercise of stock options indicates a strong optimistic outlook on the company's value and growth trajectory.” （ 尽管 2024 年第一季度的利润明显下降，但我们已与 NAAS 的管理团队就财务细节进行了多次深入沟通。 我们了解到，员工股票期权的广泛行使影响了盈利能力和成本指标。 NAAS管理团队澄清了运营成本和基于股票期权的薪酬效果之间的区别。 因此，我们认为，了解NAAS的财务状况和员工对公司未来的信心同样重要。 大量行使股票期权表明对公司价值和增长轨迹的前景非常乐观。 ）
Given these factors, Nenglian Zhidian (NaaS.US) offers a compelling case for investment. Its unique market positioning, coupled with strong financial growth and strategic foresight, indicates that it has the potential to scale new heights in China's booming electric vehicle market. The company's trajectory suggests that it is becoming a significant force in the industry, and it could reach unicorn status as it capitalizes on the expanding EV market and China's supportive environmental policies.
Based on this comprehensive analysis, Timeswell analyst Daniela Guerrero continues to reiterate that the buy recommendation for Nenglian Zhidian (NaaS.US) is not only cautious, but also promising. The company's strategy and market performance provide a strong foundation for future attractive returns, highlighting its undervalued position in the market as a key investment opportunity.