NASDAQ:CBAT
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CBAK Energy Reports 4th Quarter and Full Year 2023 Results
On March 15, 2024, CBAK Energy Technology (NASDAQ:CBAT) released fourth quarter and full-year results which included the following highlights:
• Battery revenues of $36.8 million (vs our estimate of $39.4 million) up 30.9% from a year ago, principally due to the strong performance in the energy storage segment (now classified as Residential energy supply and uninterruptable supplies by the company). This segment did show an 18% decline sequentially but that was largely anticipated after the strong third-quarter performance as large orders were fulfilled in Q3.
• The company posted a stunning jump in its battery business gross margin to 36% in the quarter – up from 8.3% a year ago and up 760 basis points sequentially. The company’s sales mix, the falling cost of raw materials, and strong relationships with its largest customers all appear to be helping it maintain above average battery margins. We are anticipating some normalization of the gross margin in coming quarters given the overall pricing pressures in the industry.
• Sales of batteries used in electric vehicles and light electric vehicles (LEVs) remain limited at just $1.9 million but the company indicated they are in discussions with an unnamed Canadian EV manufacturer.
• The company now has announced contracts with:
o Viessmann – a leading provider of heating systems
o Anker Innovations – a leading provider of mobile charging products
o Poweroak – a leading portable energy provider (marketed as BlueTTI) and,
o Hello Tech – a leading provider of portable power stations (marketed as Jackery).
In addition, the company alluded to new relationships with the largest battery manufacturer in Europe, the previously mentioned Canadian EV company, and new customers in India. As these new relationships expand, we believe that these contracts can offer upside to our current forecasts.
As of 3/8/24, the company reported that it had received $107 million in new orders which gives us additional confidence in our growth forecast for 2024.
The largest lithium-ion battery companies continue to battle for market share and the sector has been under pressure as investors weigh the impact of price wars on margins. CBAK appears to have limited the impact of these price battles by maintaining long-term relationships with large, established players in the energy storage business.
Fourth Quarter 2023 Results
CBAK Energy reported fourth-quarter 2023 revenues of $56.2 million versus $54.5 million last year. More importantly, the company’s revenue mix continues to shift toward value-added battery production and away from the lower margin battery raw materials. As a result of this shift in revenue mix, the company’s total gross margin reached 22.6% up from just 7% in the same period of 2022.
The company has not provided forward guidance at this point, but management did note that they may provide guidance when appropriate in 2024. Operating expenses were higher than we anticipated as the company invested in sales infrastructure and R&D, thus, the company reported a small loss of $4.8 million ($0.05/share) vs our model which had forecast a $0.01/share profit for the quarter. Our model adjustments include slightly higher operating costs as the company expands its sales and marketing operations and invests in research and development.
Balance Sheet: CBAK Energy ended the year with $4.6 million in cash on the balance sheet and roughly $83 million in pledged deposits and receivables. The company’s current liabilities remain worrisomely high at $160 million but we do believe that some or all of the company’s short-term bank debt will be converted to long-term debt as construction projects reach completion at the Nanjing and Dalian facilities.
Growth Drivers and Near-Term Catalysts
• The company’s management team is continuing to have negotiations with a variety of investors regarding an outside investment into the company’s Sodium-Ion battery business. Sodium-Ion battery startups have drawn a great deal of investor interest recently and we believe that the fact that CBAK is currently in production with a mass-produced sodium-ion cylindrical cell will only increase investor interest. While the company could not provide a timeline or a valuation range, management indicated that the current valuations of the sodium-ion business being discussed are greater than the total market capitalization of CBAK’s publicly traded shares (roughly $95 million today). Any news of a major investment into the sodium-ion business which values that segment above the value of the parent company would be a major catalyst for the shares.
• The future of the company’s Hitrans business remains perplexing. When the company acquired Hitrans in 2021 it became the focus of the company’s press releases and growth strategy, however just over two years later, the company’s focus has shifted away from the raw material business and back to battery production. We believe that the low margins in the raw material business and the high variability of demand have negatively impacted the market’s perception of CBAK. Management also indicated that they are holding discussions regarding the possibility of an investment into Hitrans that would also represent a value above the current market capitalization of CBAK. Given the current revenue run-rate at Hitrans (estimated at roughly $80 million) and margins in the low single digits, this seems like a rich valuation but we do believe that CBAK investors would welcome an investment in Hitrans that would allow the company to report it as a nonconsolidated minority holding.
• We believe that as the company gains more clarity into its order backlog, it will announce formal revenue guidance for 2024. If this guidance is materially above our current forecast – $198.5 million of battery sales and $278.6 million of total sales – it could be a potential catalyst for the shares.
• Finally, the company has historically marked expanded agreements with clients with press releases that disclosed the clients and the size of their orders. We believe the company is working to announce a number of these client relationships in the coming months that may act as positive catalysts for the shares.
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