• Non-IFRS Net Profit: RMB20.6 million in Q3 2024.
• Core Charging Services Revenue: RMB42.37 million, a 36% year-over-year increase.
• Gross Margin: Reached an all-time high of 57% in Q3 2024.
• Selling and Marketing Expenses: Decreased to 67% of revenue in Q3 2024 from 160% in Q3 2023.
• Transaction Users: Increased by 34% year-over-year.
• Energy Solutions Revenue: RMB0.56 million, reflecting a strategic shift to high-margin platform business.
• Operating Expenses: Sales expenses decreased by 81% year-over-year.
• Connected Chargers: Increased by 49% year-over-year.

• Warning! GuruFocus has detected 3 Warning Signs with NAAS.

Release Date: November 20, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Naas Technology Inc (NASDAQ:NAAS) achieved a positive non-IFRS net profit for the first time in a single quarter, reaching RMB20.6 million.
• The company's core charging services business reported a 36% year-over-year revenue increase, reaching RMB42.37 million.
• Gross margin improved for four consecutive quarters, reaching an all-time high of 57% in the third quarter.
• Operating costs were significantly reduced, with selling and marketing expenses as a percentage of revenue decreasing from 160% to 67% year-over-year.
• The number of users transacting through the NaaS platform grew by 30% year-over-year, with user activity hitting a record high.

Negative Points

• Despite improvements, selling and marketing expenses still accounted for 67% of revenue, indicating room for further cost efficiency.
• The company is transitioning away from lower-margin energy solutions, which may impact short-term revenue streams.
• The competitive landscape in the EV charging market remains challenging, requiring continuous innovation and strategic partnerships.
• The shift to focus on core charging services necessitates careful resource allocation to maintain growth and profitability.
• The reduction in user subsidies could potentially impact user acquisition and retention if not managed carefully.

Q & A Highlights

Q: Could you elaborate on the progress made in gross profit and margin improvement in the third quarter of this year? Also, how have you improved operational efficiency and narrowed operational losses? A: In Q3 2024, we achieved a gross profit increase of 19%, reaching RMB25.1 million from RMB21.1 million in Q2. Our gross margin improved from 38% in Q2 to 57% in Q3, reflecting our focus on high-margin revenue streams and cost control. Operational efficiency was enhanced by aggressive cost control measures, reducing selling expenses from RMB50.9 million in Q2 to RMB29.7 million in Q3. Administrative expenses were reduced by 15%, contributing to a 44% reduction in operational losses compared to the previous quarter.

Q: Your revenue composition is shifting, and margins are improving due to a strategic focus on core charging services. Can you discuss the background of this decision and its impact on operations and financials? A: Our strategic focus on core charging services aligns with our long-term value creation strategy. By retreating from lower-margin, capital-intensive energy solutions, we are concentrating on a higher-margin, asset-light business model. This shift has resulted in a record high gross profit margin of 57%. Simplifying our business lines allows us to allocate resources more effectively, driving growth and delivering better services to our partners.

Q: Can we expect sustainable profitability in the long run, and how have user subsidies impacted overall profitability? A: We achieved a positive non-IFRS net profit of RMB20.6 million in Q3, marking a significant milestone. We aim to sustain this trend by expanding high-margin services and leveraging AI-driven efficiencies. The competitive landscape has stabilized, allowing us to reduce user subsidies, which has positively impacted our net and gross take rates. This shift supports a more sustainable revenue model and long-term profitability.

Q: What factors contributed to the significant increase in charge conduction, and how is NaaS positioning itself as a leader in China's EV charging network? A: The 39% year-on-year increase in charge conduction reflects our strategic focus on supply-side infrastructure and technological innovation. Our AI-powered NEF system optimizes station operations and site selection, ensuring chargers are placed in high-demand areas. Strategic partnerships and improved predictive maintenance and dynamic pricing have made our network more attractive, driving growth and solidifying our leadership in China's EV charging market.

Q: How does the regional expansion in Fujian contribute to NaaS's long-term strategy, and how is AI technology enhancing user experience and operational efficiency? A: The partnership in Fujian strengthens our regional presence and is crucial for creating an interconnected EV charging network across China. Our AI-powered NEF system enhances user experience by providing real-time charging station availability and predictive maintenance. For regional operators, it boosts profitability through dynamic pricing, ensuring operational efficiency and financial sustainability.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.