NaaS Technology Inc. - NAAS
When at first you don't succeed, try the rollup strategy instead
First off, I totally get that the US-listed float on this thing is really small compared to the total number of shares outstanding and that it can easily be manipulated by some of the private equity giants that are invested in this name, but the financials continue to be such a complete mess that I just have to make a few comments.
As most regular US companies are busily readying and preparing their third quarter results, the folks at NAAS decided to grace us with their second quarter results under the extended filing deadline offered to all foreign entities listing their shares on US markets. Again, why do we allow this? But I digress…
Both the company’s balance sheet and income statement are awash in red ink, much like their US-based comps BLNK and CHPT, so that’s not a total surprise. This leads to frequent share sales through convertibles and registered direct offerings (wouldn’t want to test those waters with a real secondary, of course, regardless of price) along with the new strategy of rolling up charging-related assets from around the world. But first, the results.
Net revenues for Q2 2023 were $6.7M, up from an adjusted $3.3M in Q2 2022. Remember they used to show the “gross revenues” prior to “rebates” they are forced to pay customers in order to entice them to use their network of charging stations, but that number is now supposedly used to reduce the overall revenue number so that all they disclose is a “net revenue”. In theory, there shouldn’t be any difference, but any excuse to juice the numbers is completely legitimate, so of course there is. Prior to that “adjustment” net revenues were only $1.6M in Q2 2022, so they essentially doubled under the new scheme. So as far as I’m concerned, take everything they say with a grain of salt.
All of the metrics that they disclose are all heading in the right direction as far as their private equity backers are concerned. Charging stations serviced, chargers deployed, gross transaction value, number of orders they receive from their app, all of those are heading higher. Online EV charging revenues were up around 11.5%, a bit below the 12% increase in “gross transaction value,” which itself was lower than the 12.7% increase in charging stations, which was lower than the 13.4% increase in chargers, which was quite a bit lower than the 21.2% increase in order count (these are all sequential increases). More orders, but less revenues?
The real revenue jump (if you can call a $1.1M increase a “jump”) came from their Offline EV Charging Solutions, which was up about 50%. The company did buy something called Sinopower during the quarter, so perhaps that had some impact, but the company did not say. They credited the increase to “the expansion of the EPC business.” By the way, look for a similar acquisition-related bump in the current quarter as a result of the Charge Amps AB acquisition.
So for the first half of the year, NAAS has done about $11.7M in revenues, or about RMB 85M. They are guiding numbers towards RMB 500M-600M, so in the annals of the back-end-loaded fiscal years, this one will be a doozy. They have this announced RMB 204M contract which, if they complete, will get them to RMB 300M, and if they continue their 20% quarterly revenue improvements in the rest of their business, they may hit RMB 400M. But how about the rest? Here come the acquisitions.
What is Charge Amps AB by the way? Back in early 2021 when they still had hopes of going the IPO route Charge Amps AB raised $15M to fund their expansion, and at the time they were projecting to do SEK 250M that year (or around $30M or so dollars at the exchange rate at the time) in revenues. A year later they raised an additional SEK 150M (about $15M again) bringing their total lifetime raised to SEK 358M. They also put out a release saying that their revenues in 2022 were off to a gangbuster start, rising 57% over 2021 to SEK 98.6M, or about $10M. Their first half was SEK 165.5M, or about $16M with a 38% gross margin no less. Now, that seems to be on par with what they supposedly were going to do in 2021, so not sure where that 57% increase is coming from, but whatever. But something apparently changed after that stellar quarter, with the company announcing a CEO transition, a new CTO, a new board chairman, and the addition of other board members as well. Quite the cleaning of house. So if one can extrapolate the first half of 2022 to the entire year, and assuming 2023 isn’t shaping up to be a total disaster (they appear to have pretty much stopped issuing press releases a year ago), then NAAS is buying Charge Amps AB at something like 2x revenues. Given all of the hype surrounding the charging market, it sounds like a pretty distressed valuation level to me. Maybe they file an 8K with some financials, which they should considering they will likely double their revenue base with this acquisition, but given this is a Chinese company, I tend to doubt it. For kicks, if you translate that valuation onto NAAS you get a 20 cent stock price.
As far as deals go, they have had a busy 3 months of acquisitions and capital raises as well. You’ll notice the recent capital raises align fairly well with their acquisitions, while the earlier capital raise was more for operations.
September 5th, 2023, announced a $40M offering of convertible notes to LMR Partners
August 22nd, 2023, announces plans to acquired Sweden’s Charge Amps AB for $66.4M
July 7th, 2023, announced a $30M offering of convertible notes to LMR Partners
June 12th, 2023, announcement to buy Sinopower, a developer of rooftop solar, for $6.1M
May 31st, 2023, announced a $21M registered direct offering for 3.5M ADS’s, or $6 per ADS
Which, finally, brings us to their balance sheet. At the end of June they supposedly had $71.2M in cash on hand, plus $25M or so in “trade receivables,” plus they had sunk another $48.2M into “prepayments and other receivables” along with $14M in “other financial assets.” Now, those didn’t exist as a separate classification at the end of 2022, but their make-up and presence is as puzzling as their appropriately named “financial assets at fair value through profit and loss” along with its twin “financial assets at fair value through other comprehensive income.” Those investments are both long term and, other than a note in the 20-F saying most of the assets are Level 1 assets with some in the level 3 category, and the investments are in some “unlisted company” nothing else is really said about them. They didn’t really exist at the time of the IPO filings but made their appearance in a big way at the end of the year.
Related party perhaps? The world may never know.