* In Q3 2011, the Company successfully achieved a turnaround in its cylindrical battery cells business * During the third quarter of fiscal 2011, the Company’s Tianjin subsidiary, BAK Tianjin received additional orders for high-power lithium battery cells used in e-bikes * The Company’s high-power lithium battery cells revenue more than doubled in the third quarter of fiscal 2011 compared to the year ago period
Financial Highlights
Net revenues for the third quarter were $47.1 million, up 0.9% from $46.7 million last quarter and down 19.5% from $58.6 million for the same period in fiscal 2010.
Revenues from prismatic products, including aluminum-case cells and battery packs, which are used in mobile phones and certain personal electronic devices, were $25.8 million, down 11.3% from $29.0 million last quarter and down 39.8% from $42.8 million for the same period in fiscal 2010. The decline in prismatic products was mainly attributable to decline in sales volume as a result of the introduction of built-in high capacity polymer batteries being adopted by domestic OEM customers.
Revenues from cylindrical cells used in notebook computers were $17.3 million, up 13.8% from $15.2 million last quarter and up 35.4% from $12.8 million for the same period in fiscal 2010.
Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $2.0 million, up 19.8% from last quarter and down 11.7% from the same period in fiscal 2010.
Revenues from high-power lithium battery cells, used in electric vehicles, electric bicycles, power tools, uninterruptible power supplies, and other applications manufactured at the Company’s Tianjin facility, were $2.1 million, up 161.0% from last quarter and up 194.5% from the same period in fiscal 2010.
Gross profit for the third quarter of fiscal year 2011 was $3.6 million, compared to gross profit of $4.4 million last quarter and gross loss of $1.2 million in the same quarter of last year. The decline in gross profit from the prior quarter was mainly attributable to decline in sales volume of prismatic cell phone battery cells as a result of the decline in the shipment of replacement market cell phones in China and intense market competition. China BAK Battery Inc. Page 1 of 7
Operating expenses totaled $8.9 million, or 18.9% of revenue, in the third quarter up 42.1% from $6.3 million, or 13.4% of revenue, in the last quarter and down 48.1% from $17.2 million, or 29.4% of revenue, in the third quarter of fiscal 2010. Research and development expenses were $1.8 million, or 3.9% of revenue, down 4.8% from $1.9 million, or 4.1% of revenue in the last quarter and down 13.7% from $2.1 million, or 3.6% of revenue in the same quarter of fiscal 2010. Sales and marketing expenses were $2.0 million, or 4.3% of revenue down 7.1% from $2.2 million, or 4.7% of revenue in the last quarter and down 21.1% from $2.6 million, or 4.4% of revenue in the same quarter of fiscal 2010. General and administrative expenses were $5.1 million, or 10.7% of revenue up 134.5% from $2.1 million, or 4.6% of revenue in the last quarter and down 32.1% from $7.4 million or 12.7% of revenue in the same quarter of fiscal 2010.
Operating loss for the third quarter was $5.3 million compared to operating loss of $1.8 million in the last quarter and operating loss of $18.4 million in the same quarter of fiscal 2010.
Net loss was $7.2 million, or diluted loss per share of $0.12, in the third quarter of fiscal 2011 compared to net loss of $4.1 million, or diluted loss per share of $0.06, in the last quarter and net loss of $18.3 million, or diluted loss per share of $0.29, in the same quarter of fiscal 2010.
Financial Condition
On June 30, 2011 China BAK had $17.1 million in cash and cash equivalents. For the third quarter of fiscal year 2011, Days Sales Outstanding (DSO) decreased to 155 days from 177 days last quarter and Days Sales of Inventory increased to 151 days from 143 days last quarter. Short-term bank loans and long-term bank loans totaled $176.1 million as compared to $173.0 million on March 31, 2011. Shareholders’ equity totaled $142.1 million. China BAK had $64.0 million available for borrowing under its credit facilities. The Company generated $3.3 million from cash flow from operating activities in the third quarter of fiscal 2011.
Business Outlook
“The increase in our cylindrical and high-power lithium battery cells business during the third quarter of fiscal 2011 was in line with our expectations,” commented Xiangqian Li, CEO of China BAK. “The sharp decline in market demand for replacement batteries in April and May of 2011 resulted in a decline in sales of our prismatic battery cell products to the replacement market. In the current market environment, we are actively promoting shipment of our products to major local smart phone players, such as Huawei and ZTE. At the same time, we are focusing our efforts to enter into cooperation with international OEM customers such as Samsung and Vodafone”.
Ke Marcus Cui, CFO of China BAK commented, “We reported positive operating cash flow of $3.3 million in the third fiscal quarter, reflecting progress in collection of our receivables. We are encouraged by the positive feedback from Dongfeng-Yulon Motor Sales Co., Ltd., which delivered its pure electric vehicles powered by China BAK’s battery cells to the public transportation authority of the city of Hangzhou in June 2011. We expect to receive additional orders from auto manufacturers in the electric vehicles segment in the near term.”
Mixed bag of news. Book value is still over $2/share, losses still seem to be falling on year to year comparison, new product lines have rising revenues. Also note that 25-50% of losses have been equal to the R&D expense category. They seem to be writing off large R&D expenses ( right away( about $8 million dollars a year worth!!!), while I know it may be creating real value for future sales. They have plenty of cash, credit, and great products. They just need to turn the corner back to making a profit. They have some very interesting new prospects, some that were PR'd recently. Also no share dilution here. Hopefully they will turn the corner by year end.
I will stay with this one for now. All they need at the current price and share count is 1.6 million dollars per quarter in profit, to have a 10:1 PE!
Ambition with out knowledge is like ship in dry dock. Going nowhere fast!
