Ladies and gentlemen, thank you for standing by, and welcome to the NaaS Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. I must advise you that this conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. John Wang, the company's Investor Relations Director. Thank you, and please go ahead.

Thank you, operator. Hello, everyone, and welcome to NaaS third quarter 2024 earnings conference call. The company's results were issued earlier today and are posted online. Joining me on the call today are Ms. Kathy Wang Yang, our Chief Executive Officer, and Mr. Steven Sim, our Chief Financial Officer. For today's agenda, Ms. Wang will provide an overview of our business highlights and Mr. Sim will discuss our operating results and go through our financial highlights. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, please note that this call [includes] (ph) discussions of certain non-IFRS financial measures. Please refer to our earnings release, which contains a reconciliation of non-IFRS measures to the most comparable IFRS measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. I will now turn the call over to our CEO, Ms. Kathy Wang Yang. Kathy, please go ahead.

[Foreign Language] [Interpreted] Hello, everyone. I'm NaaS' CEO, Kathy Wang Yang. Today, I'm excited to share our performance highlights for the third quarter of 2024 and take this opportunity to update our investors on our business progress. [Foreign Language] [Interpreted] First, I'd like to announce a significant milestone. After achieving operational breakeven in June during the second quarter, we delivered a positive non-IFRS net profit for the first time in a single quarter through strategic iteration, cost reduction and efficiency gains and technological advancement. In the third quarter, our non-IFRS net profit reached RMB20.6 million. [Foreign Language] [Interpreted] Our core charging services business reported revenues of RMB42.37 million in the third quarter, a year-over-year increase of 36%. By strategically concentrating on high-growth, high-margin core charging services, our overall gross margin has improved for four consecutive quarters, reaching an all-time high of 57% in the third quarter. This move is clearly producing positive outcomes. [Foreign Language] [Interpreted] This quarter, we accelerated our strategic shift towards the core charging services business. This strategy is centered on fully leveraging our technological capabilities and analytical insights to meet the market's demand for AI-driven and digitalized charging resource allocation. Furthermore, by concentrating on our core business, we are unlocking greater profit potential, laying a more sustainable growth foundation for the company. [Foreign Language] [Interpreted] We've also significantly reduced operating costs. For instance, selling and marketing expenses as a percentage of revenue decreased to 67% in the third quarter of 2024 from 160% in the third quarter of 2023, substantially improving our operational efficiency. Meanwhile, the number of users transacting through the NaaS platform grew by 30% year-over-year this quarter, with user activity hitting a record high. These achievements have directly enhanced the company's profitability. [Foreign Language] [Interpreted] China's new energy vehicle market continues to grow…

Thank you, Kathy, for the warm welcome. Hello, everyone, and thank you for joining us. I'm Steven Sim, the new Chief Financial Officer of NaaS. I'm delighted to join the team at such a pivotal time for our company and to review the substantial progress we've made for this quarter. We are intensifying our focus on core charging services, leveraging AI to optimize supply and demand connectivity. This shift, coupled with phasing out low-margin Energy Solutions, has improved profitability, with record high gross margins and our first positive quarterly non-IFRS net income. For details about the non-IFRS measures and reconciliation with IFRS measures, please refer to our press release. Our NEF platform enhances efficiency for charge point operators and show promising monetization potential through collaborations like the Zhejiang Government Project. We are strengthening our EV charging ecosystem with key partnerships, including FAW-Volkswagen and IM Motors, and expanding our network of charge point operators and chargers. Notably, our October partnership in Fujian adds 100 stations and 1,600 chargers, enhancing connectivity and convenience. Our AI-driven NEF system optimizes charging operations and unlock customer site benefits like subsidy allocations and better user experiences. Early success includes the Zhejiang platform, demonstrating NEF's value in boosting efficiency and monetization. On ESG, our sustainability remains central to NaaS. Our 2023 ESG report highlights efforts to expand green energy access and partnerships with initiatives like the Carbon Inclusive City Cooperation Alliance and China ESG Alliance, reinforcing our leadership in sustainable development. Through focused strategy, ecosystem growth and innovation, NaaS is positioned for long-term success and value creation. Next, for our financial highlights. In Q3, we reached a major milestone by achieving our first-ever positive quarterly non-IFRS net income of RMB20.6 million, following our non-IFRS breakeven in June. For details about our non-IFRS measures and reconciliation with IFRS…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ting Song with Goldman Sachs. Please go ahead.

Thanks for taking my questions. Congratulations on the positive profitability this quarter. I would like to explore the progress you have made on gross profit and margin improvement in third quarter this year. Could you elaborate more on how you are able to make it and what we could expect in the future? This is my first question. And for the second one, I would like to ask for the improving operational efficiency this year, which is important to the company as you mentioned before, I would like to know more about your operational expenses trend and how you could significantly narrow your operational loss this quarter? Thank you.

Thank you, Ting. Let me take your question. This is Steven. For the first question on the positive profitability and the progress on the gross profit and margin improvement, in Q3 2024, we achieved a gross profit increase of 19%, reaching RMB25.1 million from RMB21.1 million in Q2 quarter-on-quarter. This substantial growth in gross profit illustrates our success in executing strategy, focusing on high-margin revenue stream and cost control, leveraging on our advantage of our platform increasing scale. Our gross margin also reached a historical high, and this was an improvement from 38% in Q2 to 57% in Q3. This substantial improvement underscores the effectiveness of our strategy and also focusing on our core business and not diluting our focus on the non-core capital expenditure-heavy business. Our margin growth is also as a result of optimization and enhanced operational efficiency across departments. As we went through our departmental reviews and overall operating efficiency, we continue to do so on an ongoing basis, and this efficiency will further enhance our margin performance to allow us to deliver continuous and improved profitability. On a moving-forward basis, I think in our prepared remarks, we did mention that the goal is to deepen these efficiencies and to keep gross margin strong. It is a challenge as well as, at the same time for us as we reach the scale with the continuous growth in the number of EVs on the road, I think we are confident about continued improvements in the upcoming quarters. Thank you. I think on the second question, you mentioned on operating efficiency also, and I mentioned in my previous answer some aspects already. And I guess on the operating expense trend, let me just elaborate more. We -- as I mentioned in my previous answer, we implemented a series of…

The next question comes from [Amber Yu] (ph) with Jefferies. Please go ahead.

Thanks for taking my questions, and congrats on your outstanding results. I have two questions. It seems your revenue composition is shifting rapidly and the margins are improving due to your strategic focus on your core charging service. Could you please talk about the background and why you made that decision and how has it been impacting the company's operations and financials? And my second question is, competition is tough in any market, and it seems NaaS has done so well. What competitive advantage does NaaS plan to leverage to maintain its leadership in a market like this? Thanks.

Thank you, Amber. On your first question on the revenue composition and the focus on our core business, I think from day one, NaaS' strategy has to be -- has been building a key platform business linking our customers to the various charging services. And going back to this core business, it's nothing new, except that it realigns our thinking in what the long-term value in the business will be. Therefore, our strategic focus is really a key initiative in our ongoing efforts to achieve not just profitability, but also to go back to what we do best in increasing the value of the platform. And unlike the Energy Solutions business, which we previously mentioned in the past quarters, that requires heavy investments and deep knowledge on operations, focusing on long-term lower-margin business. And we are retreating from that because we believe that business doesn't give our shareholders the best value. So, we are returning to a higher-margin asset-light business, allowing us to scale efficiently. This shift has already shown significant impact on our financials, with the company gross profit margins reaching a record high of 57%. Additionally, by simplifying our business lines and focusing on core services, we are able to better allocate resource to areas that drive growth in our users and on our costs and also delivering better services to help our charging partners find more and better customers and deliver higher margins for them. So, this in turn will allow us to return more value to the platform and in turn to our users. That's the answer to the first question. On the second question on competition, I would say that we've done very well in a very competitively tough market. And I think that the whole point of really growing a platform business is to essentially focus on delivering values, as I mentioned in my last answer, to various stakeholders in the platform. And to do so, we have a few distinct advantages. We have a key advantage through our advanced AI-powered analytics, which essentially takes in all our user behavior data, and these analytics provide real-time insights that enable operators to optimize operations dynamically and helping users locate chargers instantly at an optimized price. These tools enhance charging efficiency, boost station utilization and profitability and ensure seamless experience for both operators and users. Secondly, our strong partnership with the ecosystem players, including OEM, charging operators and energy companies, give us extensive market reach. As we grow in scale, these collaborations will allow us to expand infrastructure efficiently while fostering user loyalty and retention. Lastly, our asset-light platform enables scalable growth with our heavy capital investments, and this helped us maintain a streamlined cost structure and profitability. I think this combination of tech, strategic partnership and cost efficient growth will enable NaaS to remain a leader in the evolving EV market, which allows us [be ready] (ph) to meet future competitive challenges. Thank you.

The next question comes from [James Zhou] (ph) with UBS. Please go ahead.

Thanks for taking my questions. First of all, very happy to see NaaS has finally seen some positive non-IFRS net profit for the first time in this quarter. And moving forward, can we expect sustainable profitability in the long run? And my second question is regarding -- if we take a closer look at the further metrics influencing NaaS' financials, for example, what are the key trends in user subsidies and how have they been impacting the company's overall profitability?

Thank you, James. First question on the profit and on the, I guess, what our expectation is moving forward, again, this quarter marked a significant milestone for us with quarterly non-IFRS net profit turning positive for the first time for the whole quarter, reaching RMB20.6 million in Q3 compared to negative RMB39.9 million in Q2 and negative RMB174 million in Q3 last year. So, on all aspects, quarter-on-quarter, year-on-year, it's a significant improvement. Obviously, we want to continue to drive the momentum to continue our profitability and to make sure it's both sustainable and to really leverage on our scaling and also our cost efficiency effect. I think the key drivers will be a continued healthy growth in the charging services business with gross margin reaching a record 57%. I think we will want to try to maintain those margins and growth, finding the right balance to grow the business on an overall basis. And similarly on the operating leverage, our operating expense has fell by 70% year-on-year. And this is streamlined by operations and also tax efficiencies. Again, we want to focus on that without sacrificing growth and user experience and our services to our partners. Looking ahead, I think we are confident in sustaining this positive trend by expanding the high-margin services. And we will leverage on our AI-driven efficiency as our core advantage and we will continue to scale our platform. With 39% year-on-year increase in connected charges and 34% year-on-year growth in transaction users, I think we are well positioned to deliver long-term value and maintain profitability. I think on the second question, the question has to do with trends in user subsidies and how they've been impacting the company's overall profitability, without a doubt, our users are NaaS' main focus. Without creating the right value…

The next question comes from Ethan Zhang with Nomura. Please go ahead.

Thank you, management, for taking my question. So, first, congratulations for your results. And we saw NaaS has achieved a significant increase in the charger connections, which is, I believe, higher than the industry average growth rate. So, my question is, what do you think -- how do you attribute this fast growth to and how is NaaS positioning yourself as a leader in China's expanding EV charging network? Thank you.

Thank you, Ethan. I think this is a really good supply side question. The 39% year-on-year increase in charger connection also reflects our strategic focus on the supply side infrastructure. And this is again to meet the growing demand for new charging with substantial growth in the number of EVs on the road and on new EVs, new car sales being 50% EVs. This growth can be attributed to a combination of factors. In our case, it's through technological innovation. Again, going back to our AI-powered big data analysis, the NaaS Energy Fintech system, which we call NEF, have optimized station operations and site selection. And this helps our partners ensure that we place charges in the most high-demand area. This strategic partnership is helping us forging this alliance with regional and national partners. And we've been able to expand our network quickly and efficiently as we scale. On the operating efficiency, the improvement in predictive maintenance and dynamic pricing have made our network more attractive to charging operators, and this is driving growth across the board. I think our rapid expansion make NaaS a continuing leader in China's EV charging market. We continue to grow a strong and connected network of charging stations, and we are not just adding more chargers, but making sure that easy to access and efficient for EV drivers across the country. With smart site placement, advanced AI technology and strong partnership, we are creating a better, more reliable charging experience for users. This is our continuing commitment to simple fundamentals that positions NaaS for the long-term success as the global EV market continue to grow. Thank you.

The next question comes from [Zhe Zhao] (ph) with Tianfeng Securities. Please go ahead.

Hi. Thanks for taking my question. I read that NaaS' recent partnership in Fujian Province has expanded the company's presence in key cities. How does this regional expansion contribute to NaaS' long-term strategy? And how is the company's AI-powered technology enhancing the user experience and operational efficiency for regional charging operators? Thank you.

Thank you, Zhe Zhao. So, the partnership in Fujian Province significantly strengthens NaaS' regional presence, particularly in key cities like Xiamen and Fuzhou. And this extends our coverage to smaller cities like Ningde and Putian. This expansion is a crucial part of our long-term strategy to create highly interconnected EV charging network across China for our users, both large and small. Specifically with the collaboration in Fujian, we've integrated over 100 charging station and 1,600 -- over 1,600 DC fast chargers into our network. This really improve our general accessibility for consumers. And we are also successfully working with the government at a local and national level to increase both China and the world's progress towards a green future. Our AI-powered NEF system again plays a central role in this asset, enhancing the user experience by providing real-time charging station availability, predictive maintenance and optimized site selection. For regional charging operators, this technology boosts profitability through dynamic pricing based on real-time demand in electricity supply, as I mentioned earlier, which creates key user experience for our -- key friendly experience for our users. This ensures both operational efficiency and financial sustainability. Thank you.

As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact us. Thank you.

This concludes the conference call. You may now disconnect your line. Thank you.