"China's number one charging service stock" naas technology (NAAS.US) is about to usher in a critical moment.

On November 20, naas technology released its unaudited Q3 2024 financial report, which mainly revolves around a core achievement: achieving operating profit for the first time in a single quarter.

The data shows that naas technology's Q3 charging service revenue was 42.37 million yuan, a year-on-year increase of 36%; gross margin increased to 57%, with gross profit reaching 25.15 million yuan; the proportion of sales expenses in revenue decreased from 160% in the same period last year to 67%; Q3 achieved operating profit for the first time in a quarter, reaching 20.6 million yuan.

Achieving operating profit for the first time in a single quarter is a milestone in the history of development of naas technology. From the perspective of internet platform-type companies' business models, achieving quarterly profit after a long period of loss-expanding phase often signifies the dawn of transitioning from the expansion phase to the harvesting phase. For example, after hitting the milestone of quarterly profit, companies like Amazon, Facebook, Didi, Meituan, and pdd holdings quickly entered a phase of sustained profitability and grew into industry giants looked up to.

naas technology has a similar logic. Achieving operating profit for a single quarter has already proven its business value and monetization efficiency to the market. The improvement in its financial situation will enhance the company's intrinsic value, thereby potentially driving a reevaluation of the secondary market price.

The secret behind achieving operating profit in a single quarter

Breaking down the financial report will reveal the secrets behind its profitability.

In 2024Q3, the profit order proportion of Naas Technology reached as high as 73%, with a total of 30.53 million profitable orders. At the same time, in the third quarter, by optimizing the cost structure, the net loss rate hit a historic low, significantly narrowing from 246% in the previous quarter to 19%.

The increase in profitable orders further demonstrates that the company's high-speed growth is becoming less dependent on user subsidies. The strategy to gain market share is increasingly diverse, not solely based on competing on price. Additionally, the value brought to collaborating charging operators by the company's charging service platform business is increasingly recognized. This value includes bringing more user traffic to operators under the scale advantage and significantly improving operational efficiency in digital management.

With the improvement in operational efficiency and the prominent role of scale effects, Naas Technology achieved a historical high gross margin of 57% in 2024Q3. The achievement of such a high gross margin is a deeper result of strategic focus on interconnected services and the application of AI technology. The former implies the company's gradual withdrawal from offline businesses with lower gross margins, focusing on developing online asset-light platform businesses. The latter relies on the NEF (NaaS Energy Fintech) energy brain of the AI big data platform, significantly enhancing the company's operational efficiency and business value.

Intelligence Finance News APP learned that the NEF Energy Brain conducts positioning analysis on charging station sites, combines experience data, regional pedestrian and vehicular traffic flow, and charging demand data for analysis to scientifically calculate the investment return rate. This effectively reduces the investment risk of operating individual charging stations. Combined with strong traffic guidance and operational support capabilities, it provides operators with a full-process charging station solution service.

As of the end of June 2024, the national stock of new energy vehicles reached 24.72 million. Moreover, in 2024, the first country in the world with an annual production of 10 million new energy vehicles, the domestic retail penetration rate of new energy vehicles has exceeded 50% for four consecutive months.

In the future, with the explosion of the new energy vehicle charging market and the continuous improvement in company operational efficiency, Naas Technology's revenue still has significant growth potential. With the reduction of subsidies and the continuous improvement of operational efficiency, its profit level is expected to be maintained at a relatively favorable level, and the company's profitability may move towards a snowball effect.

Supply and demand ends and ecosystem construction.

Since 2024, Naas Technology has focused on the interconnected charging business, continuously expanding the service network scale connecting charging stations and chargers.

On the supply side, the Q3 financial report shows that Naas Technology has covered a total of 0.096 million charging stations, a year-on-year increase of 40%, and connected approximately 1.146 million charging guns, a year-on-year increase of 49%, both growth rates exceeding the industry average for the same period.

By comparison, the number of public charging guns in China during the same period was 3.329 million, with public charging guns accounting for over 70%. In other words, Naas Technology has connected over 45% of the domestic public charging gun market, which is the cornerstone of its core business development.

With the successful application of the NEF system, in the past quarter, Naas Technology has cooperated with Shanxi Jiaokong Green Development Group, a leading regional charging operator in Fujian, State Grid Hebei, and other companies, demonstrating that its smart data-driven roadmap aligns with market demand and has been recognized.

It is foreseeable that as more regional operators recognize the role of Naas Technology's AI system and connect to it, the company's scale advantage will become more prominent. Direct business costs will also decrease significantly, thus reducing the overall business expenditure levels, as reflected in the operating expenses.

Expanding the supply and demand sides cannot be separated from ecological construction. Naas Technology has formed strategic partnerships with various types of customers such as car manufacturers, charging operators, traditional energy companies, the State Grid, and government entities to achieve synchronous expansion of scale on both sides of supply and demand.

The Q3 financial report shows that the company has added BYD, FAW-Volkswagen, NIO, ZhiJi, Jieyue, and other car manufacturers to its interconnected cooperation, including previous collaborations with Geely, Great Wall, GAC Energy, Li Auto, NIO, and more. They have pre-installed over 170 new energy vehicle models' in-car large screens, covering mainstream new energy mainframe factories in China.

The company has also significantly expanded the multi-platform, multi-scenario access to charging services by adding multiple third-party cooperation platforms in areas such as digital mapping providers, commercial vehicles, passenger vehicles, and post-vehicle services.

This ecosystem formed early on has become a distinct difference between Naas Technology and other peers in the commercial monetization path, creating a broad moat and possessing significant explosive potential.

What kind of valuation should be given to naas technology?

Through strategic adjustments, business optimization, and technological innovation, naas technology has achieved a dual improvement in profitability and business quality. And if there are no surprises, it will continue to be profitable in Q4.

In fact, during the previous mid-term financial report conference call, the management of naas technology emphasized that the next goal is to achieve sustained profitability in the third and fourth quarters of this year. After all, real profitability is one of the key factors that can more objectively reflect the company's true value.

Interestingly, if we compare the quarterly and annual revenue growth rates, and business models of naas technology, it can be found that among the currently listed Chinese internet companies, the previous company that could meet this standard might be pdd holdings. Both are platform-based internet companies, capturing consumers on one end and merchants on the other, ultimately achieving optimal resource matching through digitization.

It can be seen that naas technology's light-asset platform business development model already has high scalability and profitability. With the continuous growth of the company's scale and the ongoing improvement of its ecosystem, its gross margin is expected to continue to increase.

By using a historical telescope for a horizontal comparison, the gross margins of the four platform economy companies Ctrip, Airbnb, booking, and Corpay are all above 70%, while naas technology is currently at 57%. According to the optimal model, there is still at least dozens of percentage points of growth potential.

From a market perspective, in the second half of 2024, there will be explosive growth in the domestic new energy autos market. The latest data from the China Passenger Car Association shows that in October this year, the retail sales of new energy passenger vehicles reached 1.196 million units, a year-on-year increase of 56.7%, with a sales penetration rate of 52.9%. The era of new energy vehicles in China has arrived.

As the number of new energy autos and their market penetration rate increases, and the market's understanding of the charging service industry deepens, the investment value of naas technology will become more prominent. In the future, with the explosion of the new energy vehicle charging market and the continuous improvement in the company's operational efficiency, there is still considerable room for revenue growth.