Highpower International (HPJ) on Q4 2015 Results - Earnings Call Transcript

| About: Highpower International, (HPJ)

Highpower International, Inc. (NASDAQ:HPJ)

Q4 2015 Earnings Conference Call

March 24, 2016 11:00 AM ET

Executives

Katherine Yao - The Equity Group, Inc.

Bryan Bai - VP of Sales

Henry Sun - CFO and Corporate Secretary

Analysts

Scott Billeadeau - Walrus Partners

Walter Ramsley - Walrus Partners

Operator

Greetings and welcome to the Highpower International Q4 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Katherine Yao of The Equity Group. Please go ahead.

Katherine Yao

Thank you, Matt, and good morning everyone. Thank you for joining us. Copies of the press release announcing 2015 fourth quarter and year-end financial results are available on Highpower International’s website at www.highpowertech.com. You are also welcome to contact our office at (212) 836-9600 and we will be happy to send you a copy. In addition, this broadcast will be made available at Highpower International's website.

Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect Highpower International business, prospects and results of operation. Such risks are fully detailed in Highpower International’s filings within the Security and Exchange Commission. The company filed its annual report on Form 10-K this morning.

I would now like to take a moment to outline the format of today’s call. The company’s Chief Financial Officer, Mr. Henry Sun, will begin with the highlights for the fiscal year 2015, followed by an overview of 2015 fourth quarter operating and financial results. We will then turn the call over to Highpower International’s Vice President of Sales, Mr. Bryan Bai for some commentary on recent sales and marketing initiatives. When he is finished, Henry will be available to [indiscernible] for the fiscal year 2015 and then open up the call for questions.

With that, I will turn the call over to Highpower International’s CFO, Mr. Henry Sun. Please go ahead, Henry.

Henry Sun

Thank you, Katherine. Good morning, everyone, and thank you all for joining our 2015 fourth quarter and year-end conference call.

We were pleased to report positive operating results in fiscal year 2015, exceeding our previously announced 2015 net sales guidance of between $142 million and $146 million. In 2015, Highpower’s net sales were $146.2 million compared to $147.1 million in 2014.

In 2015, our net sales of lithium batteries increased 14.9% to $78.6 million from $68.4 million in 2014 as a result of the increased battery sales into the electric bus and high-end consumer electronic device markets. However we saw a decrease in net sales in our nickel-metal hydride battery business and new materials segment during the year, mainly due to lower commodity prices.

Gross profit for 2015 was $27.9 million compared to $30.2 million in the prior year. Gross margin decreased to 19.1% in 2015 from 20.5% in 2014, primarily due to a decrease in the average selling price for both nickel-metal hydride batteries and the lithium batteries, as well as increased labor costs.

R&D spending was $7.6 million or 5.2% of net sales in 2015, compared to $7.7 million or 5.2% of net sales in 2014. For 2015, selling and distribution expenses were $6.7 million or 4.6% of net sales compared to $6.6 million or 4.5% of net sales in 2014.

We continued to expand our marketing efforts, including participation in industry trade shows and international travels to promote and market our products, both domestically and abroad. General & administrative expenses in 2015 remained flat at $12.9 million or 8.8% of net sales, which compares to $12.9 million or 8.8% of net sales in 2014.

Net income attributable to the company for 2015 increased 40% to $3.9 million or $0.25 per share based on 15.3 million weighted average diluted shares outstanding, from $2.8 million or $0.18 per share based on 15.2 million weighted average diluted shares outstanding in 2014. For 2015, EBITDA increased 20.7% to $10.3 million from $8.6 million in 2014.

Moving to the balance sheet. As of December 31, 2015, Highpower’s cash and cash equivalents were $5.8 million, compared to $14.6 million at December 31, 2014. Total assets were $134.2 million and stockholders’ equity was $42.9 million. Bank credit facilities totaled $75 million at December 31, 2015, of which, $40 million was utilized and $35 million was available as used credit lines. So we are pretty comfortable with our balance sheet.

Now I'd like to move to our fourth quarter financial results. Net sales increased 7.2% to $37.9 million from $35.3 million in the prior-year fourth quarter. Lithium battery net sales increased 38.3% to $22.8 million from $16.5 million in the fourth quarter of 2014. R&D spending for the 2015 fourth quarter was $2 million compared to $1.9 million for the same period in 2014.

Net income for the fourth quarter of 2015 was $0.2 million or $0.01 per share based on 15.2 million weighted average diluted shares outstanding, compared to $2 million or $0.13 per share based on 15.5 million weighted average diluted shares outstanding in the prior-year period. EBITDA for the fourth quarter of 2015 was $1.8 million compared to $3.3 million in the fourth quarter of 2014.

I will now discuss our 2015 operating highlights. We achieved double-digit growth in the net sales of lithium batteries as a result of a growing global demand for mobile and portable products and electric vehicles in China. In February 2015, we received a multi-million dollar order from a global consumer electronic company to provide lithium polymer batteries for smartphone backup power products.

In May, one of our wholly-owned subsidiaries Icon Energy System was recognized as The Best Design Company of China’s Energy Storage Industry at the 5th China International Energy Storage Conference and Exhibition. We believe this honor reflects Highpower’s leading market position as an innovator in energy storage products.

Also in May, we secured a contract to produce 100 kilowatt hour energy storage system for China’s Southern Power Grid. This energy storage system is designed for China’s Southern Power Grid as part of a megawatt system. In the long-term, we believe this technology will enter the residential market, and we anticipate deepening our sales channels in this area to take advantage of the growing energy storage market.

In July, the U.S. Patent and Trademark Office granted Highpower a patent for its rechargeable battery’s safety technology. This technology relates to a structural innovation improved safety features. Highpower’s proprietary design was created and submitted after extensive research and development efforts. We are not only building our patent portfolio in China but also paying attention and efforts to protect our IP in the international markets.

With regards to our facilities, we have large-scale active production base of 55,680 square meters in Shenzhen, and 126,605 square meter facility in Huizhou, which was completed in 2013 and was put into production in 2015. Our Huizhou facility focuses on producing higher volume orders of mobile device batteries and larger format lithium batteries for electric vehicles and energy storage systems. A near-term production capacity potential is approximately 2x to 3x that of our current lithium battery production facility in Shenzhen.

Our materials recycling facility in Ganzhou is 58,669 square meters. It was completed in 2014, and the initial production began during the second quarter of 2015. The finished goods at this stage are nickel compounds and can be used for industrial applications as well as the battery industry. As I mentioned earlier, we still generate a small portion of our total revenue from this facility, but we feel the industry trend is leaning towards environmental conservation. We are confident in our investment and believe this facility remains a competitive advantage over the future years.

With that, I would now like to turn the call over to our VP of Sales, Mr. Bryan Bai to comment on our recent sales and marketing initiatives.

Bryan Bai

Thank you, Henry. Good morning everyone. I’ll provide a brief update on our operations and sales efforts.

During 2015, approximately 76.5% of our revenue came from mainland China and the rest of Asia. Europe contributed approximately 17.9%, and the remaining 5.6% came from North America and the rest of the world. The rapid sales increase in Asia came from the strong demand of the OEM plants located in mainland China, as Highpower’s battery sales are important and proved by key building integral for the products for the world-renowned brands.

The majority of our customers are global companies based around throughout the world. During the year ended December 31, 2015, approximately 27.1% of our net sales were from our five largest customers and no one customer accounted for more than 10% of the net sales. Through our R&D efforts in the energy storage system and we are on the way to release a new portable product. We have delayed the release of this product due to suggestions from our distribution channels on the release timing and the package of design.

The updated release schedule will be in quarter two of 2016, and we expect this new portable products would develop a new business and open another window for Highpower.

In 2015, our sales team was aggressive in participating in marketing events and travel industrial specific conferences and exhibitions across the global to markets, our products and promote the Highpower’s brand name.

In the fourth quarter of 2015, our sales team successfully developed a number of customer relationships in China electric vehicle markets as China has set the specifications for electric logistic vehicle products. And as proved and identified Highpower’s lithium-ion battery solution for this electrical logistic vehicle projects, Highpower’s lithium-ion battery solution is a new generation of battery based on the ebus project we participate in the past.

Meanwhile, the company plans to increase our production capacity to match the strong demand from the electrical logistic vehicle customers. As a result, Highpower is looking to raise additional capital to strengthen our facilities and exploring alternative financing options outside of banking loans.

In 2015, the marketing and sales team made substantial progress in lithium-ion consumer market by enabling Highpower to become the preferred vendor for top-tier IT companies around the world. In 2015, HPJ became the approved vendor of Acer and Asus, and we are currently working with a list of world renowned companies to develop new business on new and innovative battery products developments. We expect these efforts will have a meaningful impact starting the second quarter of 2016, and we expect to create long-term relationship with the first-class customers.

Our strategy for 2015 will remains proactive and both our sales and marketing and R&D teams are involved in new project for different regions. We believe our success in 2015 will serve as a solid foundation for Highpower’s long-term growth strategy and further establish our brand both domestic and worldwide.

With this, I would like to turn to Henry. Thank you.

Henry Sun

Thank you, Bryan. As many of you have likely seen, in November last year, the company had received an investment proposal from Anshan Co-Operation Group. As part of this transaction, our board formed a special committee consisting of independent members and appointed an independent legal and financial advisor to evaluate the proposal. We are still in the evaluation stage of this transaction and do not have any updates outside of what has been publicly reported.

In 2016, we are cautiously optimistic on our operational results. Due to the uncertainty of this transaction and also the uncertainty of the global economy and the fluctuation of China's currency exchange rate, we will hold off on providing specific financial guidance at this time.

Highpower is currently going through expansion stage. And to conclude, we will continue to seek expansion into the electric vehicle market, widen our sales channels and develop new technologies and improve existing product offerings and build Highpower’s brand awareness overseas and in China.

With that, operator, please open the line for any questions.

Question-and-Answer Session

Operator

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions]. One moment please, while we poll for questions. Our first question comes from Scott Billeadeau from Walrus Partners. Please go ahead.

Scott Billeadeau

Hey guys. I’m wondering, could you give us - although you're not providing guidance, can you maybe characterize lithium versus nickel-metal? And then also within lithium, what are you seeing for consumer products versus EV, electric vehicles?

Henry Sun

Thank you, Scott, for the question. In 2016 and going forward, we'll continue to see a growth in the lithium battery segment. This year we’re - well, last year we have reached close to 55% of total sales, and this year it can only go higher in terms of the percentage of our total sales.

Nickel-metal hydride batteries. This industry is maturing, and will see a slight decline in terms of the market size over the next few years and then see a bottom, and then going flat, because nickel-metal hydride batteries is still being used in a lot of different areas and it's not going away very quickly because for a number of reasons. One is nickel-metal hydride batteries - they are relatively cheaper and safer most importantly than lithium batteries and they are stable products and have been around for decades. So we'll anticipate they will continue to be used in a lot of applications that desire safety and also cost, lower cost. So we will - to summarize, we will see a continued increase in lithium battery sales and we will see flat sales in nickel-metal hydride batteries in a few years after certain percentage of decline.

Scott Billeadeau

Okay. I guess the other question is, you mentioned you’ve got some significant capacity with lithium that can handle 2x to 3x which you’re doing, but yet you also mentioned you need capital to expand it. Is there - do you need to expand a different type of footprint for the EV in a large platform or maybe give us a little info as to do - we have capacity but we need to expand, and give me - if you could maybe straighten that out for us?

Henry Sun

Sure. Let me clarify capacity, so right now we have the buildings already finished and completed but still we have empty floors that need to be equipped. And the capacity, we meant was space is available but still...

Scott Billeadeau

So the 2x to 3x, you have the space, you just need to populate it with equipment?

Henry Sun

Exactly, yes. So we still need to make significant investments into the equipment and make the production on line.

Scott Billeadeau

Okay. So in terms of equipment - and I'll leave it after this question, I'll let someone else talk, but with your current equipment what kind of capacity utilization are you running at, at this point?

Henry Sun

At this point, we are almost at full capacity.

Scott Billeadeau

Full capacity, okay.

Henry Sun

Of existing equipment, and now we are expanding little bit into the empty floors but not a whole lot because that really requires a lot of cash availability. So we are looking into different funding options as we have said in the script.

Scott Billeadeau

And - okay, I’ll hop back and let someone else has a question.

Henry Sun

Thank you, Scott. Thanks a lot.

Operator

Our next question comes from Marty Ferguson from Martin Financial [ph]. Please go ahead.

Unidentified Analyst

Hi Henry, Hi Bryan. Hope you guys are doing well?

Henry Sun

Hi Marty [ph].

Unidentified Analyst

Okay, so just I have a few questions here. Did I understand - just want to make sure I understood the Bryan’s statements. As far as the progress on the commercialization of the energy storage products that you guys were looking to penetrate, I guess, the North America market, did you say that, that has been - as far as the commercialization has been delayed until quarter two of 2016. Is that - did I hear correctly?

Henry Sun

Yes, there was a plan at the end of last year but it was pushed off due to the some suggestions from our vendors and distribution channels. They gave some advice and we need to have made some minor modifications and then now we are expecting Q2 availability for the North American market.

Unidentified Analyst

Got it. I'm sorry, I just - I don't know if I was understanding Bryan’s statements, that's why I'm asking for some reconfirmation. So as far as the electric bus progress or updates, what was some of the updates that were mentioned on that note?

Henry Sun

The electric bus, well, we definitely experienced tremendous growth in 2015. We have installed our batteries on about 500 buses, electric hybrid buses in China. And 2016 we anticipate also considerable growth, 2x to 3x growth, but still we will need certain equipment to make our production available.

Bryan Bai

Yes, all of the China.

Henry Sun

Yes. And also we are not looking at bus market but also right now we have been exploring the logistics van or truck market as well. So we have been discussing with some potential customers for a while and we may see some results sometime this year once the production line is available.

Unidentified Analyst

Okay. So there was something that Bryan mentioned regarding meaningful impact in quarter two. Can you - I think I missed that. What was that in regards to? What will see a meaningful impact in quarter two? Was it anything specific or it was more general?

Bryan Bai

Okay, let me tell you the full story about that. So we expect in quarter two, means we have the schedule working with customers from the EVT, DVT and PVT, and that time as expected we will ordered if anything is on the way. Thank you.

Unidentified Analyst

Just so I - what is the EVT, PVT? What does that mean?

Bryan Bai

Okay. Those are project, every project for the consumers lithium iron project the development. At the first stage, EVT, that means some engineering verification. And the second will be DVT, that's developing stage. And PVT is pilot stage, then MP, mass production stage. So they have to experience the phase from time to time that is some regular for developing a new project. Thank you.

Unidentified Analyst

Okay. So basically we are talking about future projects which you believe like in quarter two should come to light, correct?

Bryan Bai

Yes, to MP, mass production. That is what we think about.

Unidentified Analyst

Got it. Okay, and just wanted to also confirm. So the reason for the guidance for 2016 in anyway has been left out specifically because of the current - the proposal and all the logistics that are being worked out, correct?

Henry Sun

Yes, Marty [ph]. The transaction is one thing and also because of the uncertainties on the economy, on the currency and on our - the production line rollout and also subject to the financing availability. But overall we are still optimistic by looking at the pipeline.

Unidentified Analyst

Yes, I don’t doubt that. I'm just curious, do you see in the future maybe once things have been settled certain things to bring back some kind of guidance later on?

Henry Sun

Yes. Once things settle, we will have a better visibility and clarity, so that we can reissue guidance.

Unidentified Analyst

Okay, great. Just two more questions. If I heard correctly from Bryan, he mentioned Acer having - and we know that because we've seen the press release, but did I also hear him mention Asus?

Bryan Bai

Yes...

Unidentified Analyst

As a customer?

Bryan Bai

That’s right.

Unidentified Analyst

Okay. So they are obviously your customer?

Bryan Bai

Yes. We are working with them in some projects now.

Unidentified Analyst

Got it. Okay. And lastly, just wanted to see if there is still anything going on with the joint disclosure agreements in relationship with Energous. Is that still something that the company is focusing on and feel it will setup good opportunities in the future with the wireless charging. Is the relationship still there?

Henry Sun

Yes, Marty [ph], the relationship is still there. The project is going sort of slow and we - wireless charging is definitely one of the most innovative technologies out there but still we are evaluating the feasibility and viability on applying the technology to commercialization. So the process is taking a bit slow than expected.

Unidentified Analyst

Okay. That's all from me.

Henry Sun

Thank you. Marty [ph] for your great questions.

Operator

Our next question comes from Scott Billeadeau from Walrus Partners. Please go ahead.

Scott Billeadeau

Hi guys, just a quick follow-up. As you look forward, is there - do you have - is the pipeline dependent upon or execution of the pipeline or even confirmation from customers based on your ability to show capacity and show that you can fulfill. I'm wondering if there is a little, gee, will give you the orders, you got to show me you can fulfill it, and that is leading to some uncertainty of what - well, how the year will play out?

Henry Sun

Yes, Scott, that's exactly to the point. So lot of times it's a chicken and egg issue. So our customers, they went through several stages as Bryan just pointed out. They go through a verification of technology and then development stage and then pricing negotiations and goes through to the end, which is the mass production. But before the mass production, they - of course, they want to make sure we have the capability or capacity to supply what they want otherwise we are going to interrupt their supply chain. So yes, they sort of are also evaluating and waiting for our capacity availability, especially on the equipment installation and everything.

Scott Billeadeau

Yes, got it. All right, thanks guys.

Henry Sun

Okay. Thank you, Scott.

Operator

[Operator Instructions] Our next question comes from Adam Moyers [ph], who is a Private Investor. Please go ahead.

Unidentified Analyst

Hey Henry. I wanted to see if you can give a little more color on the purchase offer that was received in November, just in terms of like what you guys have in terms of a general timeframe. It seems like it's been a prolonged process. You see a lot of billion-dollar companies [indiscernible] accomplish these things in a relatively short amount of time. Just curious as to what - one, what is holding the process up? And two, what you guys have in mind as general timeframe?

Henry Sun

Thank you, Adam [ph]. Well, what's holding the process is this is sort of complicated process because that involves legal structures or mechanisms from both countries, one is in the States of course and then also involves the regulations in China as well. So larger transaction sometimes you see if they are purely domestic. In the States, it can be a very straightforward. And for us that involves two legal systems, and our lawyers and also to meeting the compliances. As a public company, it’s strict as you know. So it’s taking longer than some simple or straightforward transactions, so that just happens in just one legal system.

The timeline, it may take several more months to see some results, but please do not quote on this. We are still going through some evaluation because our special committee has engaged financial advisor and also independent legal counsel evaluating this and then we have to meet certain procedures to let this go through. So it takes time. And once we are making meaningful progress, we’ll definitely make this publicly available and make the announcement.

Unidentified Analyst

Is there - do you guys internally have a timeline of what your expectations as the potential acquirer for the timeline on you guys of making a decision. Is there - like do you have anything in general of a hard stop on when this is a go, no-go?

Henry Sun

Our expectation was to complete this sooner rather than later because right now our business operations are sort of still waiting for the injection of the capital so that we can expand our facilities to fulfill some orders, potential orders. And we also want to be realistic. We sort of did not set a hard stop on this yet and we understand how complex the transaction is, and right now many different parties are involved, including the China's auditors and investment banks, third-party assessors, legal counsels. So we are running full speed, and hopefully this can be done in the next few months.

Unidentified Analyst

Okay. And certainly decision will be made here before decision is made to move forward with potential capital raised?

Henry Sun

I'm sorry. Say it again, Adam [ph].

Unidentified Analyst

A digestion will be made on this transaction before decision is made to move forward with the capital raised. Is that - is my understanding there correct?

Henry Sun

The capital raised you referred to...

Unidentified Analyst

You guys need to raise capital for expansion, you're going to make a decision on this transaction before you choose to move forward with a capital raise. Is that - would that be correct?

Henry Sun

Yes.

Unidentified Analyst

Okay. And what’s - I assume let's just for the sake of running down this rathole, assuming you don't move forward with the transaction and choose to move forward with the capital raise, how quickly with that occur after that decision is made?

Henry Sun

After the decision is made, so we still have to go through some proxy procedure as well so that should be a shareholder level decision-making. So the independent committee - well, the special committee will make decision first and then submit that for proxy and procedure. And once that is done, the funding can be completed very soon.

Unidentified Analyst

Forgive me. I may I have missed it earlier in the call. Did you mention an amount that you guys had identified as what was needed for putting equipment into the facilities at this point?

Henry Sun

At this point for very short-term capital investment, it’s $20 to $30 million. That's immediate for within a year. But beyond that, we still need additional capital to expand further. I believe you have heard of the Gigafactory from Tesla. They are investing $5 billion into their facility in Reno, Nevada. So for us, $100 million from this transaction is like peanuts comparing to what they are investing. So the $100 million capital raise from this transaction can definitely help us through the next two to three years growth.

Unidentified Analyst

Okay. And the decision is at this point to do capital as opposed to a debt financing?

Henry Sun

Right now, leverage ratio is already high enough, and if you look at our 10-Qs and 10-Ks we disclose all of our bank borrowings. Over the past eight years since we went public in 2008, we raised less than $10 million from the equity market. That is really nothing comparing to what we have invested into the facility, land and building. We have been borrowing money from banks in the past eight year - not eight years, since the inception of the company since 2001. So we rely on big commercial banks a lot. So at this stage, we have sort of reached the limit, and that's why equity market makes more sense at this stage.

Unidentified Analyst

Okay. I think that covers it for me. I appreciate it.

Henry Sun

Okay. Thank you, Adam [ph].

Operator

Our next question comes from Walter Ramsley from Walrus Partners. Please go ahead.

Walter Ramsley

Hey, thanks a lot. Hi, Henry. Got a couple of less hard-hitting questions I suppose. First of all, the non-controlling interest. My recollection is that’s related to the recycling business, is that correct? And is that, what's, 30% of that, or can you just kind of go over that?

Henry Sun

Hi Scott, I’m sorry. We own 70% of that facility.

Walter Ramsley

And that’s the only - I mean in the quarter, the non-controlling interest lost 155,000 and I guess that would imply that yourself lost about 300-and, whatever that’s, 70,000 or 60,000. So anyway, for the year, I mean that was kind of a bigger swing. Is there any likelihood that that's going to reverse course in 2016, so you can kind of get the comparisons on a more positive footing?

Henry Sun

2016, we - well, we have mentioned that we are seeing a growth in electric vehicle market for the past 12 to 24 months. And 2016, electric vehicle is going to continue growth, because in China the market is just beginning, electric vehicle adoption. And 2016, we’ll continue to see growth and the policy, the government has been issuing favorable policies for the consumers to buy electric vehicles cars. We will continue to focus on this.

We have created a dedicated department for electrical vehicle market and now we are focusing on electric bus and logistic vans or trucks market right now. And in a few years, we may start applying our batteries to the sedan market. Yes, so for the near and mid-term, the electric vehicle market is definitely one of our focus is. And beyond that, as Bryan mentioned earlier on the call, starting Q2 this year, we’ll start marketing our portable energy storage products into the retail chain in America. So we may see some good results in that area hopefully. And these two areas are seeing growth, but at the same time actually the tier-one international consumer electronic companies have been evaluating our facilities, like Samsung and Acer, Asus, and also including some other big names. We may get some business once the equipment is available in the consumer electronics market or mobile device market, we may see some growth as well.

Walter Ramsley

Okay. Good. As far as the current business is concerned, excluding the proposed transaction, do you expect the gross margins to bounce back in the upcoming year?

Henry Sun

Gross margin, we wanted to maintain our gross margin at 20%. Well, internally we have been cutting costs in reducing our number of the frontline workers. At the peak, we had almost 4,000 employees in total, and now we have roughly about 3,000 employees, so we have reduced 1,000 headcount over the past 12 months’ timeframe. But at the same time since we are investing in the heavy equipment, depreciation, amortization and expenses is going up. So that’s sort of offset, but the long-term since the labor cost is going up, continue to go up in China, so we want to modernize our facility and make the automated equipment our direction of growth and development. So the gross margin, overall we still want to maintain 20%. And for manufacturing company, 20% gross margin, we feel it's pretty reasonable and pretty good. Once we scale up, the operating expenses ratio goes down, then the net margin will improve over time.

Walter Ramsley

That sounds pretty good. Okay. The next question I guess has to do with the income taxes. They were pretty high in relation to the taxable income in the fourth quarter. Can you explain that, and what do you think the tax rate might look in 2016?

Henry Sun

It's going to be 15% across the board because all of our subsidiaries have received the high-tech status in China. But since these actual tax rate because some tax asset and liabilities that is transferred previous years, that's why the actual tax rate can fluctuate a little bit, but the average tax rate over the next few years, we expect 15%.

Walter Ramsley

Okay. And last of fall, I guess, you mentioned that the environment in China is becoming more difficult to raise new financing in general, or at least there is some uncertainty about that. If the proposed transaction doesn't come to fruition, are there other avenues that you can - that company can take advantage of to take advantage of some of the opportunities that are in front of it?

Henry Sun

The financing availability, actually in China of course the government is trying to sometimes tightening investment into real estate and certain areas with bubbles. But in the high-tech or clean energy areas, the government has been always investing and promoting and encouraging banks to lend to companies in these industries. So Highpower, right now we are definitely in such industry that the government promotes. One is we produce lithium batteries that is a very environmental-friendly and at the same time our recycling business is also catching a lot of attention from both the private and also public sectors.

So in terms of industry sponsorship, we not only can get some bank support in China but also we can receive certain amount of government subsidies as well. So to expand, these are not enough. We want to leverage the equity market in China. So overall in China, the equity market - there is lot of liquidity. And also evaluations are high in China overall. And that is why the institutions in China, now they are willing to put in $100 million into the business and help us grow because they see a lot of potential.

Walter Ramsley

Okay. Well, thank you, Henry. I appreciate all of your comments.

Henry Sun

Thank you, Walter. Thanks a lot.

Operator

Our next question comes from Scott Billeadeau from Walrus Partners. Please go ahead.

Scott Billeadeau

Most of them - couple of my questions were just answered. Yes, I was just going through - I know you have some left on the revolving line, but given what you’ve drawn on there, I think you kind of already answered the question, Henry, that you're kind of running up against what you can pull down on that anyhow from a comfort factor. Is that accurate?

Henry Sun

Right. Yes, even though we still have availability for credit lines but we don't want to drawdown everything and stretch our balance sheet too much. It's not healthy.

Scott Billeadeau

Yes. All right, I appreciate it. Thanks for answering all the questions. I appreciate it.

Henry Sun

Thank you, Scott.

Operator

Thank you. At this time, I'd like to turn the floor back over to management for any closing remarks.

Henry Sun

Okay, thank you, operator. Thanks again to all of you for joining us today. We look forward to speaking with you again in May after we report our first quarter financial results. As always, on behalf of the entire Highpower team, we welcome your feedbacks and visits to our facilities in China. Thank you very much and have a great day.

Bryan Bai

Thank you.

Operator

Thank you. This concludes today's conference. You may disconnect your lines and have a wonderful day.

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