NIU Stock Analysis - The emergence of electrified motorcycles
Electric motorcycle industry, NIU technologies intro, stock and Target Price by analysts and a simple DCF model (Intrinsic Value)
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What a time to be investing! Among inflation fears, debt ceiling issues in the US, chip shortages, rising commodities prices, the never ending covid19 and supply chain problems world wide it might seem that its not the best time to be investing but I think its the other way around. The best time to be investing is when so many are fearful and prices drop.
So today we’ll talk about NIU Technologies:
The industry of electric motorcycles
The Stock & Price target (DCF and Analyst estimates)
The industry of electric motorcycles
Today I bring you another Chinese company that I find very interesting because I believe the electric motorcycle market is huge, especially in Asia because if we see the list of countries with the largest percentage of households that own a motorcycle we see:
And by the way, those 6 countries combined have over 41% of the world population and every country is slowly but surely implementing policies to increase electric over gas mobility with environmentally friendly regulations and incentives
A McKinsey study foresees a lot of growth:
The sales figures for small-format EVs may initially seem modest. The market for two-wheel EVs (E2Ws) and three-wheel EVs (E3Ws) was valued at around $97 billion. The sector global sales of E2Ws and E3Ws are increasing by more than 14 percent annually. By 2022, global sales of E2Ws and E3Ws could reach $150 billion.
Founded in 2014 by Joseph Nelson & Token Hu, they raised over 120 Million dollars from investors like Sequoia and GGV Capital.
NIU got listed on the Nasdaq Global in October 2018 at 9$/share.
Dr. Yan Li is the CEO. He holds a Ph.D. from Stanford in Electrical Engineering and was a principal at KKR Capstone in China before joining NIU in 2016.
In a nutshell, NIU designs, manufactures, and sells smart electric-scooters. It is the world’s leading lithium powered electric two wheeler company and it developed a 4th generation NIU Energy lithium battery technology that has, according to them, a longer lasting battery life, longer range, lightweight, safer and more powerful.
NIU is building its technology integration too, through its NIU app, they offers online repair request, DIY repairs, theft reporting, and smart services like insurance.
One of the things that are very impressive are the amount of stores and dealers that work with NIU around the world even though their international sales have been dwarfed by the Chinese sales (through their 2,686 NIU stores) and slowed by supply chain delays in this last quarter and probably next one as well.
Their revenue comes from E-scooter sales from China, from International Markets and sales of accessories, spare parts and services.
In Q2 2021, Revenues were RMB 944.7 million (148M $), an increase of 46.5% year over year, due to higher sales volume of 58.0%, partially offset by decreased revenues per e-scooter of 7.3%.
And even though we are waiting on the Q3 numbers, we now know that their sales in china grew by 59.9% to 392112 e-scooters but the number of international sales decreased by 11.2% to 4967 units.
Its important to point out that they are developing IoT Hardware, Fleet management platform and Technical support solutions for their “NIU Fleet” clients that already use NIU scooters like Lime, Movo, Revel, Skok, GoVolt, etc.
Now lets look at their income statement (in Millions of USD).
From 12/2018 to 06/2021, they are now working with a 23% Gross Margin and a 10.5% Operating margin. I expect the gross margin to decline a bit in the near future as they make an effort to move more and more scooters but the operating margin should go up specially if they continue to grow at a crazy rate within China.
Gross margin shows the percentage of revenue after subtracting the cost of goods sold involved in production.
Operating margin takes gross profit and subtracts all overhead, administrative, and operational expenses.
The Stock and Price Target
As we can see in the graph, the price of the stock today is below the 50 day and the 200 day Simple Moving Average at around the 24,50 level. The Forward P/E is 27.5, which in my opinion is low for a high growth company like NIU.
In recent months the stock has been hit repeatedly with everything I mentioned at the beginning but the main causes are:
Resurgence of Covid19 in Europe and difficulties in ocean freight shipping: Out of 15000 orders they received for their new kick-scooter, KQi, the company shipped only 497 and plans to shipped the rest ASAP.
Political circumstances regarding Chinas reforms hit Chinese companies listed in the US the most.
But what do analyst expect from this stock? Out of 7 Analysts, 4 rate it as a “Strong Buy” and 3 as a “Buy”. The average price target is 42.30 usd, a 70.7% potential return.
This target prices are higher that my super conservative estimate.
Using a simple Discounted Cash Flow model, which is good because my model gives me and Intrinsic Value of 35.4$, a 42.9 Upside potential.
For this model I use very conservative key assumptions: 22% Growth rate for the next 5 years, Terminal Growth rate of 5% and a discount rate of 10%.
Here it is. If you want the model to play with it, let me know in the comments and I’ll send it over 👍
And that’s it! If you enjoyed the article, please share!
Oh, and one last thing, here is a very good video from Dr. Yan Li (CEO of NIU) explaining the company and their goals from 2018.
Until next time!
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