The main takeaway:
- Niu Technologies’ domestic sales growth slowed to 49% in the fourth quarter, even as international sales rose due to strong demand for new scooter models.
- The company’s shares are down 5% after the release of fourth-quarter data, although the shares are still relatively highly valued compared to peers.
By Doug Young
Last Quarterly update Released Wednesday by electric scooter maker New Technologies (NASDAQ:NIU) looks pretty encouraging at first glance, including two major milestones.
One of these saw the company sell more than 1 million of its electric bikes and scooters in 2021, the first time it has crossed that major threshold. The other company has seen its global sales suddenly rise after years of disappointment, most recently due to the turmoil caused by the global pandemic over the past two years.
But a closer look at the numbers revealed a more worrying trend of slowing growth for its main domestic market, which still accounts for the vast majority of its sales. China is known as the land of imitators, and Niu’s slowdown in domestic growth is almost certainly caused by others encroaching on its territory in this sector with relatively low barriers to entry.
As an example, one of these newcomers, the maker of small electric cars Candy Technologies (NASDAQ:KNDI), reported in November that sales of its new line of electric scooters rose nearly sevenfold in the third quarter of last year to $6.3 million from less than $1 million a year earlier.
The latest evidence of increased competition at home hit Niu stock to tumble 5.1% after the release of its update. The company’s shares have lost more than half their value in the past 52 weeks, including a 40% drop since early November. But even after this sale, its price is still relatively high compared to a group of its peers publicly traded in the fragmented global market for its products.
That being said, the company’s long-term prospects still look relatively bright due to the growing global focus on clean energy transmission. While most of that has focused on electric vehicles, electric scooters are also getting increasing interest in many developing markets where cars remain out of reach for most consumers. Europe and North America have also proven fertile ground as national governments attempt to reduce carbon emissions.
But for now, at least, Neo’s latest report shows a somewhat bumpy road ahead for the company in China, with Beijing also aggressively aiming to reach peak carbon emissions by 2030 and switch to carbon neutral by 2060.
Niu’s latest data shows that its sales in China rose 49% year-on-year to 205,239 units during the fourth quarter. While this kind of growth would normally look very strong, it is actually very weak when compared to the 80% of its sales in China during the first three quarters of the year.
The slow growth came as Neo continued its massive expansion of its local retail network with 422 stores opening during the quarter, a significant increase from the 320 stores added in the third quarter, bringing the number of national stores to 3,108 at the end of the year. 2021. The company tried to put a positive spin on the numbers by noting that cheaper models with lower profit margins accounted for just 21% of its sales in China in the fourth quarter, down from 41% in the previous three-month period.
kick scooter dash
Next, we’ll take a look at the company’s international profile, which will play an increasingly important role as Niu tries to diversify beyond the increasingly competitive China market. After staying stuck at 5% or less of its total sales for years, Niu’s international business suddenly rose 156% in the fourth quarter year over year to nearly 33,000 units.
This massive uptick, combined with slower growth in China, has pushed the international figure to 14% of the company’s total unit sales, well above the 10% we mentioned earlier. The international increase also helped push Neo’s total sales of all 2021 units to 1.03 million units, surpassing the other phase we mentioned.
But once again, a closer look reveals that the big factor behind the global boom was the company’s latest line of scooters that hit the market in September. Of the 32,949 units shipped outside of China in the fourth quarter, nearly half – or 14,916 to be exact – were motorcycles with much lower prices and lower profits than more advanced bikes and motorcycles.
The theme of “going to market” recurs in the company’s latest quarterly results, which show its revenue rose just 37% in the third quarter to 1.23 billion yuan ($194 million) — much slower than the 58% increase for unit sales. This indicates that the company’s average revenue per unit sold is steadily declining as lower-end products account for a larger portion of its sales.
Once again, the company tried to spice things up by pointing out that new advanced models that entered the market recently were also a major factor behind global growth. Here, we should also note that the company has previously indicated that huge increases in global freight rates due to the pandemic have created a major challenge for Niu’s global sales.
So, given Neo’s not-so-smooth ride now, how exactly should investors view this company? At least for the time being, the investment community looks relatively bullish on NEO, likely due to its leadership position in a market with a lot of growth potential. Moreover, the company is exposed to relatively low regulatory risk compared to many other US-listed Chinese technology companies that have come under fire over the past year.
The three analysts who have reported to Yahoo Finance for January so far have rated the company as a “buy” or a “strong buy,” similar to the eight analysts who rated the company in December. The group’s average target price is $38.45 for NEO’s American Depository Shares, or more than double their last close of $15.80.
Despite its relatively low share price, Niu remains relatively wealthy compared to the limited number of its publicly traded peers. It requires a price-to-earnings (P/E) ratio of 40, which is much higher than the 26 in Kandi and Italian Piaggio (PIAG.MI) at 18. On a price-to-sales (P/S) basis Niu and Kandi both have ratios of 2.8, Although Piaggio is much lower at 0.6.