nrqemi
Elevator Pitch
My investment rating for Niu Technologies (NASDAQ:NIU) is a Buy.
I wrote about Niu Technologies’ near-term financial prospects in my prior June 5, 2023 write-up. This update touches on NIU’s Q2 2024 sales numbers and the company’s growth in overseas markets.
NIU’s sales volume expanded strongly by +21% YoY and +98% QoQ in the second quarter of 2024, which is indicative of positive sales growth momentum. Moving ahead, the company’s international markets could be a key growth engine, taking into account its plans to partner with new retailers and grow. Considering the company’s favorable growth outlook, I have chosen to upgrade my rating for Niu Technologies from a Hold previously to a Buy now.
Second Quarter Sales Were Strong
Last Thursday, NIU published a press release revealing the company’s key operating metrics for the second quarter of this year. Niu Technologies’ sales performance in the most recent quarter was excellent.
The company’s total units sold rose by +98% QoQ and +21% YoY to 256,152 for Q2 2024. NIU’s domestic or Mainland Chinese sales volume increased by +16% YoY and +88% QoQ to 207,522 units in the latest quarter. On the other hand, Niu Technologies’ sales in overseas markets outside China grew by +156% on a sequential basis and +45% on year-on-year terms to 48,610 units over the same time period.
New offerings were the key driver of Niu Technologies’ robust sales growth in China in the second quarter of the current year. In specific terms, NIU generated more than half of its revenue for the China market from new offerings as indicated in the company’s July 4, 2024 press release.
The company also shared in its recent July 4 announcement that its new NXT model was the best-selling new electric bicycle during China’s e-commerce event known as the 618 shopping festival that took place between May 20 and June 20 this year. At its earlier Q1 2024 earnings call on May 20, Niu Technologies highlighted that the NXT model was introduced in February with an “innovative design” including “futuristic elements like magnetic transparent panels, aerodynamic lines, and an enhanced version of signature halo light.”
NIU’s focus on launching new products and the popularity of key offerings like the new NXT model suggest that its positive sales growth momentum in its home market should be sustained.
Separately, Niu Technologies’ sales in overseas markets have been boosted by the expansion of its product portfolio.
NIU noted in the company’s July 4, 2024 release that it has been introducing new products in international markets as part of efforts relating to “rounding out our product portfolio” in the “micro-mobility” segment. The company’s efforts have paid off, as its units sold for micro-mobility offerings in overseas markets jumped by in excess of +50% YoY in Q2 2024.
In a nutshell, NIU has delivered a good set of sales numbers for the recent quarter thanks to successful new product launches in China and an optimization of its international product portfolio to capitalize on strong micro-mobility product demand.
International Markets’ Growth Outlook Is Favorable
Niu Technologies issued a media release on Monday, July 8, 2024 disclosing a “large-scale retail expansion to over 800+ Best Buy (BBY) stores, across the United States.” This is a favorable development for NIU.
In its FY 2023 20-F filing, NIU shared that it was “able to place our products in over 1,000 physical locations in the US and Europe” with its “retail partners” as of December 31, 2023. Looking forward, the company emphasized at its Q1 2024 results briefing that its goal is to “double our (international) retail footprint selling micro-mobility products by end of 2024.”
It is reasonable to think that the latest Best Buy announcement represents the first of many new distribution network expansion initiatives that the company is likely to undertake going forward. Multiline retailers like Costco (COST) and Walmart (WMT) and home improvement retailers such as Lowe’s (LOW) and Home Depot (HD) are among the key US companies that NIU is targeting as potential new distribution partners as per its Q1 2024 earnings briefing disclosures.
The company’s sales volume for overseas markets grew by +46% YoY to 46,318 units (source: July 4 press release) in the first half of 2024. If NIU can increase its point of sales in foreign markets in a big way this year as per its target, the company’s full-year 2024 sales volume growth should be as good if not better than its 1H 2024 performance.
There is huge growth potential in international markets. Mainland Chinese research firm BOCOM International published a research report (not publicly available) titled “Electric Two-Wheeler Sector: Winners Of Industry Consolidation” on July 2, 2024. BOCOM International projects that the global ex-China sales volume for electric two-wheelers could potentially grow at a +25.6% CAGR for the 2023-2027 time frame.
Foreign markets outside Mainland China accounted for a modest 15% of Niu Technologies’ total sales volume for the first half of this year as disclosed in the company’s July 4, 2024 press release. It wouldn’t be far-fetched to expect NIU to grow its sales contribution from overseas markets in a significant manner with the addition of new retail partners.
Variant View
Niu Technologies’ shares might perform badly in the event that the company’s future sales in both its domestic and international markets come in below expectations.
A key risk is that Chinese consumers tighten their purse strings and cut back spending on discretionary items like NIU’s electric bikes, assuming that China’s economy weakens.
The other key risk is that NIU fails to gain traction with its plans to expand its distribution network. The company’s actual overseas sales could disappoint the market, if it doesn’t penetrate into new distribution channels or collaborate with new retailers.
Final Thoughts
NIU has exhibited positive sales growth momentum as evidenced by its Q2 2024 numbers, and there is the potential for the company to increase its revenue contributed by overseas markets with the increase in distribution channels.
Niu Technologies’ favorable growth outlook isn’t fully reflected in the stock’s valuations. NIU is now trading at an undemanding consensus next twelve months’ normalized P/E at the low-teens level or 12 times (source: S&P Capital IQ) to be exact. NIU is a fast-growing company boasting a consensus FY 2023-2025 top line CAGR forecast of +25% (source: S&P Capital), and it is deserving of a higher earnings multiple.
The stock’s peers Luyuan Group [2451:HK], Zhejiang Qianjiang Motorcycle [000913:CH], and Zhejiang Cfmoto Power [603129 CH] are valued by the market at consensus forward P/E ratios of 14 times, 16 times, and 19 times, respectively as per S&P Capital IQ data. Separately, Niu Technologies’ historical three-year mean P/E metric was 14 times (source: S&P Capital IQ).
I rate NIU as a Buy now, as I think that the stock’s P/E multiple can re-rate to the mid-teens level in line with its peers and historical averages.