I have been watching $NIU declining steadily since early 2021 and have recently added it to my portfolio as a relatively small position within the last few months. Here’s some general details, why I like the stock, and analysis of the financials:
# General Details
* Niu Technologies, ***based in China***, is a ***small-cap*** (although was a mid-cap at it’s ATH in Feb 2021) company that was ***founded in 2014***.
* They design, manufacture & sell a range of ***two-wheeled electric*** (lithium battery) vehicles within ***China*** but also in 52 countries ***internationally***.
* Their product portfolio has ***10*** series’ of products in total, split between 4 types of vehicles: electric ***scooters***, electric ***motorcycles***, electric ***bicycles*** & electric ***kick-scooters***. They have a range of models for many of the products e.g different price points, enhanced performance, top speed variations etc.
* As well as the vehicles themselves, they offer insurance and maintenance/repair services through their own app – and also sell related accessories and clothing.
# Reasoning for Buying
* To me, the valuation seems extremely low considering the companies growth prospects, very good financial health, and track record of effective management + product innovation.
* The fact they are profitable while having a high growth rate and being a young, innovative company still in their expansion phase improves the reward/risk imo.
* The industry itself has strong growth potential over the long-term and two-wheeled EV’s offer a good solution to increased urbanisation of the world and the need to reduce emissions.
* Their vehicles have been very well received by customers, and are highly-reputable for their high-quality design and performance.
# Balance Sheet
* Market Capital of $365M with Net Assets of $184M
* Total Assets of $348M & Total Liabilities of $164M
* Current Ratio of 1.7, with Current Assets of $270M more than covering Current Liabilities of $158M
* Working Capital of $112M
* Quick ratio of 1.28
* Strong liquid assets position of $119M. ($52M in Cash & $66M in Short-term investments)
* $71M of their $78M in Non-current assets are tangible.
The balance sheet is pretty strong in my opinion, especially the high level of working capital/liquidity. Also, having net assets of just over 50% of the total valuation of the company strikes me as a strong indication that NIU is well below fair value.
# Revenue & Earnings
* Revenue (TTM) of $512M, giving a P/S of 0.72.
* Revenue has grown at an average of 26% per year over the past 3 years.
* Earnings (TTM) of $17.6M, giving a P/E of 20.8.
* Earnings have grown at an average of 62% per year over the past 3 years.
* Earnings have declined by 45% from Q2 2021 to Q2 2022(MRQ), as China continued lockdowns of cities in the first half of 2022 – causing revenues to decline slightly & cost of revenues to increase.
* As mentioned in the previous point, revenue growth slowed in Q1 2022 before then declining by about 3.2% in the most recent quarter.
* Earnings and revenue are both projected to re-establish growth trends of around 22% and 26% respectively over the next few years.
Although the P/E doesn’t look low by itself, if I consider: long-term growth prospects , financial health and that they are currently profitable – a P/E of 20.8 looks good to me.
Also, P/E at this valuation a year ago would have been 11.5, and Niu’s management states that the decline in sales/earnings was majorly due to disruption from covid lockdowns. Hence, my thinking is that – provided the CCP actually eases up on their covid policy, lockdown disruptions clearing will allow earnings to recover back to previous levels, and then beyond. I do understand, however, that poor economic conditions in China/globally will likely stick around for some time, so I can also see Niu’s earnings being under pressure until the macro picture is more positive.
# Other Points
* While Niu’s sales in China have been quite poor since Q3 2021, they have meanwhile experienced very strong growth internationally. This indicates to me that the business itself is improving and in normal conditions will continue to thrive.
* Strong international sales also means Niu is diversifying revenues (less reliance on China) and establishing itself into a strong position to grow along with the larger EV market.
* They’ve been making moves to further expand in SE Asia which could provide significant long term growth as the region keeps developing and urbanising.
* I generally feel that despite short-term difficulties with the macro-environment, once things stabilise Niu Technologies has a lot of reason to thrive and grow.
# Some Risks
* Heavy reliance on Chinese economy and is somewhat at mercy of CCP.
* The nature of the market they’re in means sales and cost of sales will be negatively impacted by a global recession which is a big possibility.
* There is significant competition in the electric scooter market and NIU doesn’t have much of a moat or clear cut advantage.
Please share your thoughts on my analysis and the company. Thanks 🙂
