2021: Profit Up 34% Yoy, In Line With Our Estimates
Niu’s 2021 net profit came in at Rmb226m (+34% yoy), slightly above our estimate of Rmb222m and below consensus’ estimate of Rmb245m, with the spike in store count in 4Q21 boosting the SG&A. Looking ahead, management guides for 45-64% growth in sales volume to 1.5m-1.7m units, and a rebound of blended ASP and gross margin in 2022, based on optimisation of product mix. 2022-23 EPS remains unchanged. Maintain BUY. Target price: US$37.00.
RESULTS
• 2021 earnings up 34%, in line with estimates. Niu Technologies’ (Niu) 2021 net profit and core net profit came in as expected at Rmb226m (+34% yoy) and Rmb273m (+31% yoy), vs our estimate of Rmb222m and consensus’ estimate of Rmb245m. That implies 4Q21 net profit of Rmb48m (-18% yoy/-48% qoq) and Rmb60m (-12% yoy/-41% qoq). The earnings drop in 4Q21 was expected and it was due to a seasonal qoq drop in sales volume and spike in SG&A as a result of an expansion of distribution network. Revenue grew 47% yoy and dropped 20% qoq on +59/-40% sales volume growth and -5/+30% ASP growth, as the share of the entry-level Zero series halved qoq to 20% in 4Q20. Gross margin rebounded by 2.6ppt qoq to 22.6% in 4Q21, but was still 2.6ppt lower than that in 4Q20. SG&A as a percentage of
revenue surged by 0.7ppt yoy and 6.6ppt qoq to 19.1% in 4Q21, as the number of franchise stores spiked by 92% yoy and 16% qoq to 3,106 as of end-21.
STOCK IMPACTS
• Management expects Niu’s sales volume to grow by 45-64% yoy to 1.5m-1.7m units in 2022, based on the buoyant growth in China’s two-wheeled electric vehicle (2WEV) market and the company’s strong product pipeline. We expect China’s 2WEV sales to grow at 15% CAGR over the next three years, driven by the implementation of the New National Standard of 2WEVs. Led by Beijing and Jiangsu, the big cities in China are stepping up in implementing the new national standard for 2WEVs, stimulating replacement demand for the non-compliant electric bicycles and electric scooters. As for product pipeline, Niu currently only has electric scooter products. In 2022, Niu will launch electric kick scooters, electric bicycles and electric performance motorcycles (equivalent to 100-150cc fossil-fuel motorcycles) to tap the different segments of the global 2WEV market. We keep sales volume forecasts unchanged at 1.6m/2.3m units for 2022/23 and introduce our 2024 sales volume forecast of 3m units.
• ASP and gross margin expected to rebound further in 2022. Management guides for further rebounds in ASP and gross margin from 4Q21 to 2022, based on optimisation of product mix and hikes in product prices. In 2022, Niu will only launch one model under the entry-level Zero series and at least three models under the mid- to high-end (ie 2 series, 3 series and 6 series), and thus the share of Zero series will likely decline further from 20% in 4Q21. Meanwhile, Niu has recently raised product prices by Rmb200/unit (or 5%) to pass on the cost hikes, boosting gross margin. We keep 2022-23 gross margin unchanged at 23%.
EARNINGS REVISION/RISKS
• Earnings estimates unchanged. We maintain 2022-23 net profit forecasts at Rmb406m and Rmb591m respectively and introduce 2024 net profit forecast of Rmb806m.
VALUATION/RECOMMENDATION
• Maintain BUY and keep target price at US$37.00, based on 10-year DCF (WACC: 23.6%/terminal growth: 4%/10-year FCF growth: 25%) which implies 46x 2022F PE and 1.2x 2022F PEG. Under the bear-case scenario (WACC: 23.6%/terminal growth: 4%/10-year FCF growth: 15%), we estimate the fair value at US$23, still much higher than the current price.