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Niu Rolling Along, Despite Shipping Constraints
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Niu Rolling Along, Despite Shipping Constraints

Niu Technologies’s (NIU) shares are on a roll since its second-quarter earnings release on Monday, August 16. On Monday, shares closed 4.6% higher. The company held a conference call later on Monday to discuss the results, which led to shares rallying another 9.4% at market close on Tuesday.

2Q at a Glance

The Chinese e-scooter designer and manufacturer overcame severe global shipping constraints to emerge from the second quarter with flying colors. Considering an exchange rate of renminbi (RMB) 6.4566 per US$, the company’s revenues of RMB 944.7 million (about $146.32 million) indicated a 46.5% year-over-year growth. Notably, higher sales volumes, both domestically and internationally compared to the year-ago quarter, more than offset the decrease in revenue per unit sales. High battery pack sales also provided tailwind to the top line.

The second quarter was satisfactorily profitable. Non-GAAP net income margin of 11% was 50 basis points wider year-over-year. A major boost to the bottom line came when the company received a government grant of RMB 41 million, out of which RMB 21 million was taken into account in the second quarter. (See Niu stock chart on TipRanks)

Analyst’s Bullish Take

After carefully analyzing the second-quarter performance, Needham analysts, led by Vincent Yu, made some key observations which led them to assign a Buy rating to Niu, with a price target of $46.

Notably, Niu opened 450 new offline stores in China, as against Yu’s expectation of 400 stores. Niu is also on track to release its upgraded flagship electric motorcycle in the fourth quarter, which particularly impressed Yu. He believes that the company’s relentless focus on opening physical stores across the country, combined with a strong pipeline and an impending favorable regulatory update, is expected to result in healthy domestic sales growth in the last leg of the year.

“We believe a newly-designed premium-to-high end product line will support Niu take best advantage of the roll-out of the New National Standard starting in 3Q, as consumers living in 1/2-tier cities, where the implementation of the regulation policies would be most stringent, prefer premium products,” said Yu.

Cautious Near-Term Observations

In its second-quarter earnings call, the management at Niu mentioned how international shipping rates of its scooters increased to $450 per unit, three times the initial rate of $150 per unit. This led distributors to postpone sales to international markets until the shipping cost tones down. With Spring sales just a few quarters away, Niu expects a ramp in international shipments in the fourth quarter, for which the company may have to subsidize the high shipping costs for the distributors.

Niu does not expect the cost of raw materials to rise any further. While this is good news, it is uncertain when or how much the costs will reduce. Also, normally, any change in costs takes about 2-3 months to reflect on margins. Thus, cost savings may not be realized before the fourth quarter, considering any immediate decline in costs.

“Going into 2H, we are optimistic about Niu’s unit sales growth on its aggressive store opening plans and fully upgraded product lines which cover the higher-tier city users who plan to upgrade vehicles on regulation implementation. Uncertainties caused by global shipping constraints and changes in raw material costs may continue, in our view,” noted Yu.

The Wall Street consensus is cautiously optimistic about the stock with a Moderate Buy rating based on 2 Buys and 1 Sell. The average Niu price target of $32.67 implies 34.3% upside potential to current levels.

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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