Niu Technologies
Q1 2021 Earnings Call Transcript

Published: 17 May 2021

[Operator:]

Good day ladies and gentlemen. Thank you for standing by and welcome to the Niu Technologies First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today’s call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Jason Yang, Investor Relations Manager of Niu Technologies. Mr. Yang, please go ahead.

[Jason Yang:]

Thank you, Operator. Hello everyone. Welcome to today’s conference call to discuss Niu Technologies’ results for the first quarter of 2021. The earnings press release, corporate presentation, and financial spreadsheets have been posted on Niu’s Investor Relations website. This call is being webcast from the company’s IR website and a replay of the call will be available soon.

[Yan Li:]

Thanks Jason, and thanks everyone for joining us on the call today. So in Q1 we saw a 322% year-over-year jump in China sales. We shipped nearly 145,000 units in China propelled by an aggressive expansion of our retail footprint and a multichannel marketing campaign nicknamed the Year of Niu. Additionally our overseas market saw shipments of 5000 units for the first quarter. The small decline of 15% in the overseas market was primarily due to the orders that could not be shipped out, resulting from the ongoing global shipping bottlenecks you are all aware of. The total Q1 sales both China and international markets were up 273% year-over-year. In Q1 not even the Chinese New Year holiday could slowdown our retail expansion. We added 300 new branded stores across China, reaching 1916 stores by March 31. During our global product launch event on April 06, we announced the opening of our 2000th store in China. We are well on track to hit our Q2 target of 300 new stores for the quarter. For the internal market, even under the restriction of COVID-19, we managed to add an addition 7 flagship and premium stores, which now totaled 123 across Europe, the Americas and Southeast Asia. This is in addition to the 1000 plus outright new dealers in our global markets. For those of you who didn’t already know, our company name Niu actually means bull or ox in English. The year of 2021 happens to be the year of ox in the Chinese lunar calendar. So we kick off the Chinese year by launching the year of Niu be a Niu nationwide campaign. We listed help of popular musicians and social medial influencers which generated more than 200 million views across multiple social media platforms during the holiday season. We also kicked off and over the air advertisement campaign during the Chinese New Year, which allowed us targeting over 110 million viewers across markets in China that we have identified as key to helping us accelerate our growth.

[Hardy Zhang:]

Thank you, Yan, and hello, everyone. Our press release contains all the figures and comparisons you need. We have also uploaded Excel formatted figures to our IR website for easy reference. As I review our financial performance, we are referring to the first quarter figures, unless I say otherwise, and that all monetary figures are in RMB, unless otherwise noted. Our Q1 sales volume reached 150,000 units, representing a 273% year-over-year growth. China sales volume increased by 322% as a result of retail sales network expansion and effective branding activities. International sales volume however declined by 15% due to COVID-19, especially the recent lockdowns in Europe and a more challenging environment for international shipping. In March, the Suez Canal was locked for a week and many ships were delayed or cancelled. We were not able to deliver our products on time. The situation has improved gradually since April and we are catching up on the deliveries. With regards to product mix, N series accounted for 9% of total sales volume partially due to the lower international sales. M series accounted for 13%. U series accounted for 21%, and GOVA series accounted for 57%. Out of the 57% from GOVA series, 38% was from the mid-end product G0 model and 14% was from G2 model. In China, the COVID-19 rebounded in Q1 which helped to accelerate the adoption of electric bicycles, because many people pay more attention to social distancing and they try to avoid public transportation. GOVA series was a very popular choice for many new customers considering its attractive retail price. This is the key reason for GOVA series taking a larger proportion of sales in Q1. Total revenues increased by 135% to RMB 547 million, above the guidance we provided earlier, mainly due to the higher China sales volume and stronger sales in accessories and spare parts. The revenues from accessories, spare parts and services reached RMB 102 million representing 118% year-over-year growth. The strong sales came from both China and International markets. Sales from China market increased by 111% due to strong offline sales and International markets increased by 123% due to strong sales of battery packs to sharing operators. The ASP declined by 37% year-over-year. Let's look at the detailed reasons. For China market, the scooter ASP decreased by 27%, mainly due to the sales of low priced G0 and G2 models as well as sales discount offered. Out of this 27% decline, around a 20% was caused by the sales of these two models. The remaining 7% was due to the change in other production mix. For international markets, the scooter ASP decreased by 15%. The decrease was caused by depreciation of U.S. dollar, and also more significantly, the change in the way distributor placed orders.

[Operator:]

Certainly, sir. We have the first question this is coming from the line of Alex Potter from Piper Sandler. Please go ahead.

[Alexander Potter:]

Hi, guys. Thanks very much. So I guess the first question I have is just on gross margin. In the coming quarters, there's really a lot of moving parts right now. There's new products that are coming in at different price points. There's raw material, inflation, there's, this battery shipment issue. It's all kinds of different things. Some are positive, some are negative. Last quarter, I think you had said that you expected gross margin for this year to be roughly similar to what it was last year. Do you still feel that way or are you reassessing after viewing some of these new changes?

[Hardy Zhang:]

Thanks, Alex for the question. For us, we still want to maintain a similar margin as what we delivered last year. That's why in May we increase our retail sales price by 1.5%, to 7.5% and we may make another price adjustment in later months based on how the raw material inflation goes, also based on the pace of new product launch. For the second quarter, of course, our marketing will be a little bit challenging, because we began to see the price increase since April, but we increased retail sales price only from early May. So there's one month lagging for the price increase. For the second quarter, currently, we estimate our gross margin will be anywhere between 20% to 22%, but in Q3, Q4, we still want to target around 22% to 23%. And the thing within our hand is price increase. And also we will also renegotiate some of the costs with our suppliers to secure additional cost savings. So this is the answer to your first question, Alex.

[Alexander Potter:]

Okay, great. That's super helpful. So then maybe a little bit more on the cost pressure, the inflation? I know, obviously, inflation is a topic that a lot of people are thinking about right now. What specifically is it within your supply chain? Is it primarily batteries or is it basically across the board price inflation of all kinds of components and raw materials?

[Hardy Zhang:]

So it's across the board. It is because our components are also involved with steel, plastics, and also battery sales. Most of the raw materials, we see the price increases, is very much linked with overall commodity prices increase.

[Yan Li:]

So I think basically, in the last few months or so we've actually seen this price increase starting in later March, and then it’s actually hit us March and April and we started seeing that some of the raw material price actually hit the peak in early May. So we actually had increased our product price to reflect the sort of the latest update in terms of the bond price price. So going forward, I mean, hopefully we'll see the raw material price will stabilize that actually potentially could start to decrease.

[Alexander Potter:]

Okay, great. I'm interested also on this topic of splitting apart battery shipments versus the scooter shipments. Is this a tariff issue? How exactly do international importers save money by taking delivery of the battery pack separately from the scooter body?

[Hardy Zhang:]

Yes, the reason is a, list is the, because of the shortage of containers, the international shipping companies become more strict on the cargo can be shipped. For the battery pack, because we have a lithium battery within that, it was treated as dangerous cargo. Therefore, the shipping company will charge much higher tariff for anything which has lithium battery within it. If we separate the order between the battery pack and the body, the body part can still be treated as a regular cargo, whereas the shipping tariff is much lower than the dangerous cargo. So the difference is more, whether it's dangerous cargo it is regular cargo. That's the key reason besides the different tariffs. The different tariff is mainly in the U.S., in the U.S. there are different tariffs on battery pack and body parts. That it because of the shortage of the container shipping company because very, very strict on what kind of thing allowed within the container. Therefore, they check all the things there for many ships and many distributors try to put them separately to enjoy a lower tariff for the regular cargo. So that's the background.

[Alexander Potter:]

Interesting. Okay, very good. Thanks, I appreciate it. I'll pass it on.

[Operator:]

We have the next question. This is coming from the line of Vincent Yu from Needham & Company. Please go ahead.

[Vincent Yu:]

Thank you, management, for taking my question. I have three questions. First one is, so we have a very strong between number for first quarter ended a strong, and the store opening pace all seems to be on track. My question is, how should we think about the previously guidance to sell more than 1 million units for 2020? Is there a higher annual number that we are comfortable that we will be able to hit after the strong quarter? My second question is in rate sharing platform for our international business. So we have seen continued investments by made by rate sharing platforms into the scooter riding share markets and talk a little bit more about what should we think about challenges and the opportunities that such trends brings for Niu. And my last question is that for the new vehicle, new energy vehicle industry having seen chip shortage, we know we are, we have less demand for some chips, but we also have quite some chips associated with our app. What kind of effects we have on our products in terms of margin or production schedule, if there's any? Thank you.

[Hardy Zhang:]

Sure, let me give the four categories for the three questions and Yan will begin to supplement. First of all, the mall opening, definitely we are on track to achieve our target. We have opened 300 in Q1, we're going to open at least another 300 in the second quarter. With the mall opening definitely we do see the volume continue to grow. And definitely in Q1 we give -- in March, we give a guidance of 900,000 unit volumes 1.1 million units; we do see potential upside for the volume growth. But I think we will wait until the end of Q2 before we make an adjustment for our full year forecast. So this is more on first question. For the second question about the ride sharing business. We are mainly supporting the ride sharing business in the international market and we do see the demand continue to go very, very strong, because during COVID, we do see people pay more attention to social distancing. And maybe there's also fast adoption of electric two wheelers in the overseas market. Some of our sharing operators are ready to, started to deploy our vehicles in many cities across the world. And that is very positive for our business growth in both the second quarter also in the quarters had. And that's we believe that's not only a short term momentum, let's maybe change the people's behavior in the longer term as if our full upside in the longer term. For the third question about the chip shortage. First of all, we do see the threat for chip shortage. However, compared with the EV manufacture, the chips we use in our scooters are less complex, complicated compared with the EV manufacturer. Therefore, we are able to secure majority of the things we want to get. Currently we need to give a three to six months rolling forecast as well as suppliers. Somehow we also need to make a small prepayment to secure the supply. Therefore, we do see the challenges, but so far we have some action we can take to mitigate the impact, so I believe other comments here.

[Hardy Zhang:]

I think that captured as, I think the only thing to add is basically when we initially announced about 1 million plus units, I think that's the only talked about scooters and mopeds. So it hasn't really covered our new products like kick-scooters, obviously, the kick-scooters will be, we already announced that it be on pre sales in the next month or so and then will be shipped basically in early Q3, so that will actually start adding more volumes in addition to the 1 million mopeds, scooters.

[Vincent Yu:]

Got it. Thank you very much.

[Operator:]

Thank you. We have the next question. This is coming from the line of Xinchi Yin from CITIC. Please go ahead.

[Xinchi Yin:]

Hi, thanks for Yan, Hardy and Jason for your interpretation of first quarter results. So I have two questions. The first is about the expense, so the selling expense, in the first quarter increased a lot we can see. Hardy has just explained that we adopt more price discounts and also other marketing activities. So I want to know that is it caused by the Morpheus competition or just due to our subjective real or how to see the trends in the future? And also, my question is, second question now, we can see number of stores increase by 300 in the first quarter, so maintaining record growth. What is the original distribution of new stores? Can we see an obvious trend of more stores opening in lower tier cities and with also our new products? FMC here is targeting more our mass medium market. So what is the proper price range we can expect in the future? These two questions. Thank you.

[Hardy Zhang:]

Thanks again for the question. Let me answer the first one about expenses, the sales and marketing expenses, the very high amount it was mainly due to the branding activities we made if you in the Chinese new year, this year, due the Chinese New Year's the year of the ox, so in China, we call it new year. Because of that we spend quite some money for the branding purpose. We also in case a very popular singer, who take a video and have us to spread the news brand. So it's mainly for the branding purpose instead of for pure marketing purpose, because Chinese New Year is kind of a one off event for doing to work. Therefore, we do not expect the marketing expense to be continued to be very high percentage of revenue, we do believe the percentage of your four back to the normal level. That's what we see in other quarters. So this is answer to your first question. For the second question on the stock distribution I will ask Hardy again to comment on that.

[Yan Li:]

Right. So I think just quickly to on comment on the stores just towards more, more just towards the lower tier cities, basically Tier 2, Tier 3 and some of the Tier 4 cities. I supposed to be initiative Tier 1 cities, I think this is the part -- partially driven the fast or expansions really driven by our, what we call our suitable products for lower tier cities. Basically, the three series that they go with tiers, they go with G Series and G0 actually go F theories coming in April. And I think and hopefully also the G0 series coming in June and July. So we actually think I should started seeing the start seeing in the Q4, we start seeing that phenomenon where with the suitable products, and we have actually have a strong brand recognition and brand name in the lower to lower tier cities. But in the past, we just don't have a suitable product for those cities to open more stores. We actually -- the store opening speed is basically we hopefully to maintain a constant speed of at least 300 stores this per quarter.

[Xinchi Yin:]

Yes, got it. So what is maybe proper press range ever set a price we can expect in the future, maybe RMB 3500 to RMB 4000 this week?

[Yan Li:]

Do you mean, the blended ASP for the coming quarter, I think it'll be will be similar. Yes, I think it will be similar to what we achieved in Q3 last year, there'll be will be similar to what we achieved in Q3 last year is around 3500. And then we have a potential upside up to 4000 depending on two things first, about the price increase how much we get that and whether we continue to increase the retail sales price. Secondly, it depends on the recovery of international sales, the more quicker the international market began to recover, the more quicker we can solve the shipping problems, then, of course, we are going to have more and more suddenly, it also depends on the sharing business. Because part one once the key contribution for our highest – coming from the battery packs sales to share operators. If the adoption rate of sharing vehicle in overseas markets become higher and higher than the sharing operator, we will continue to purchase the battery pack. I mean, this is the three key drivers for the potential from RMB3500 to moving towards the RMB4000 in the future quarter.

[Xinchi Yin:]

Okay, got it. Thank you.

[Operator:]

We have our next question. This is coming from Bin Wang from Credit Suisse. Please go ahead.

[Bin Wang:]

Thank you. My first one is about sales momentum in April and further two weeks off road, maybe because he actually keeps kind of cut of team. And first two weeks off for me because actually gives some kind of ads in April. So that's why I just wondering you can share about social momentum in the past one half months? That's number one. And number two is about the margin. I actually gave a key guidance for the second quarter. I just have one complaint, so don't about 20% to 23% in the second quarter. And the second half will be 22% to 23% assume this is the gross margin guidance roll up either net margin likely because in the first quarter, we've done a similar or even higher gross margin by zero in the . So what should we expect in the bottom right, that margin should be around 5%, 6%? Thank you.

[Hardy Zhang:]

Sure, I think for the first question about the sales momentum. I think our sales continues to be very strong in April. I think our sales growth was more than 60% close to 7% growth in April. And that's what still with a backlog of quite a lot as the role models. Well, we were not able to deliver April and we continue to deliver some of the pre sales orders in May. So in short, we do see quite a good momentum into the second quarter. That's why while we gave the revenue guidance give 40% to 60% is very, very relatively wide guidance, mainly because they're trying to 60% is very, very relatively wide the guidance mainly because there's too many uncertainty about the delivery, shortage, et cetera. So in general, we do see continue the sales – most strong sales momentum. In terms of gross margin, I think you're right, I mean, the second quarter we are looking to achieve anywhere between 20% to 22%. And in the remaining two quarters, we target anywhere between 20% to 23%. So our annual basis is likely we end up somewhere around 22%. That's how we see the gross margin potential. Of course, there are so many moving parts, as I mentioned earlier, there's commodity price increase, there's so much battery, this makes things complicated. Also, there are so many things coming from our international market. The international market has a significant impact on our gross margin, but our target is to maintain that. And we have price increase toward the, in our hands, we can manage that. There's also quite a few other things like launching new kick UI to help with that. So that's the answer for your second question.

[Bin Wang:]

Actually, you are talking about a profit margin, right, because in the first quarter, you have a pretty decent gross margin, but I actually have a zero in the bottom line. So my question is about the autumn line so maybe, fair.

[Hardy Zhang:]

Yes, I think in terms of bottom line, the after gross margin, what will be next is the operating expenses potential revenue, so is that the operating expense, the operating expense is present in revenue in Q2, Q3, Q4 will be similar to what we achieved last year. So Q1 is kind of a special case, because we spend a lot in the sales and marketing. But if you look at R&D, the G&A they are very reasonable amounts, the G&A is slightly higher in Q1 because we have around $5 million coming from for instance, a lot of but – throughout the remainder of the year, they want to see that the March, only the sales marketing was a little bit higher in Q1, because this Chinese New Year you went in the remaining quarter last year, you average our opening expenses, potential revenue was around 15%. So 14% to 15% is something we can think about. So I'll tell you, the fact that 14%, 15% normally 22% you collect 7%, before people have 7% or 8% is what happened.

[Yan Li:]

I think being basically that the Q1 is up quarter, because traditionally Q1 has always been a low sales quarter. You look at the, that the sales has a seasonality. But this year in Q1 - spend quite a bit in marketing because to kick off the Chinese New Year, really try to make sure this year's start with a high note. That's why we kicked up the, that the year of art to be newer things. And coupled with the lower sales season in Q1 by lower I mean with respect to the four quarters within the entire year. That's why in Q1 you see a huge marketing expense. But we spread over the entire year the average marketing expense actually will be put in line with what happened last year.

[Bin Wang:]

Great, thank you.

[Operator:]

Thank you. We have our next question. This is coming from Alice Ma. Please go ahead.

[Alice Ma:]

Hi, management team. Thanks for taking my question. I have two questions here. The first one is could you please remind us of the OTA function like how many times they do, have your done OTA for the previous intellectual scooters and I saw that you have improved some of the intellectual properties of this characteristics of your new products launch in April and could you like how to view that the end consumers are viewing such intellectual characteristics. And my second question is about the batteries you use for different segmentation of your products like for the lower tier products do you still use like the NCM or LFP battery or what kind of battery will you use in the future? Could you please give us some guidance? Thank you.

[Yan Li:]

Right, so I think a group questions first of all on the OTA typically we do a OTA update every quarter or so every two or three months or so. I think it's really just the OTA to upgrade the ECU, that the software in the ECU, as well as some of the software's in the control, motor controllers. So now, as I mentioned in the call some of the additional smart functionality like a color display with the navigation mirror of your phone that actually require not just the OTA software upgrade actually also require hardware upgrade. So that's why we actually build the hardware upgrade into the new model, as well as the existing models. And along with the upgrade, we manage also to increase the product price that will allow us to actually to increase the ASP to offset, so that the downward pressure on the price due to the product mix. And the so far, I mean, based on the some of the upgrade product like the M2S hasn't really come to the market yet it will be in the market in May. The UQi upgrade will also be in the market in May. So we haven't really seen the actual user feedback from the upgrade yet. But based on the user comments from our product launch, as well as user comments from our social media basically, users are actually asking for those upgrades. Even we have users with existing NQi2 products, asking whether their current product can be upgraded by paying, they're willing to pay more than RMB1000 just to get an upgrade on the color display and all the smart functionalities. So I think, we expect those upgrade to be welcomed by the users. Now the second one the battery solutions, I think you're absolutely right. So basically, for the higher end products, like the N series then M series, we tend to use more than NCM batteries, the lithium ion battery, NCM due to the higher battery densities, such that that we actually can put more battery capacities in the scooter to give the scooter a longer drive range. But we also recognize the cost of and NCM is a bit higher than our ASP batteries. So for a majority of global series that G0F, G0/G and the potential the G0/C theories, we use the RSP batteries, were actually will help to reduce the cost, such that we can price at a relatively lower price to our users will maintain a similar margin as our higher end price products. Now, what actually, what sacrifice of the compromise we took is, with the LFP batteries, were not able to put a lot of battery capacity into those batteries, because the weight constraint on 55 kilos of the entire scooter. So that, well the user will compromise is actually on the drive range. So on those ones, we try to compensate that with basic the upgraded the V Technology motors, and also the improve the tires such that, for example, low resistant tires, will give, slightly bump up on the dry range. But I think that's practically how we lap the battery solution in order to basically to offer a wide range of pricing products to our users at same time maintaining a healthy margin.

[Alice Ma:]

Okay, thank you a little catch up on the previous question. So you will for sure not using the acid lead battery in the future right? And also, since I also heard some comments seen from the end users that the normal lead and scooters from Niu are having a more accurate, like the battery management system. Comparing with the other products in the market, you could have a better accurate manufacture, like how much the SOC of the battery, so when you use the LFP battery, can you also reach such accuracy in the future?

[Yan Li:]

Yes, I think that's a great technical question. So, when we first adopt using the LFP batteries, we actually realize that the without using a better SOC solution than the reading of the battery compactly is not as accurate as the NCM batteries. So start express, exploring with the LFP batteries last year, actually, last year, so we quickly actually improved the SOC within the LFP battery pack, as long as this is the battery mentioned the system as well as the SOCs in the controllers, so that actually to improve the battery reading capacity accuracies, so our accuracy is 20% higher than what we used to be in the market and that actually would get up almost on par with LCM or NCA batteries.

[Alice Ma:]

Okay, very clear, thank you.

[Operator:]

Seeing no further questions, I would like to hand the conference back to our host. Please go ahead sir.

[Jason Yang:]

Thank you, operator and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

[Operator:]

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.