Overhauled Niu Returns To Accelerating Growth Track

Key Takeaways:

• Niu Technologies has returned to growth after an overhaul last year, opening a net 300 new stores in the first half of the year
• Analysts are becoming more bullish on the electric scooter maker, with all three polled by Yahoo Finance rating the company either a “buy” or “strong buy”

By Doug Young

After a difficult year of retrenchment, e-scooter maker Niu Technologies NIU is charging out of the gate in expansion mode again. The comeback has been a bit uneven, however, with the company reporting its growth rate slowed a bit in the second quarter, according to its latest results announced on Monday. But it forecast that growth would kick back into high gear again in the third quarter.

Such is life for a company like Niu, which is retooling its core domestic operation to focus more squarely on higher-end models over the fiercely competitive lower end of the market. It’s also putting a specific emphasis on Gen Z buyers who are more willing to spend on the latest technologies, as well as female riders.

While its domestic operation, which accounts for the majority of sales is getting back on track, Niu is still trying to figure out the right formula for its global business as it seeks to diversify from too much reliance on China. That campaign took a few steps forward as the company boosted its overseas network through a growing series of alliances with major local retailers.

But its overseas business also took a hit from sunsetting government subsidies in Europe, and also from its growing reliance on kick-scooters that carry far lower price tags than traditional e-bikes. In addition, new protectionist tariffs in the U.S. led the company to disclose that it’s studying setting up its first overseas manufacturing facility to skirt such taxes in the future.

The bottom line is that Niu is a company with many moving parts. Reflecting that, investors greeted the latest report by sending Niu’s shares down by 1.6% in Monday trade in New York. The stock is now down 18% this year, underperforming a 3% rise for the iShares MSCI China ETF. But analysts are turning more positive on the company. Two of the three polled by Yahoo Finance this month rate the company a “buy,” and the third rates it a “strong buy.” That’s a big change from the single “buy” and “hold” from the two analysts who rated it in July.

Last year was difficult for Niu in its home China market, which accounts for more than three-quarters of its sales. The company’s revenue contracted 16% for the year, including a 15% drop for its China sales. It also closed 8% of its domestic franchise network, bringing its total to 2,856 stores by the end of the year from 3,102 a year earlier, as it shuttered underperforming outlets.

Following that overhaul, the company has resumed adding stores this year as it returns to growth mode, with a focus on smaller third- and fourth-tier cities. CEO Li Yan said on the company’s earnings call that Niu added a net 300 stores in the first half of the year, signaling “renewed momentum in our sales network expansion.” Equally important, he added, the company plans to add another 1,000 stores in the rest of this year, as it accelerates its post-overhaul expansion.

Return To Revenue Growth

As it retooled its business, Niu’s revenue contracted in three out of four quarters last year, including the third and fourth quarters. But it returned to growth this year, with revenue up 21% in the first quarter. The growth continued into the second quarter, though, in a potentially worrisome sign, the rate slowed to 13.5%, as the company reported revenue of 941 million yuan ($131 million) for the period versus 829 million yuan a year earlier.

But Niu sought to reassure investors by saying the growth rate would move into high gear in the current third quarter, forecasting it would jump between 40% and 60% year-on-year to between 1.3 billion yuan and 1.48 billion yuan. It didn’t give any explanation for the big growth acceleration, though such big moves are often related to the release of new models.

Next, we’ll take a closer look at Niu’s trends in China first as it emerges from its yearlong overhaul, before shifting to its international operation that is still a work in progress.

“This year, we emphasized … targeting both the high-end premium segment, to reinforce our brand premium image, and specific consumer segment like Gen Z and female users,” Li said on the earnings call. As part of its shift to tech-savvier Gen Z customers, the company is placing more focus on online sales using popular channels such as Douyin, Kuaishou and Xiaohongshu. As it made that shift, it reported that online sales grew to 48% of its total in China from just 26% a year earlier.

Equally important, the company’s move into the less competitive higher end of the China market is taking some of the pressure off its need to cut prices. It said its average price per scooter fell 2.1% in China during the second quarter year-on-year, easing from a 4.7% decline in the first quarter.

The picture wasn’t quite so rosy in the international market, where the company’s average price per vehicle plunged 21.8% year-on-year. It blamed the growing importance in its overseas sales mix of electric kick-scooters, which carry far-lower price tags than traditional e-bikes. It also noted that its international sales of electric two-wheeler bikes plunged 69% in the first half of the year due to the withdrawal of government subsidies in Europe.

Despite those setbacks, the company’s booming electric kick-scooter sales propelled its international revenue to 13.7% growth in the second quarter to 130 million yuan, returning to expansion after an 8% decline in the first quarter.

Price erosion both at home and abroad took a toll on Niu’s gross margin, which dropped to 17.0% in the second quarter from 23.1% a year earlier. The bottom line was that Niu reported a 24.9 million yuan loss for the quarter, higher than its 1.9 million yuan loss a year earlier. But analysts expect the company to return to profitability this year following its overhaul, even as many of its peers continue to lose money.

Among those peers, Niu currently trades at a low but relatively strong price-to-sales (P/S) ratio of 0.38. That’s roughly comparable to the 0.39 for domestic peer Luyuan (2451.HK), and ahead of the 0.30 for Ninebot (689009.SH), owner of the Segway brand. But it trails the 0.47 for Piaggio (PIA.MI), maker of the popular Vespa brand. At the end of the day, Niu does appear to have turned a corner, at least for its core domestic operations, suggesting there could be some potential upside for its stock.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.