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Text: Internet Jianghu Author: Liu Zhicheng

After entering August, it is the season for semi-annual reports to come out.

I looked through the semi-annual reports of several companies and saw a very interesting financial report, Ninebot.

Yes, it is the high-end Ninebot electric vehicle.

The reason why this company is interesting is that its main product in China is two-wheeled electric vehicles, and it sells electric skateboards and balance bikes in overseas markets. It really understands the travel needs of the people of China and the United States.

Many people don’t know that Ninebot was once a company in Xiaomi’s ecological chain. Financing information from Tianyancha APP shows that in 2015, Xiaomi, Sequoia, Shunwei and others participated in Ninebot’s Series A financing. After several rounds of financing, it was listed on the Science and Technology Innovation Board in 2020.

Like other companies in Xiaomi's ecosystem, after growing stronger in recent years, Ninebot has also been trying to "de-Xiaomi-ize" itself, and has done so very successfully.

According to the semi-annual report just released, Ninebot earned 6.6 billion yuan in the first half of the year and had a net profit of 596 million yuan. Its revenue increased by 52% year-on-year and its net profit increased by 168%.

In the current environment, such good performance is rare, and such good companies are also scarce. As soon as the performance was announced, the secondary market also surged by 10%. Now the company's total market value exceeds 32 billion.

However, while the increase in market value is a good thing, expectations must also be managed. Can Ninebot maintain a market value of more than 30 billion yuan in the future, and what is the upper limit of its future valuation? It is worth studying.

Electric vehicle products failed random inspections. Can the future growth of the two-wheel market continue?

The market has always been concerned about whether Ninebot will continue to grow in the next few years. Ninebot's performance has grown so fast because of two favorable factors: the "new for old" caused by the new national standard and the upgrading of consumer demand.

Let’s talk about the new national standard first.

According to data from the Bicycle Association, the number of electric two-wheeled vehicles in my country will exceed 400 million in 2023. Data from iResearch Consulting shows that the overall domestic sales of two-wheeled electric vehicles in 2023 will be approximately 55 million, a year-on-year increase of 9.8%.

The rapid growth rate is due, on the one hand, to the natural growth in replacement demand. On the other hand, a very important reason is that after the new national standard was implemented in 1019, electric vehicles that did not meet the regulations were forced to be eliminated, resulting in a surge in demand in the market.

Therefore, the two-wheeled electric vehicle market in the past two years is actually a cyclical incremental market.

Let’s talk about consumption.

In terms of consumer demand, more and more young people have new demands for the brands and smart technologies of two-wheeled electric vehicles. Just like the product updates and iterations in the four-wheeled automobile market, the two-wheeled electric vehicle market is also seeing a wave of "high-endization".

Ninebot Electric Vehicles has just caught the demand for this consumption upgrade.

If you look at Ninebot’s semi-annual report, you can easily find that the sales revenue of two-wheeled electric vehicles accounted for 50.7% of the total revenue, and the second largest business was balance bikes and scooters, accounting for 23.8%. In other words, the strong growth of the two-wheeled electric vehicle market has driven the company’s performance.

In addition to growth, the high-end trend is reflected in the obvious change in gross profit margin.

The 2024 interim report shows that Ninebot's gross profit margin is 30.45%, which was only 26.9% at the end of 2023, an increase of 3 percentage points. Don't underestimate the difference of 3 percentage points. For a company selling hardware products, a 3 percentage point gross profit is already a huge improvement.

This also indirectly shows that consumer demand in the two-wheeled electric vehicle market is changing.

So the question is, how long can the cyclical growth of the two-wheel electric vehicle market last? In addition to Ninebot, there are also players such as Yadea and Niu in the industry. Will the intensified market competition in the future affect the gross profit margin?

These are issues that the market is worried about.

On the one hand, the "intelligence" barriers of two-wheeled electric vehicles are actually not that strong. In other words, Ninebot's smart technology positioning is essentially a brand mind positioning.

If Yadea and Niu can iterate their products several times and catch up with the design level, they will be able to grab the cake from No. 9. At that time, whether to reduce prices and exchange gross profit margin for sales is a question that needs to be carefully weighed.

On the other hand, there is a problem with the cyclical incremental market, that is, there must be an inflection point where the market shrinks. How far is that inflection point? Will it be 2025 or 2026?

From the perspective of penetration rate, the domestic two-wheeled electric vehicle market will have 420 million vehicles in 2023, which means that one two-wheeled electric vehicle will be owned by every three people.

What does it mean?

A large part of the growth in the next two rounds of markets may come from the demand for replacement. Although the policy of replacing old products with new ones can also bring a wave of growth, the basic logic of market growth will not change.

Moreover, the stronger the growth driven by replacement, the faster demand is likely to decline in the future.

Relying on the two-wheeled market to contribute revenue, Ninebot’s current rapid growth may lead to a severe decline after the inflection point appears in the future. This is also a question that the market has to consider.

For Ninebot, in a nutshell, Ninebot also needs to find a new growth curve before the turning point appears.

First of all, before finding the second curve, you must practice the basic skills well. After all, when you really go to the battlefield, you have to tie your shoelaces first, regardless of whether you hold the gun steadily or not. The basic skills must be solid.

Generally speaking, when a company is in a period of rapid growth, many problems may be masked by the rapid development, such as problems with sales channel control and product quality control.

Number Nine is also bound to have similar problems.

Recently, the State Administration for Market Regulation announced the results of random inspections of electric bicycle products in the first half of 2024, and notified 21 unqualified production units, including brands such as Ninebot, Luyuan, Aima, Yadea, and Niu.

Judging from the content of the notice, the Ninebot electric bicycles that were randomly inspected had problems with main circuit protection in charging status and overall vehicle quality that failed the random inspection.

Although the spot check results showed that Emma, ​​Yadi and Niu all failed the quality inspection, the product problems are not small problems. The potential production management and channel management problems here are worthy of vigilance.

From a structural perspective, the business with the greatest potential for a second curve is the balance bike and electric scooter business, with revenue of 1.589 billion yuan in the first half of the year, accounting for less than 30%.

Next, how to find growth beyond the largest base of two-wheeled electric vehicles is a question that Ninebot needs to think deeply about.

Is 40 times PE underestimated? Why can’t Ninebot become the next DJI?

If the current two-wheeled electric vehicle business is the "lower limit" that Ninebot can achieve, then whether it can find a second-curve business may determine the "upper limit" of Ninebot's valuation.

Judging from the current market value, Ninebot’s market value is 32 billion yuan, while Yadea’s is 31.1 billion Hong Kong dollars. Ninebot is obviously higher than Yadea.

Calculated based on the current stock price (August 8), Ninebot's non-GAAP PE is around 40.85. In comparison, Yadea (11.81) and Aima (14) are both over 10.

If we use the valuation of two-wheeled electric vehicle companies, Ninebot is positioned at the high end, and has limited room for downward expansion. Therefore, it is difficult to have more imagination in terms of valuation.

If it is positioned as a technology company, it will be different.

One is that the valuation premium of technology companies is higher, and the other is that there is always room for growth in the capital market.

Look at Tesla, it can always tell technology stories because Musk has Space X. As for Nvidia, no matter how high the unemployment rate in the United States is, Huang can always tell investors a perfect AI story.

Can Ninebot tell this story?

I can speak it, but it's a bit awkward.

According to the interim report, the company's R&D expenses in the first half of 2024 were 349 million yuan, accounting for about 5% of its revenue, less than 10%, so it is not a typical technology company.

Of course, the proportion of R&D is only one aspect. It does not mean that companies that make products cannot be technology companies. DJI also makes products, but it is a recognized high-tech company.

Many investors also believe that the market should adopt a similar valuation logic as Ninebot and DJI.

The reasons are: 1. Both parties are companies that make technology products; 2. DJI's overseas business is developing very well, and in terms of revenue share, Ninebot's overseas revenue accounts for almost half.

In fact, I don’t think similar valuation logic should be used.

In Ninebot’s product structure, in addition to two-wheeled electric vehicles and scooters, there are also service robots that account for 7% of revenue and all-terrain vehicles that account for 7%.

Please note that the service robots here include not only commercial robots but also lawn mowing robots, which can be roughly understood as a lawn mowing version of a sweeping robot, and are mainly sold to Europe and the United States.

In the first half of this year, the revenue from lawn mowing robots was 449 million, a three-fold increase.

Although the growth seems fast, the lawn mowing robot track has both American players Amazon and domestic sweeping robot giant Ecovacs, so it is actually not easy to grow into the second curve.

Moreover, like the sweeping robot, in the early stage of the lawn mowing robot, in order to seize market share, the primary goal of this product in the future is actually not to make a loss. In addition, the revenue scale in the early stage is relatively small, so it may be difficult to have a significant increase in valuation.

In fact, it seems not so easy to tell a story to the secondary market solely relying on lawn mowing robots.

Referring to the sweeping robot next door, Ecovacs’ market value plummeted from 100 billion to 21.5 billion, and Stone Technology’s market value was once close to 100 billion, but now it has fallen to 37.3 billion.

To sum it up in one word: miserable.

Lawn mowing robots are very similar to sweeping robot products, but the market space for lawn mowing robots may not be larger, so it is difficult to say what the future valuation will be.

Although both companies are engaged in technology products, Ninebot’s underlying logic is actually quite different from that of DJI.

One is the value of technology.

DJI’s core business is its drone business. Drones may seem inexpensive and like digital products, but the core of drone technology is flight control, marketing, and sensors.

For example, one of DJI's agricultural products is a small phased array radar, which is a black technology. After all, few countries can make phased array radars. No wonder some netizens joked: "DJI military industry".

Relatively speaking, the technological value of Ninebot’s lawn mower may be relatively lower.

The value of technology is relatively low, which means that your product advantages may be copied by competitors. Why did the valuation of sweeping robots collapse in the later stage?

I think one of the important reasons is that everyone can copy the advantages of each other's products, and in the end they can only compete on price, so the product premium is gone. Once technology products lose their premium, the valuation logic of the secondary market will also change.

Another is the value of the demand.

There is such a phenomenon in the secondary market: the valuation of technology products with strong demand is the highest.

Why is Nvidia's valuation so high in the U.S. stock market? Because graphics cards are a necessity in the AI ​​era. DJI's drones are also a necessity, so much so that the United States just issued a ban on DJI, but was forced to lift it soon after. Even the U.S. military had to get products from various channels.

Products with strong demand are always hard currency.

In fact, neither the highly anticipated service robots nor the smart lawn mowing robots can be considered as products with strong demand. This is also the fundamental reason why the market will not view Ninebot as the next "DJI".

In terms of valuation, if Ninebot is a two-wheeled electric vehicle company, its current valuation is already high enough. After all, in terms of sales volume, Ninebot is far behind Yadea. Only with its higher unit price and better overseas business performance, the market is willing to give it the current valuation.

On the bright side, if the European and American markets develop better in the future, or even dominate the US market, will the market be willing to give a higher valuation?

Maybe not. After all, the fluctuations in the overall environment are still affecting us, and there is still uncertainty in the future. Moreover, if we are forced to join the "strict White House election" in the future, there may be new challenges at that time.

Summarize:

Valuation itself is a judgment about the future. Compared with the future, at least the current value is recognized.

After reviewing the research reports on Ninebot from third-party institutions in recent days, most of them gave buy and increase holdings ratings, and CICC also gave an evaluation of outperforming the industry.

In short, the company is a good company, and how it grows in the future is worth continued attention.

Disclaimer: This article is based on the company's legal disclosure and publicly available information, but the author does not guarantee the completeness and timeliness of the information. In addition: The stock market is risky, so be cautious when entering the market. This article does not constitute investment advice, and you must make your own judgment on whether to invest.