Niu Technologies Form 20-F Summary
Business context and reporting period
Niu Technologies designs, manufactures and sells smart electric scooters, motorcycles, kick-scooters, e-bikes, accessories and related services under the NIU brand. The company operates primarily in China through PRC subsidiaries and a consolidated variable interest entity (VIE), with overseas distribution in 50 countries. This Form 20-F covers the fiscal year ended December 31, 2021, rather than a separately reported 2021 fourth quarter.
- U.S. GAAP reporting; ADSs trade on Nasdaq under NIU, with each ADS representing two Class A ordinary shares.
- China represented 85.3% of 2021 revenue; overseas markets represented 14.7%.
- At year-end, the company had 338 China city partners, 3,108 franchised stores, 42 overseas distributors and 702 full-time employees.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | RMB3,704.5 million | RMB2,444.3 million | +51.6% |
| Gross profit | RMB812.8 million | RMB559.1 million | +45.4% |
| Gross margin | 21.9% | 22.9% | Down 1.0 point |
| Operating income | RMB252.5 million | RMB170.6 million | +48.0% |
| Net income | RMB225.8 million | RMB168.7 million | +33.9% |
| Net margin | 6.1% | 6.9% | Down 0.8 point |
| Operating cash flow | RMB334.2 million | RMB465.6 million | Down 28.2% |
| Capital expenditures | RMB285.7 million | RMB151.6 million | +88.5% |
Revenue was driven primarily by a 72.5% increase in e-scooter units sold, from 601,652 to 1,037,914. E-scooter revenue increased 51.8% to RMB3,253.0 million, while accessories and spare-parts revenue increased 53.3% to RMB397.1 million and service revenue increased 29.3% to RMB54.5 million.
Revenue per e-scooter declined from RMB4,062.7 to RMB3,569.2, mainly because of product mix. Higher raw-material costs and new-product mix reduced gross margin to 21.9%. Selling and marketing expense increased 65.4% to RMB332.0 million, primarily due to advertising, promotion, store-related depreciation and personnel costs. Research and development expense rose 28.4% to RMB135.2 million.
At December 31, 2021, cash and cash equivalents were RMB208.4 million, restricted cash was RMB224.0 million, current and non-current term deposits totaled RMB131.6 million, and short-term investments were RMB773.7 million. Cash, cash equivalents and restricted cash totaled RMB432.3 million. Short-term bank borrowings were RMB180.0 million, notes payable were RMB143.6 million and total liabilities were RMB1,176.7 million.
Accounts receivable increased to RMB268.6 million and inventories increased to RMB269.6 million. Accounts receivable turnover increased to 18 days, while inventory turnover improved to 26 days. Management stated that existing cash should cover current and anticipated general corporate needs for at least 12 months.
Material changes versus the prior comparable period
- Revenue and unit sales accelerated substantially, supported by the expansion of China’s franchised-store network from 1,616 to 3,108 stores and overseas distributors from 36 to 42.
- Product mix shifted toward the Gova series, which represented 61.1% of units sold in 2021 versus 28.0% in 2020; this contributed to lower average revenue per scooter and gross margin.
- Operating income and net income increased, but net margin declined because expenses and cost of revenues grew faster than gross profit.
- Operating cash flow fell despite higher net income, reflecting increases of RMB168.5 million in accounts receivable and RMB131.2 million in inventories, partly offset by a RMB286.7 million increase in accounts payable and notes payable.
- Capital expenditures increased materially as the second phase of the Changzhou manufacturing facility began production in September 2021, raising total production capacity to more than 2 million units annually.
- The company adopted ASC 842 lease accounting and recognized RMB94.2 million of operating lease right-of-use assets and RMB21.6 million of lease liabilities at year-end.
- Share-based compensation increased from RMB39.6 million to RMB47.2 million.
Guidance, outlook, commentary and risks
The filing does not provide numerical revenue, earnings or unit-sales guidance for 2022. Management expects growth from new product launches, expanded distribution, international markets, accessories and services, and increased manufacturing capacity. The company plans to introduce additional product series or models and continue expanding selected overseas markets.
- COVID-19 and operations: Resurgent Delta and Omicron cases in China could cause restrictions, supply-chain disruption, production interruptions and weaker demand, particularly in overseas markets.
- Supply chain and margins: Batteries, motors, tires, chargers and controllers are sourced from external suppliers. Component shortages, price increases or dependence on single-source suppliers could pressure margins and production.
- Regulatory exposure: The company depends on CCC certifications, production licenses, ICP licensing and other PRC approvals. Evolving electric-vehicle, internet, data-security, privacy, anti-monopoly and overseas-listing rules may increase costs or restrict operations.
- VIE structure: All reported revenue is generated through the VIE and its subsidiaries. Investors own a Cayman Islands holding company, not equity in the VIE. Loss of contractual control or regulatory action could require deconsolidation and materially impair the business.
- HFCAA and audit access: The PCAOB stated that it could not fully inspect the company’s auditor in mainland China. The filing warned that ADS trading could be prohibited under the HFCAA if inspection restrictions continued.
- Liquidity and cash mobility: PRC foreign-exchange controls, statutory reserves, tax rules and the lack of historical dividends from PRC subsidiaries may limit cash transfers to the holding company or U.S. investors.
- Customer and credit concentration: One customer represented 44% of net accounts receivable at year-end, and one supplier represented 12% of 2021 purchases.
- Other risks: Competition, product quality and warranty claims, recalls, cybersecurity incidents, data privacy requirements, international tariffs, foreign-exchange volatility, labor costs and seasonal demand could adversely affect results.
The company reported no material legal or administrative proceedings, no significant capital or other commitments, and no off-balance-sheet guarantees or derivative instruments as of December 31, 2021. Management and KPMG Huazhen LLP concluded that internal control over financial reporting was effective as of year-end, and KPMG issued unqualified opinions on the financial statements and internal controls.
Facts investors should verify
- Whether unit growth can continue without further deterioration in average selling prices, gross margin and net margin.
- Collection of the sharply higher accounts receivable balance and the exposure represented by the largest distributor.
- Inventory quality, product mix and working-capital needs following the production-capacity expansion.
- The maturity, collateral and refinancing terms of RMB180.0 million of short-term bank borrowings and RMB143.6 million of notes payable.
- The practical availability of cash held by the VIE and PRC subsidiaries, including restrictions on transfers, dividends and foreign-exchange conversion.
- Current PCAOB inspection status and the potential effect of HFCAA developments on Nasdaq trading.
- Compliance with evolving PRC cybersecurity, data-privacy, overseas-listing and VIE regulations.
- Future share-based compensation and dilution from outstanding options and restricted share units.