Can No. 9 support a P/E ratio of nearly 60?

Author Li Wenxi

Editor's interest in business

Another company with a strong offshore business has suffered a "ticket" from overseas ".

company no 9 (689009.SH) announced on November 18 that its subsidiary segway Discovery Europe B .V.(SDEBV) received the notice of tax matters issued by the Ministry of finance of the Dutch customs, requiring the payment of industrial product duties, anti-dumping duties, countervailing duties and interest totaling 8,258,583.85 euros (over 64 million yuan RMB).

Photo Source: Screenshot of Company Announcement No.9

the announcement also said that the E-BIKE Turkish suppliers involved in the tax payment CYCLETRON, and the localization ratio did not meet the EU tax exemption standard. No. 9 Company stated that the matter will not have a significant impact on the company's normal production and operation, has terminated cooperation with the CYCLETRON, and will claim compensation from it in accordance with legal procedures.

So, will the "ticket" that Company No. 9 encountered in the Netherlands affect the EU business? What is the next trend?

01. What is the impact of the back tax on the European business of No. 9?

the business involved in this tax compensation is the shared E-Bike business (electric bicycle or electric scooters) of company 9. Dutch supervision requires SDEBV to correct the tax rate of some shared E-Bike products that do not reach the localization ratio according to China's origin, and pay back anti-dumping duties and countervailing duties.

Long before this tax payment occurred, the European Union began to launch an "anti-dumping" and "countervailing" investigation into China's E-Bike.

The incident started in 2017, when the European Commission of the European Union issued an announcement stating that it had initiated an anti-dumping investigation on electric bicycles originating in China at the application of the European Bicycle Manufacturers Association; on December 21 of the same year, the European Commission issued another announcement stating that, A countervailing investigation was conducted on electric bicycles originating in China.

in March this year, another Chinese enterprise, jetant electric vehicle (kunshan) co., ltd., was subject to an affirmative final ruling of anti-dumping and countervailing reinvestigation by the European Commission : the anti-dumping duty rate is 9.9 and the countervailing duty rate is 3.9.

Image source: China Trade Relief Information Network

In September this year, European Commission President von der Leyen announced in his annual "state of the Union address" to the European Parliament that he would launch a countervailing investigation into China's imports of electric vehicles. Although it looks like "China's imported electric vehicles", the industry is already worried about whether it will expand to E-Bike fields. In response, Li Yan, CEO of calf electric, said that the E-Bike category of calf electric (power-assisted bicycle) had been affected to a certain extent .

However, from the actual situation analysis, two-wheeled electric vehicles mainly include three sub-categories: E-motorcycle (electric motorcycles), E-Bike and E-scooter (electric scooters). Among them, the electric scooter is the most important product of the company on the 9th. The 2022 financial report shows that the revenue of the electric scooter and the electric balance car business accounts for 55%.

according to the company's announcement on the 9th, as of the first three quarters, the company's shared E-Bike had shipped a total of 0.186 billion RMB, and this year it was mainly exported to regions outside Europe (Europe accounted for 16%). Combined with its third-quarter financial report, in the first three quarters of this year, the company's operating income was 7.526 billion yuan, down 1.39 percent from the same period last year, but shipping revenue from shared E-Bike accounted for only 2.5 percent of total revenue.

Credit: Canned Gallery

Therefore, it is expected that this "tax supplement" will indeed not have a significant impact on the normal production and operation of Company No. 9. but company announcement no. 9 also said: if all taxes are paid according to the notice of tax matters and interest is included afterwards, it is expected to affect the company's current profit and loss in 2023. In layman's terms, the current profit and loss refers to the difference between the income and expenditure generated by the business activities of an enterprise during an accounting period, I .e. net profit. From this, it can be seen that the "supplementary tax" of more than 6400 million yuan may be included in its tax payable, which will directly affect the company's net profit in 2023.

Photo Source: Screenshot of Company Announcement No.9

At the same time, the No. 9 subsidiary was required to pay anti-dumping duties, countervailing duties are "import goods surcharge". In other words, it is the local "anti-dumping" measures against the dumping of foreign goods in the domestic market. The intention is to protect manufacturers in importing countries by imposing a surcharge on foreign goods in addition to the general import tax so that they cannot be sold cheaply.

And enterprises encounter "anti-dumping", usually bound to their own sea business constitutes a certain impact. An article published by the National Research Institute of Tsinghua University pointed out that anti-dumping in foreign markets has intensified the competitive pressure faced by export companies, making Chinese companies face greater cost and price disadvantages in the corresponding foreign markets. Under the situation of intensified competitive pressure, the profit space of enterprises is squeezed. Therefore, multi-product export enterprises will enhance their competitiveness by increasing export prices, reducing the number of export products, concentrating on export core products and diversifying export markets.

It can be seen that this "tax supplement" is not only a "money problem" for No. 9 Company, but it is likely to affect the expansion speed of its overseas business to a certain extent. In particular, after the European Union launched E-Bike "anti-dumping" and "countervailing" investigations, it announced that it would launch a countervailing investigation on China's imports of electric vehicles. This is a bad signal for the No. 9 company and other companies that have been fined for E-Bike at sea.

02.9 "making a fortune in silence" by E-bike

This "tax supplement" has also brought to the surface E-Bike, the overseas business of Company No. 9, which "made a fortune in silence.

the E-Bike is to electrify the traditional bicycle, adding "three electricity", battery, motor and electric control system, but it is still mainly driven by human power, and the motor will only be activated in scenes such as climbing. In contrast, domestic electric driving is more like overseas electric motorcycle products, which are basically electric driving, with pedals and low speed only in order to meet the national standard.

Image source: Little Red Riding Book

although this business is tepid in China and its penetration rate is very low-in 2021, China's E-Bike sales volume will be 140000 units, with a penetration rate of 1%; However, in recent years,E-Bike have shown explosive growth overseas, especially in Europe and the United States, with the penetration rate of European markets exceeding 20% E-Bike 2020 .

From 2017 to 2021, E-Bike sales in Europe and North America increased from 2.5 million to 6.4 million, according to Deloitte. Among them, the growth of the North American market is particularly impressive; in 2021, the U.S. E-Bike imports more than 790000 vehicles, an increase of 70.6 percent year-on-year.

and Chinese enterprises are the biggest beneficiaries of this wave of "splashing the sky and wealth. data show that in 2022, China's E-Bike exports will reach 9.9613 million vehicles, and it is already the absolute king at the manufacturing end. driven by the market outbreak, this sub-category has not only attracted the attention of overseas Audi, BMW, Porsche, Lamborghini and other luxury car enterprises, but also domestic Tencent, Ali, Sequoia Capital, Hillhouse and other Internet enterprises and investment institutions have also raised their notes.

according to CVSource data, during the year and a half from July 2021 to November 2022, more than 20 two-wheeled electric vehicle enterprises received financing . One of them, called TENWAYS, has received financing from Alibaba, Tencent and Hillhouse Capital, and the latest round of financing has reached 0.3 billion.

photo source: cast in the net

Chinese companies can do this without two factors-subsidies and supply chains.

Benefited from low-carbon factors, Europe and the United States have certain subsidies for E-Bike, which is similar to domestic new energy subsidies. for example, the Netherlands, which asked company 9 to pay taxes this time, introduced a transportation subsidy of "10 kilometers per day, 19 euros per week" as early as 2018 and has persisted to this day. The United States also restarted the tax credit bill in March this year and introduced the "E-Bike Environment Improvement Act" to "give 30% purchase subsidy (up to $1500) to new E-Bike". These subsidies incentivize users to choose E-Bike.

China's strong supply chain capabilities give companies the opportunity to produce better quality and more profitable products. From the perspective of disassembly, the frame of the E-Bike comes from bicycles and motorcycles, and the components such as batteries, motors, and electronic controls are related to the industrial chain of automobiles and electric bicycles. China has advantages in both industrial chains.

Credit: Canned Gallery

In the bicycle industry, China has three major manufacturing centers in Jiangsu (Kunshan and Taicang, high-end line), Tianjin (low-end line) and Guangdong (sub-high-end), radiating Japan, South Korea, Southeast Asia and Europe and the United States. Changzhou and Wuxi have rich "three power" industrial chains, and China's power battery and electric bicycle industrial clusters are located in these two places.

The E-Bike produced by Chinese enterprises are independent and controllable, with high quality and low price. on the manufacturing side, Chinese manufacturers have unparalleled advantages in other countries. Correspondingly, the premium on the brand side is also very high. No wonder the giants covet .

Company No. 9 is already late to sea among a number of E-Bike companies. It was not until 2022 that Company 9 exhibited the electric power bicycle E-Bike A200 and the E-Bike A200P at the "European Micro-Travel Exhibition. Therefore, at present, the two-wheeler sailing business represented by E-Bike is still relatively small in the proportion of overseas business of Company No. 9.

03. The sea business holds up "half the sky" on the 9th?

In the field of E-Bike, although No. 9 is a rising star, it does not prevent its overseas business from "holding up half the sky". According to corporate financial reports, in 2022, company 9 will account for 56.69 percent of its overseas revenue, of which electric skateboards and electric balance car products will help to go to sea .

photo source: company 9 2022 financial report

No. 9 company, the initial production of No. 9 balance car, No. 9 electric skateboard and other products, and the first target is the world's originator of the balance car Segway (Segway). under the optimization of the founders of the two engineering students, the price of the balance car product was hit to about 10,000 yuan, only 20% of the Segway product and only 25% of the weight of the Segway product, which immediately sold out in China.

however, company 9 has been facing the threat of a Segway patent lawsuit since it went to sea. the latter has registered more than 400 balancing car patents from foundation to application. in order to go abroad, in 2015, company no 9, which was established only 3 years ago, acquired Segway with the support of lei jun and other management, and won all the brands and patents of the latter .

Although the outside world has always thought that this is a "snake swallowing elephant" acquisition, in fact, Segway's own fate is not good. The price is expensive, not safe enough, not portable enough, trapping the company in a small market share, empty "originator" identity but can not make money, but also been resold many times.

Credit: Canned Gallery

With the blessing of Chinese manufacturing, this acquisition has become a two-way rescue. relying on China's supply chain, Segway finally laid down its own price, while company 9 also went to sea smoothly relying on Segway's brand and technology.

So far, Company No. 9 is a dual-brand strategy, and most of those strong products that go out to sea are based on the Segway brand. Nine officially partnered with Voi, Lyft, Uber, Spin, Grin and other shared travel operators through Segway, seizing the outbreak dividend of the shared balance car during the overseas outbreak.

photo source: company 9 2022 financial report

This patent dispute, which was originally intended to block the balance car companies such as Company 9, has become the largest moat of Company 9-Segway, which filed the lawsuit, has become a subsidiary of Company 9, and companies other than Company 9 are prohibited from entering the United States to sell products during the validity period of the patent.

But it should be noted that as the bubble squeezes out in the field of overseas shared travel, Company 9 is also experiencing its own growth pains. this is reflected in the semi-annual report, and its To B product revenue fell sharply, down 45.18 percent year on year. According to the latest financial report, No. 9 had 7.526 billion revenue in the first three quarters of 2023, down 1.39 percent from a year earlier; net profit was 0.379 billion yuan, down 3.75 percent from a year earlier; and net profit after deduction was 0.348 billion yuan, down 12.45 percent from a year earlier.

Image source: No.9 Company's Q3 2023

On the other hand, the strength of overseas business seems to dilute the focus of No. 9 on domestic business. In 2022, due to further restrictions on the right of way for balanced vehicles, the revenue growth of Company 9's domestic business will be negative (-6.71%).

At present, Company No. 9 is pinning its hopes for the domestic market on the business of electric bicycles and electric motorcycles. Although the comparison between oneself and oneself belongs to the business growth stage, it is not satisfactory when put into the market.

For example, in terms of high-end and intelligent cognition, the products of Company 9 are better than the two giants of Yadi Emma, but the market share of Company 9's two-wheeled electric vehicle products lags far behind. public data show that China will sell about 50.1 million electric two-wheeled vehicles in 2022, compared with 831600 electric two-wheeled vehicles sold by company 9 in the same period. Based on this calculation, the market share of electric two-wheeled vehicles in China is only 1.66 percent.

Credit: iResearch

In addition, intelligence is not the patent of "new forces" such as Mavericks Electric and No.9 Company. Yadi, Emma and Tailing, which are larger in size, are also increasing their investment. The latter has a wider offline layout and a later family background. If No. 9 company can't make good use of the short window period and run through the business model, then the competition behind will only become more and more difficult.

On the other hand, Company 9 has to adapt to the Red Sea competition in the electric bicycle market. in the past, relying on product strength, company 9 featured low marketing expenses (the balance car business remained at 10 million levels all the year round). however, facing today's red sea market, company 9's sales expenses began to surge-reaching a historical high of 0.925 billion yuan in 2022, up 56.2 percent year on year. In the first half of this year, its sales expenses increased by 44.48 to 0.457 billion yuan.

Revenue is declining and sales expenses are increasing. Company 9 urgently needs to solve this "left and right" situation.

Currently, No. 9 has a price-to-earnings ratio (TTM) of nearly 60 times. In other words, if the PEG valuation method is used, Company 9 would need to achieve a 60% growth rate. Therefore, No. 9 company also seems to be thinking of setting up another angle to support its price-earnings ratio, and to consolidate the "technology label" to avoid being regarded as a pure 3C consumer goods company. To this end, the 9th company began to force the service robot track, and constantly strengthen the "intelligent + wheel" innovative robot company label.

But now, E-bike is required by the Netherlands to pay back taxes of 64 million yuan, which affects both profits and business. And the domestic two-wheel electric vehicle share is still low, nine company can properly solve this storm? Test wisdom.

Reference:

1. cloud hunting net, "E-Bike brands go out to sea for gold, short-distance travel contributes to a new outlet of hundreds of billions of dollars"

2. dazzle krypton, "E-Bike made in China is popular all over the world, but why is it not hot in China"

3. Ott talks quickly, "The global leader in balancing cars is a Chinese company"

4, "Xu Jiayun, Zhang Junmei, Liu Zhuqing. Encountering Anti-dumping and Export Behavior of Multi-product Enterprises-Evidence from China's Manufacturing Industry [J]. Financial Research, 2021(5):97-116.", Institute of National Studies, Tsinghua University