小牛電動 (NIU) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the Niu Technologies First Quarter 2021 Earnings Conference Call.

(Operator Instructions) As a reminder, we are recording to the 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.

Thank you, operator.

Hello, everyone.

Welcome to today's conference call to discuss Niu Technologies' results for the first quarter 2021.

The earnings press release, corporate presentation and financial spreadsheet have been posted on the 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.

Please note, today's discussion will contain forward-looking statements made under the safe harbor provisions of the United States Private Securities Ligation Reform Act of 1995.

Forward-looking statements involve risks, uncertainties, assumptions and other factors.

The company's actual results may be materially different from those expressed today.

Further information regarding the risk factors is included in the company's public filings with the Securities and Exchange Commission.

The company does not assume any obligation to update any forward-looking statements, except as required by law.

Our earnings press release and this call include discussions of certain non-GAAP financial measures.

The press release contains a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results.

On the call with me today are our CEO, Dr. Yan Li; and the CFO, Mr. Hardy Zhang.

Now let me turn the call to over Yan.

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, nick named the Year of Niu.

Additionally, our overseas market saw shipments of 5,000 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 for China and international markets were up 273% year-over-year.

In Q1, not even the Chinese New Year holiday could slow down our retail expansion.

We added 300 Niu branded stores across China, reaching 1,916 stores by March 31.

During our global product launch event on April 6, we announced the opening of our 2,000th store in China.

We're well on track to hit our Q2 target of 300 new stores for the quarter.

For the international market, even under the restraints of COVID-19, we managed to add an additional 7 flagship and premium stores, which now total 123 across Europe, the Americas and the Southeast Asia.

This is in addition to the 1,000-plus authorized Niu dealers in our global markets.

For those of you who didn't already know, our company named 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 kicked off the Chinese New Year by launching the Year of Niu, be a newer nationwide campaign.

We enlisted the help of popular musicians and social media influencers, which generated more than 200 million views across multiple social media platforms during the holiday season.

We also kicked off over-the-air advertisement campaign during the Chinese New Year, which allowed us targeting over 110 million viewers across the markets in China that we have identified as key to helping us accelerate our growth.

We also collaborated with one of the hardest online documentary series called Exotic Food on Bilibili, which helped us targeting another 41 million viewers in the key demographic segments.

Our Niu branded (inaudible) accounts also benefit from those activities, with quarterly views reaching nearly 55 million views in Q1, marking a 38% year-over-year increase.

Now in the overseas markets, our social media channels gained nearly 1 million interactions on Instagram and Facebook.

We also announced our partnership with Formula E World Champion, António Félix da Costa, as official Niu ambassador and we kick off our partnership with Lion in the key U.S. and European market, which will help accelerate adoption of electric 2-wheelers.

We have been making noise both in the China and overseas market in order to position ourselves as a go-to lifestyle brand for urban mobility and helping us grow sales by more than 300% in China alone.

Now riding our strong sales and marketing performance in Q1, we hit the ground running on April 6 with our global product launch, simultaneously announcing both China and international product releases.

Building upon the customer demand for our Gova series of electric moped, we launched the Gova F-Series with F0, F2 and F4 and the Gova C-Series with a C0.

These are 2 key product groups that will help us expanding into the wider range of urban markets and customer segments around China.

During that same event, we launched our first electric kick scooter for Europe and the United States, the KQi-Series.

These 5 new products were also accompanied by full upgrades to our existing series of mopeds and electric bicycles.

First, all of the upgrade to the existing electric bicycle mopeds are made under the hood.

First, we are very excited to launch the seventh-generation of our new energy system, which saw upgrade of our proprietary battery management system, the introduction of B.TECH electric motor and the optimization of our FOC algorithm for the motor controller, which can improve the driving range up, by up to 32%, and improve acceleration by 10% to 15% under the same motor power in most of our existing vehicles.

And lastly, as we finalize commercialized version of our urban motorcycles, the RQi, we have made great stride of our mid-mounted motor that can reach speed of 160-kilometer per hour.

As for our product upgrade, let's start with the brand-new MQi2S, an upgrade of 2020 MQi2, which will serve as our flagship product under the new China national standard for electric bicycles.

The new M2S is equipped with our latest smart IoT technologies, a color display with navigation that can mirror your mobile phone, the Ok Go system, with distance sensing and keyless ignition, which enable user to start a bike as soon as they sit on the seat, as those small user experience touches that our customers really appreciate.

The M2S is expected to be priced at up to RMB 8,000, and we also upgrade our classic UQi series with all new color display, a new handle bar design with more intuitive control functions, and most importantly, we have given customers the option to upgrade to a larger battery, which increase the driving range by 35% or up to 75 kilometers on a single charge on a new UQi.

The upgraded UQi series is expected to be priced up to RMB 6,000.

For the new product, we launched 2 new Gova series, the Gova S and Gova C-Series.

Those 2 new series employ an all new design language for the electric bicycles in China, which will further expand our offerings for the mid-end product lines, which help us to reach a wider range of customers' taste.

Inside the Gova F-Series, we announced 3 new models, the F0, F2 and F4, F0 and F2 are classified as the electric bicycles in China and we're introducing to the market on April 6 and May 17 respectively.

The F4 is the electric motorcycle and will be introduced later this year in Q3.

The entire Gova F-Series has a masculine design style, which features the eagle eye headlights.

All of those models are lithium-ion battery based.

The F0 has 2 versions, primarily differentiated by the battery and drive range of 50 and 60 kilometers, respectively, affordably priced at RMB 2,899 and RMB 3,299, respectively, we believe those will be well received by the market.

Our beliefs were confirmed when launched the Gova F0 through the JD.com pre-sales on April 6, where we sold 41,000 units and surpass more than RMB 100 million in sales, setting the JD.com presale record for urban mobility products.

The F2 has 2 versions, 50-kilometer and 70-kilometer range options priced at RMB 3,699 and RMB 4,099.

The F4 has 3 versions with driving range up to 100 kilometers and expected to be priced at up to RMB 7,000.

Now under the Gova of C-Series, we have first announced the C0, an electric bicycle with a more feminine design style.

The Gova C0 come with multiple macaron dessert flavored color choices and a wide variety of assessors, including a child seat and enable mothers to ride safely to take their children to and from school every day.

The Gova C0 also has 2 versions, with a drive range from 50 to 60 kilometers and expected to be priced around RMB 3,000.

Since first announcing the C0 in April, we have received countless solicitations, both online and in our stores around the country.

We expect to release the C0 for sales starting in June.

Now the Gova F-Series and C-Series significantly expand our Gova product line portfolios.

The successful presale campaign for the F0 is a direct evidence that there is a large group of consumers who appreciate the design style and aesthetics.

Together with the G-Series, the 3 Gova lines will offer our customers a thoroughly designed product that meet their taste and desires, where being competitively priced and backed by our best-in-class technologies.

Now last, but not least, we launched a completely new category in the new ecosystem of products with our KQi kick scooter.

The urban mobility trends are changing around the world as customers adopt new models of safe transport and the cities began to reshape their urban centers.

Our electric moped and motorcycles offer one type of mobility solution for customers in cities across Europe, the Americas and Southeast Asia.

We also recognized a rapid growth in user demand for micro mobility products that cater to, shorter, 1- to 5-kilometer trips.

And this is primarily being fueled by an electric kick scooters in both sharing and consumer own form factors.

Now in order to meet this demand and add to our product lines, we have rapidly developed a team of seasoned engineers who are specialized in the development and the manufacturing of micro mobility product.

The all new KQi3 kick scooter will be the first of several models we'll release in the coming months for the key overseas markets.

Now equipped with the best-in-class 350-watt rear-hub-motor and powered by our 48-volt new energy system, and with a wider and safer platform decks and the handle bar architecture and wider tires, the KQi3 will outperform many of the similar priced product in the market in both performance and riding stability.

And of course, like all our products, the KQi3 is app connected.

The KQi3 has a pro, a sports version and will be priced from $599 in United States and EUR 599 in Europe.

An online presale will begin in the coming weeks, with deliveries directly to the customer homes later in summer, in Europe and United States.

Now in addition to our current 1,000-plus authorized Niu dealers, the introduction of a kick scooter will also allow us to open new range of retail channels that were previously not ideal for our electric moped, including big box retail and electronic chains, like Best Buy, Media Markt, Micro Mobility retailers and online platform like Amazon.

Now I want to wrap up with a short comments about ramping up our manufacturing capacity.

For those of you who have been following along for the past few quarters, you know we have planned to increase our manufacturing capacity by an additional 1 million units per year when we complete the Phase 2 of our Changzhou factory.

We expect the Phase 2 to be completed by early Q3, which will bring our total annual design capacity to 2 million units, easily supporting the projected growth in the quarters ahead.

Now with this, let me turn to Hardy, to talk about financials.

Thank you, Yan, and hello, everyone.

Our press release contains all the figures and the 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 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% and 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 blocked for a week as many ships were delayed or canceled.

We were not able to deliver our products on time.

The situation has improved gradually since April, and we are catching up on the delivery.

With regards to product mix, M-Series accounted for 9% of total sales volume partially due to the lower international sales.

N-Series accounted for 13%.

U-Series accounted for 21%, and the 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 helps to accelerate the adoption of electric bicycles because many people pay more attention to social distancing and they try to avoid the public transportation.

Gova series was a very popular choice for many Niue customers, considering its attractive retail price.

This is a key reason for Gova series, taking a larger proportion of sales in Q1.

Total revenues increased by 135% in to RMB 547 million, above the guidance we provided earlier, mainly due to the higher China sales volume and a stronger sales in accessory and spare parts.

The revenues from accessory, spare parts and services reached RMB 102 million, representing a 118% year-over-year growth.

The strong sales came from both China and the international market.

Sales from China market increased by 111% due to strong offline sales, and the international market 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 20% was caused by the sales of these 2 models, the remaining 7% was due to the change in other product mix.

For international market, 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 distributors place orders.

In Q1, many distributors chose to place separate orders for scooter body and battery pack so as to reduce their international shipping costs.

As a result of such separate orders, battery pack sales were booked as accessory and spare parts revenue instead of scooter revenue.

After we normalize this impact, the ASP for international sales only decreased by around 5%, or in other words, out of the total 15% ASP decline for international sales, around 10% was caused by the way of separate orders and around 5% was caused by depreciation of U.S. dollar.

This way of separate ordering will likely continue into Q2 and Q3 considering the increasing cost for international shipping.

For the ASP of accessory spare part and services, it was RMB 682 per scooter, a 42% decrease compared with Q1 last year.

The decline was mainly due to the very low volume base in Q1 last year, which was only around 40,000 unit.

Because of the very low volume base, the ASP for accessories, spare part and services was abnormally high last year.

If you compare the ASP with Q2, Q3 and Q4 last year, our Q1 ASP actually increased.

Our revenues from accessories, spare part and services do not fluctuate as much as the sales volume because a portion of the sales came from existing customers.

For example, the data service and some accessory.

In summary, even though our ASP was down by 37% after considering the factors mentioned above, the international scooter ASP, the accessories, spare part and service ASP were both stable compared with early quarters.

The decline of China ASP followed the similar trend as what we all saw in Q3 and Q4 last year.

Due to the launch of Gova series.

In April, we launched F0 model and the sales price for F0 model was RMB 200 higher than G0.

We also expect the product mix in China to improve in the second quarter, both will help to stabilize our China scooter ASP.

Gross margin was 23.8%, 0.2 percentage points higher than this time last year.

There are 3 key drivers.

First, the sales of low-margin models like G0 and G2 reduced our margin by around 4%.

Second, the lower proportion of revenue from high-margin international sales increased our margin by around 3%.

Third, the cost savings on components, raw materials and lower other costs, for example, manufacturing and labor costs, benefited from economy of scale, increased our margin by around 7%.

in summary, the impact from unfavorable change in product mix was offset by various cost savings.

This is the key reason for a stable margin in Q1.

In the past few months, we have seen the commodity price continue to rise, which affected our raw material procurement costs by 5% to 10%.

To mitigate the impact on gross margin, we increased retail sales price by RMB 100 to RMB 300, or 1.5% to 7.5% for selected models in China in May.

We may have another price increase for additional models, together with performance upgrade in the coming months.

We believe the price increase is affordable and reasonable for our customers.

This price adjustment will help us to stabilize ASP and also to mitigate the negative impact on our gross margin.

Our total operating expenses, excluding share-based compensation, were RMB 118 million, increased by RMB 35 million or 42% year-over-year.

The increase was mainly caused by the higher sales and marketing expense of RMB 20 million for branding activities during the Chinese New Year, RMB 4 million for retail sales network expansion, RMB 8 million for higher staff cost and around RMB 6 million for foreign exchange loss.

Our sales and marketing expenses were particularly high this quarter, mainly due to the branding expenditures associated with Chinese New Year event mentioned earlier.

As a percentage of revenues, our operating expenses, excluding share-based compensation, was 22%, lower than the 36% in Q1 last year, but higher than other quarters in 2020.

In the coming quarters, we expect the operating expense as a percentage of revenue will fall back to the regular level similar to early quarters.

Our government grants was RMB 0.4 million in Q1, decreased by RMB 7 million compared with last year due to the delayed payment from government.

In May, we received a grant of RMB 41 million, and part of that will be booked into the P&L in the second quarter.

Our income tax expense was RMB 9 million, much higher than the same period last year, mainly because some entities within the group become profitable and have used up the cumulative loss.

This quarter, even though our consolidated profit before tax was only around RMB 4 million.

We booked RMB 9 million tax expenses for a few reasons.

First, some expenses are not tax deductible, for example, share-based compensation.

You need to add that back before calculating income tax expense.

Secondly, the profit and loss were not evenly distributed among different entities -- companies within the group, because we need to pay tax based on each company instead of as a group.

For example, in Q1, the company for China sales was very profitable, but the company for international sales make a big loss.

We have intra-group transfer pricing arrangements to redistribute profit, but that will take time to adjust.

If you take a longer-term view, then profit will be more evenly distributed, and the impact will be mitigated.

Secondly, the tax rate applied is average tax rate calculated based on full year forecast instead of 1 specific quarter.

For this year, we expect the average tax rate will be around 15% on a full year basis.

Our GAAP net loss was RMB 5.4 million, but after adjustment of share-based compensation, we made a profit of RMB 6.7 million, improved by more than RMB 20 million -- RMB 25 million compared with Q1 last year.

We made a GAAP loss this quarter mainly due to the higher branding expenses.

We believe the branding expenditures are more investment in nature.

Worth well spending, it increased our brand awareness and will support our continued growth.

Turning to our balance sheet and cash flow.

We ended the quarter with RMB 1 billion cash, term deposit and short-term investment.

Our operating cash flow was negative RMB 16 million, mainly due to prepayment for raw materials in order to secure supply for production.

Our Q1 CapEx was around 40 -- was around RMB 64 million, mainly related to capacity expansion of RMB 13 million, new store building of RMB 48 million and R&D spending of RMB 3 million.

Now let's turn to guidance.

We expect second quarter revenues to be in the range of RMB 900 million to RMB 1,030 million, an increase of 40% to 60% year-over-year.

With that, let's now open the call for any questions that you may have for us.

Operator, please go ahead.

(Operator Instructions) We have the first question.

This is coming from the line of Alex Potter from Piper Sandler.

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, which 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 do you -- are you reassessing after viewing some of these new changes?

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 increased 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 margin will be a little bit challenging because we began to see the price increase since April, but we increased the retail sales price only from early May.

So there's 1 month lacking 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 also renegotiated some of the costs with our suppliers to try to secure additional cost savings.

So this is the answer to your first question, Alex.

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?

It's across the board.

It's because our components also involve steel, plastics and also battery sales, most of the them -- most of the raw material we see the price increases.

It's very much linked with the overall commodity price increase.

So I think basically, in the last few months or so, we've actually seen this price increase starting in later March, and this actually hit us in March and April.

And we started seeing that some of the raw material price actually hit the peak in early May, so we actually increased our product price to reflect it, through the latest update in terms of the bump price.

So going forward, I mean, hopefully, we'll see the raw material price will stabilize that actually potentially could start to decrease.

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?

Yes.

The reason is listed the -- because of the shortage of containers, the international shipping companies become more strict on the cargo that can be shipped.

For the battery pack, because we have lithium battery within that, it was treated as dangerous cargo.

Therefore, the shipping companies charge much higher tariff for anything, which has a 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 where it's market shipping tariff is much lower than the dangerous cargo.

So the difference is more on whether it's dangerous cargo or its 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's different tariffs on battery pack and the body part.

But because of the shortage of the containers, shipping company becomes very, very strict on what kind of thing are within the container, therefore, they check all the things there for -- and many distributors try to put them separately to enjoy lower tariff for regular cargo.

So that's the background.

We have the next question.

This is coming from the line of Vincent Yu from Needham & Company.

I have 3 questions.

First one is, so we had a very strong delivery number for first quarter, ended a strong -- and the store opening pace all seems to be on track.

But 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 would be able to hit after the strong quarter?

My second question is in ride sharing platform for our international business.

So we have seen continued investments made by ride sharing platforms into the scooter riding share markets and can management talk a little bit more about what should we think about challenging -- challenges and the opportunities that such trends brings for Niu?

And my last question is that for the new vehicle -- new energy vehicle industry have been seeing chip shortage.

We know we are -- we have less demand for some chips, but we also have -- we 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?

So, let me give the first part of answer for the 3 questions, and then will ask Yan to supplement.

First, for the store opening, definitely, we are on track to achieve our target.

We've opened 300 in Q1, we are going to open at least another 300 in the second quarter.

With more opening, definitely, we do see the volume continue to grow.

And definitely, in Q1, we gave -- in March, we gave a guidance of 900,000 unit volume to 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 another adjustment for our full year, full year forecast.

So this is more -- 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 mainly, there's also fast adoption of electric 2-wheelers in the overseas market.

Some of our sharing operator already 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 ahead.

And that's -- we believe that's not only a short-term momentum that's maybe change the people's behavior in the longer term, actually further upside in the even 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 manufacturer, the chips we use in our scooters are less 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 3 to 6 months rolling forecast to our suppliers.

Sometimes 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 mitigate the impact.

So I will leave the other comments to Yan.

I think that captured it.

I think the only thing to add is basically when we initially announced about 1 million-plus units.

I think that's only talk 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 it, it will be on presales in the next month or so, and then will be shipped basically in early Q3.

So that will actually start to adding volumes in addition to the 1 million units of the moped scooters.

We have the next question.

This is coming from the line of Jing Chang from CICC.

Thanks for Yan, Hardy and Jason for your interpretation of first quarter results.

So I have 2 questions.

The first is about the expense.

So the selling expense in first quarter increased a lot, we can see.

Hardy has just explained that we adopt more price discount and also other marketing activities.

So I want to know that is it caused by the more fierce competition, or just due to our subjective view -- how to see the trends in the future?

And also, my question is -- second question, that we can see the number of stores increased by 300 in the first quarter, so maintaining rapid growth.

What is the regional distribution of new stores?

Can we see an obvious strength of most of stores opening in lower tire cities?

And with also our new products F and C series targeting more on mass medium market.

So what is the proper price range we can expect in the future?

These 2 questions.

Thanks, Jing, for the question.

Let me answer the first one about expenses.

The sales and marketing expenses, is a very high amount, was mainly due to the branding activities we made during the Chinese New Year.

This year, the Chinese New Year, the Year of Ox in China we call it Niu year, because of that, we spent quite some money for the branding purpose.

We also engaged a very popular singer who take a video and help us to spread the Niu's 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 -- during Q1, therefore, we do not expect the sales and marketing expense to be -- continue to be a very high percentage of revenue.

We do believe the percentage will fall 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 store distribution, I will ask Yan to comment on that.

Right.

So I think just quickly to comment on the stores, it choose towards -- more choose towards the lower-tier cities, basically tier 2, tier 3 and some of the tier 4 cities as supposed to be initiative tier 1 cities.

I think this is partially driven the fast door expansions really driven by our, what we call, our suitable products for lower-tier cities, basically, the 3 series, the Gova series, the Gova G-Series and Gova -- actually Gova F-Series, coming in April.

And I think -- and hopefully, also the Gova C-Series coming in June and July.

So we're actually seeing -- actually starting seeing the -- start seeing the Q4, we start seeing that phenomenon where, with the suitable products, and we have -- actually have a strong brand recognition of brand name in the lower-tier cities, but in the past, we just don't have a suitable product for those cities to open more stores.

We actually expect the store opening speed is basically, hopefully, to maintain a constant speed of at least 300 stores-ish per quarter.

Yes, yes.

Got it.

So what is maybe proper press range of average selling price we can expect in the future, maybe RMB 3,500 to RMB 4,000?

Yes, you mean the blended ASP for the coming quarters.

Yes, yes.

I think it will be very similar what we achieved in Q3 last year.

It's around RMB 3,500, and may have a potential upside up to RMB 4,000 depending on a few 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 international market began to recover, the more quicker we can solve the shipping problems, then, of course, we are going to have more.

Certainly, it also depends on the sharing business because part -- one of the key contribution for our high ASP coming from the battery pack sales to sharing operators.

If the adoption rate of sharing vehicle in overseas market become higher and higher then the sharing operator will continue to purchase the battery pack.

I think this is the 3 key drivers for the potential from RMB 3,500 to moving towards RMB 4,000 in the future quarters.

We have our next question.

This is coming from Bin Wang from Crédit Suisse.

My first one is about the sales momentum in April and the first 2 weeks of May because you actually give some color about F-Series in April.

So that's why I just wondering if you can share about the momentum in the past 1.5 months?

That's #1.

And #2 is about the margin.

You actually give the guidance for the second quarter.

I just want to confirm, it's about 20% to 23% in the second quarter, and the second half will be 22% to 23%.

I assume this is the gross margin guidance, what will be the net margin likely because in the first quarter, we've got a similar, or even higher gross margin by 0 in the bottom line.

So what should we expect in the bottom line, net margin should be around 5%, 6%?

Sure.

I think for the first question about the sales momentum, I think, our sales continue to be very strong in April.

I think our sales growth was more than 60%, close to 70% growth in April.

And that was still with the backlog of quit a lot of F0 models that we were not able to deliver in April, and then we continue to deliver some of the presales orders in May.

So in short, we do see quite a good momentum into the second quarter.

That's why when we gave the revenue guidance, we gave 40% to 60%.

It's very, very relatively wider guidance mainly because there's too many uncertainty about the delivery, shortage, et cetera, et cetera.

So in general, we do see continued sales more -- strong sales momentum.

In terms of gross margin, I think you're right.

I mean, in the second quarter, we are looking to achieve anywhere between 20% to 22%.

And in the remaining 2 quarters, we've targeted anywhere between 20% to 23%.

So on an annual basis, it's likely we end up somewhere around 22%.

So that's how we see the gross margin potential.

Of course, there are so many moving parts as I mentioned earlier.

There is commodity price increase, there's so much other reasons that make things complicated.

Also, there are so many things coming from our international market.

The international market has definitely an impact on our gross margin.

But our target is to maintain that, and we have price increase tools in our hands.

We have managed that.

There's also quite a few other things like launching new KQi e-bikes to help with that.

So that's the answer for your second question.

I, actually, you all talk about the gross margin, right?

Because in the first quarter, you have a pretty decent gross margin, but you actually have 0 in the bottom line.

So my question is about bottom line.

So maybe -- okay.

Yes.

I think in terms of bottom line, after gross margin, what will be next is the operating expense as a percentage of revenue.

So you need to deduct operating expense.

So operating expense as a percent of revenue will -- in Q2, Q3, Q4 will be similar to what we achieved last year.

So Q1 is kind of a special case because we spent quite a lot in the sales and marketing.

But if you look at the R&D, the G&A, they are a very reasonable amount.

The G&A is slightly higher in Q1 because we have around RMB 5 million coming from foreign exchange loss.

But throughout the remainder of the year, they won't see that much.

Only the sales marketing was a little bit high in Q1 because of this Chinese New Year event.

In the remaining quarter, last year, in average, our operating expense as a percent of revenue was around 15%.

So 14% to 15% is something we can think about.

So after you deduct that the 14%, 15% from the 22%, you got like 7% before tax, 7% to 8% before tax.

I think, Bin, basically, the Q1 is the ad quarter because traditionally, Q1 has always been a low sales quarter.

If you look at -- the sales has a seasonality.

But this year, in Q1, we did spend quite a bit in marketing because to kick off the Chinese New Year, really try to make sure this year we start with a high note.

That's why we kicked off the Year of Ox to be newer things.

And coupled with the lower sales season in Q1, by lower, I mean, with respect to the 4 quarters within the entire year.

That's why, in Q1, you see a huge marketing expense.

But if we spread over the entire year, the average marketing expense actually will be fully in line with what happened last year.

We have our next question.

This is coming from Alice Ma.

Management team.

I have 2 questions here.

The first one is, could you please remind us of the OTA function, like how many times did you -- have you done OTA for the previous intellectual scooters?

And I saw that you have improved some of the intellectual properties of characteristics of your new products in the new products launched in April?

And could you -- like how do you view that the end consumers are viewing such intellectual characteristics?

And my second question is about the batteries you used 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?

Right.

So I think -- great questions.

First of all, on the OTA.

Typically, we do an OTA update every quarter, so every 2 or 3 months or so.

I think it's really just the OTA to upgrade the ECU, the software in the ECU as well as some of the softwares in the motor controllers.

So now as I mentioned in the call, some additional smart functionality, like a color display with navigation mirror of your phone, that actually requires not just the OTA software upgrade, it 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 managed also to increase the product price that allow us to actually to increase ASP to offset sort of the downward pressure on the price due to the product mix.

And so far, I mean, based on the -- some of the upgraded products 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 those upgrades yet.

But based on the user comments from our product launch as well as the user comments from our social medias, basically users are actually asking for those upgrades.

Even we have users with existing MQi2 product, asking whether their current product can be upgraded by paying -- they're willing to pay more than RMB 1,000 just to get upgrades on the color display and all the smart functionalities.

So I think we expect this upgrade to be welcomed by the users.

Now the second one on the battery solutions, I think you're absolutely right.

So basically, for the higher-end products, like the N-Series and M-Series, we tend to use more the NCM batteries, the lithium-ion battery NCA/NCM due to the higher battery densities such that we actually can put more better capacities in the scooter to give the scooter longer drive range.

But we also recognize the cost of NCA and NCM is a bit higher than LFP batteries.

So for a majority of Gova series, the Gova S, the Gova G, and the potential of the Gova C-Series, we use our LFP batteries, where actually will help to reduce the cost such that we can price at a relatively lower price to our users while maintaining a similar margin as our higher-end price product.

Now what -- actually, what sacrifice or the compromise we took is with the LFP batteries, we are not able to put a lot of better capacity into those batteries because the weight constraint of 55 kilos of the entire scooter.

So what the user will compromise is actually on the drive range.

So on those ones, we try to compensate that with basically the upgraded the B technology motors and also the improve of the tires, such that, for example, the low resistant tires will give slightly bump up on the drive range.

But I think that's practically how we line up the battery solution in order to -- basically to offer a wide range of pricing product to our users, at the same time, maintaining a healthy margin.

Okay.

A little catch up on the previous question.

So you will, for sure, not using the SLB battery in the future, right?

And also, since I also heard some comments in the -- from the end users that normally the 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 -- like how much the SOC of the battery.

So when you use the LFP battery, can you also reach such accuracy in the future?

Yes.

I think that's a great technical question.

So when we first adopt using the LFP batteries, we actually realized that without using a better SOC solution the reading of the battery capacity is not as accurate as the NCM batteries.

So we started exploring with the LFP batteries last year, actually, yes, last year.

So we quickly actually improved the SOC within the LFP battery pack, as well as, basically the battery management system as well as the SOCs in the controllers, so that actually to improve the battery rating capacity accuracies.

So our accuracy is 20% higher than what used to be in the market, and that actually get us almost on par with the NCM, NCA batteries.

(Operator Instructions) Seeing no further questions, I would like to hand the conference back to our host.

Please go ahead sir.

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.

Thank you.

Ladies and gentlemen, that concludes our conference call for today.

Thank you all for your participation.

You may disconnect now.