NIU valued at A$3bn

It was mentioned on the yesterday’s call by management that major competitor NIU has a market cap of $3bn. So what does this mean for VMT? On most recent revenue reported, VMT has ~20% of the revenues of NIU. Simplistically, assuming the same revenue multiple, VMT should be valued at around A$600m, or 5x the current share price.

So the key questions are; is it right to compare these companies? And, what is going to make the VMT valuation catch up?

1: Comparison of VMT to NIU

• Company structure: Both companies design and manufacture in china with listings in western markets (NIU on the NASDAQ, VMT on the ASX)
• Growth: NIU’s 2020 sales are expected to grow 20%, while VMT sales should grow 35%
• Sales: While NIU has 5x the sales of VMT, many of these sales are in the low-margin Chinese market. VMT actually has higher market share than NIU in its target markets, like the EU.

2: What needs to happen for VMT valuation to catch up?

• The fact that VMT is essentially a Chinese company with a western listing should not be an issue (evidenced by NIU’s success), however NIU has very strong governance practices, has slick presentation materials, and is very good at communicating with investors. Blair Sergeant has the potential to improve this capability at VMT. If he can make a strong start in coming months he should get the Chairmanship.
• NIU has a very strong board with 5 Independent Directors with backgrounds from big PE firms like KKR and Barings. These directions are not engineers (like at VMT), but business people. VMT do not have enough independent Directors and little experience in marketing and consumer brands. If VMT wants strong acceptance with investors it should look to improve this mix. This is an easy fix.
• The quality of VMTs sales are superior to NIU. They are growing at a faster rate and are predominately from the high value EU market, rather than the commoditised Chinese market. Theoretically this should justify a higher sales multiple for the valuation (so a valuation >A$600m).

So, it is not often that you can find an investment with the potential for 5 bags without having to increase the earnings base. All they have to do is keep growing as they currently are, but fix the branding,corporate governance and investor relations functions.