Globalization and Oil to Electricity

First, industry space: Domestic sales rely on endogenous growth, is expected to maintain more than 50 million vehicles

Electric two-wheeled vehicle application scenario: an important transportation tool for short and medium distance travel and logistics distribution

Electric two-wheelers cover a number of scenes in China, providing practicability and convenience for users in different living and working situations, and are one of the most important means of transportation to solve the needs of short and medium distance travel, with obvious properties of toughness.

Industry development history: Benefited from the ban, legalization, a price war, the new national standard accelerated clearance

Electric two-wheeler development history. The electric two-wheeler industry can be broadly divided into five stages of development: (1) 1995-2000 for the initial stage, electric bicycles have just completed the four-power (motor, electronic control, battery and charger) exploration stage, in 1999, the national standardization management issued a standard guide for electric bicycles - "electric bicycle general technical conditions". (2) From 2000 to early 2004, the scale of the industry standards were determined, and after 2000, the ban on motorcycle in various cities was successively issued, and electric bicycles ushered in development opportunities; The SARS epidemic in 2003 stimulated people's demand for safe travel. (3) Rapid development from 2004 to 2013, the 2004 Road Traffic Law clearly defines the identity of electric bicycles as non-motor vehicles in the form of laws, and is managed according to non-motor vehicles. (4) In the maturity period from 2014 to April 15, 2019, the development rate of the industry slowed down, the competition was fierce, the industrial concentration began to increase, and a large number of manufacturers gradually went out. (5) From April 15, 2019 to the present, on April 15, 2019, the "Electric bicycle Safety Technical Specification", that is, the "new national standard", is set up to rectify the past non-standard electric vehicles, require ccc qualification and electric motorcycle production qualification from the production end, clear small and medium-sized manufacturers with weak production capacity, and accelerate the industry to further concentrate on leading enterprises.

The classification of the product side of the new national standard is clear: standardize the product type and eliminate the overstandard car

The implementation of the new national standard standardizes product types. The new national standard "Safety Technical Specifications for Electric Bicycles" (GB17761-2018) was promulgated on May 15, 2018 and implemented on April 15, 2019. The classification of electric two-wheelers is clear, and the new national standard has standardized product management and standards at the production end. At the same time, the speed, quality, voltage and motor power of the electric two-wheeler are clearly specified. After the implementation of the new national standard, substandard enterprises will be eliminated, industry concentration will increase, and the head enterprises with production qualifications and product qualifications will benefit, and the industry will gradually achieve standardization.

Second, the industry business model: channel + product two-wheel drive

Channel nationwide layout, store distribution law and population, GDP, road conditions and so on are closely related

Channel to complete the national layout. Taking Emma Technology as an example, Emma Technology's prospectus disclosed that there will be 2,167 dealers and more than 20,000 exclusive stores in 2020, which will basically achieve full coverage in all administrative regions of the country. The distribution law of stores is closely related to the degree of population concentration, GDP, driving environment, policies, and advantageous areas. Populous provinces and economic provinces are widely used areas of electric two-wheeled vehicles, such as Guangdong, Shandong, Henan, Sichuan is both a large population province and a large GDP province; The long driving distance in the northwest is not suitable for the driving environment of electric two-wheeled vehicles; The advantages of Yadi Holding are mainly in the Yangtze River Delta region (headquarters in Wuxi, Jiangsu), and the advantages of Emma Technology are in the north (headquarters in Tianjin). Dealers and stores of different manufacturers have their own advantages.

The number of stores held by Yadi increased from 12,000 to 28,000, and sales maintained rapid growth

Yadi Holding offline stores entered a stage of rapid expansion. From 2016 to 2018, the number of offline stores of Yadi Holdings remained at about 9,000, and the annual sales increased steadily from 3.32 million in 2016 to 5.04 million in 2018, and the efficiency of single stores at this stage increased to 560 units/store/year. After the landing of the new national standard in 2019, superimposed by the outbreak of the epidemic in 2020, Yadi Holdings predicted the major changes in the industry, and actively expanded offline stores, rapidly expanding from 12,000 stores in 2019 to 28,000 in 2021, achieving a doubling of the number of stores. In 2021, Yadi's single store sales of 496 units were ahead of Emma's 418 units, and the single store sales were higher than Emma's (single store sales = total sales/total stores, without considering the proportion of online sales).

The number of stores controlled by Yadi is highly correlated with sales volume. In 2021, the average sales volume of Yadi Holdings single store is 495 units/year (there is a small proportion of orders to b, which will be actually low), and more stores mean more opportunities to reach users and more order opportunities.

The products are concentrated in the middle and high-end, and the price band of more than 3,000 yuan is firmly established, and the proportion of high-end models can rise to 40%

SKU is simplified, and the models are concentrated in the middle and high-end. Since 2018, Yadi Holdings has gradually streamlined SKUs, reduced channel models, and gradually introduced new independently developed models. The number of SKUs decreased significantly from 194 in 2018 to 173 in 2020 and 125 in 2021. At present, the company's new models are concentrated in the middle and high-end models of Guaneng and Guanzhi. Each train type is independently developed by the company, such as the VFLY series equipped with the company's self-developed TTFAR carbon fiber lithium battery, the Guan series equipped with the self-developed TTFAR range extension system, the replacement series using the world's advanced Gogoro Network battery exchange technology and intelligent technology.

The middle and high-end crown series quickly became the main model. In August 2020, the Guaneng series launched by Yadi Holdings sold about 700,000 units in 2020, and the sales volume reached 3.9 million units in 2021, and the product was very popular, and the sales volume increased rapidly. The starting price of Guaneng series sales is in the middle and high-end price (3499 to 6999 yuan), which means that Yadi has a firm foothold in the middle and high-end models. The sales volume of Guaneng series in 2021 has been close to 30% (28.1%) of the total sales volume of Yadi products, and the proportion of 2022H1 structure has increased to 40%.

Yadi Holdings retail products are priced between 3000-5000 yuan. Gradually gain a firm foothold in the high-end price, customers also gradually recognize the price of Yadi high-end products.

Third, industry development trend: competition pattern improvement + sea + battery upgrade

Industry competition pattern: 2021 sales CR2 reached 45% and continued to increase, and the sales gap between dragon and dragon narrowed

Yadi Holdings benefit from the implementation of new national standards. From the sales point of view, the industry's two leading are Yadi Holding and Emma Technology, Yadi Holding since 2017 sales exceeded Emma technology for the first time, maintained the industry first for five consecutive years, and gradually opened the gap with Emma Technology. From slightly leading Emma Technology by 100,000 vehicles in 2017 to far exceeding Emma Technology by 5.51 million vehicles in 2021, Yadi Holding's electric two-wheeled vehicle sales are 1.64 times that of Emma Technology, achieving a leap from counterattack to leader.

Sales significantly opened up in 2020 and 2021 after the implementation of the new national standard. The demand side of the industry has achieved rapid expansion after the epidemic and the implementation of the new national standard, while the supply side has raised the threshold of the new national standard on the production side, and a large number of small and medium-sized manufacturers are out, leaving a large market space. Yadi Holdings actively attacked, expanded channels, production capacity, brand output, seized the opportunity of industry change, and rapidly increased market share. Xinri Shares and Calf Electric also achieved higher sales in 2020-2021.

Taiwan's electric motorcycle penetration rate of 10-20%, relying on policy support at this stage, the target new car 100% electric motorcycle

Taiwan is a large province of locomotives (oil motorcycle + electric motorcycle), with a total of 61.9 vehicles, and the total number still maintains a growing trend.

The annual sales structure of electric motorcycle accounts for 10-20%. Annual sales of locomotives in Taiwan range from 800,000 to 1 million. In terms of structure, electric motorcycle sales accounted for 18.7% in 2019, and in 2020, the "Environmental Protection Bureau of the Executive Yuan" of Taiwan Province of China will incorporate the seven-phase fuel base into subsidies and cancel electric locomotive (electric motorcycle) subsidies, and the proportion of electric locomotives quickly fell to 9.6%.

With reference to the development law of electric bicycles in Taiwan, China, the promotion of electric bicycles guided by policies at this stage is the key. Taiwan has put forward an "electric locomotive industrial Policy Recommendation", setting a goal of 100% of new vehicles accounted for by electric locomotives in 2040. At present, supporting policies are still insufficient, and policy support needs to be encouraged (tax incentives, car purchase subsidies and government procurement, etc.).

Supply chain integration: Manufacturers acquire upstream battery core parts companies to strengthen self-supply + export

The electric two-wheeler industry is consolidating upstream supply chains. Since the development of the industry, the duopoly pattern has emerged, the discourse power of leading manufacturers has been strengthened, and the upstream key parts manufacturers have been gradually integrated to ensure the supply of core parts, and the future external supply has generated revenue and profits.

Yadi Holdings completed the 100% acquisition of Nandu Huayu's equity in two phases in December 2021 and August 2022, and Yadi Holdings has been one of Nandu Huayu's largest customers, accounting for no less than 47.0% of Nandu Huayu's revenue for the six months ended 30 June 2021. After the acquisition, Yadi Holdings will be able to fully control the graphene battery production technology, and the acquisition is expected to help maintain Yadi Holdings' leading position in the production and development of electric two-wheelers, stabilize Yadi Holdings' supply chain and enable Yadi Holdings to expand its supply capacity.

In 2022, Yadi Holdings disclosed that it had achieved a revenue of 342 million yuan and a gross profit of 177 million yuan through the battery export business, which realized the integration of the battery link and will become a new profit growth point in the future.

Battery iteration: The cost of sodium-ion battery material is 3-4 percent lower than lithium, and the cost of kilowatt-hour electricity is lower than lithium and lead acid

Compared with lithium-ion batteries, the positive electrode materials, negative electrode materials and fluid collectors have cost advantages. Combining positive electrode materials, negative electrode materials and fluid collectors, the cost of sodium-ion battery materials is about 370 yuan /(kWh), and with the maturity of the industrial chain, the material cost is expected to further decline, combined with the cost of structural parts and electrical parts, the initial capacity investment is expected to be controlled at 500 ~ 700 yuan /(kWh);

4. Company benchmark: Better cash flow and turnover efficiency

The net interest rate was maintained at 4-5% for a long time, and the net interest rate of 2022H1 Emma Technology rose to 7.3%

Yadi Holding's gross profit margin is about 2-4pcts ahead of Emma Technology. In recent years, the gross profit margin of Yadi Holdings is about 2-4pcts higher than that of Emma Technology in the same period; The prospectus of Emma Technology explains that the company does not directly bear the logistics and transportation costs of dealers, but subsidize dealers through price discounts and correspondingly reduce the ex-factory prices of products.

The net interest rate of the industry has been at a low level for a long time, and 2022H1 has been rapidly improved. The first tier of Yadi Holdings and Emma Technology in 2018-2021 net interest rates of about 4-5%, the two are comparable (Yadi has advantages in gross profit, but Emma marketing rates and research and development rates are lower). 2022H1 benefited from the industry boom, and Emma Technology's net profit margin increased to 7.3%, higher than Yadi Holdings' 6.4%. Looking to the future, as the capacity of small car enterprises continues to clear, the price war is reduced, high-quality products deserve higher prices, and the net interest rate of Yadi Holding/Emma Technology is expected to increase and maintain at 8-10% in the long run.

The net cash ratio is maintained at about 2 for a long time, the cash income ratio is 1.1, higher than that of household appliances, and the cash flow management ability is strong

Net cash ratio = net operating cash flow/net profit, reflecting the quality of cash flow obtained from the company's operating activities. The net cash ratio can remain about 1 for a long time, reflecting the high ability of net profit to be converted into cash flow. Midea Group, a leading enterprise in the home appliance industry, has maintained a level of 1.0-1.5 in recent years, and Gree Electric Appliances has a range of 0.7-1.1 (falling to 0.08 in 2021), and the quality of cash flow is high.

Due to the business model, the net cash ratio of the upstream supplier's accounts payable for nearly half a year (including bills) and the downstream dealer's first payment and then the goods is often more than 2, reflecting the strong position in the industrial chain, good operating ability and high operating cash flow quality.

The net operating cycle of electric two-wheeler taps is better than that of white electric taps, and the turnover of accounts payable is about half a year

Net operating period = inventory turnover days + accounts receivable turnover days - accounts payable turnover days; Yadi/Emma net business cycle (Yadi's accounts payable turnover days include bills, caliber difference) is negative, significantly lower than Midea/Gree, reflecting the short net business cycle of leading two-wheel vehicle enterprises and good use of funds.

Net business cycle disassembly, from the perspective of inventory turnover days, downstream accounts receivable, Yadi, Emma is lower; The biggest difference is that the upstream supply chain accounts payable, the industry generally reaches 1.5-2 months, Yadi accounts payable caliber including bills, up to 6 months.