Niu Technologies (NIU) Q3 2020 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, thank you for standing by and welcome to the Niu Technologies third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today’s 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 third quarter of 2020. The earnings press release, corporate presentation, and financial spreadsheets have been posted on 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 Litigation 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 includes discussions of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. On the call today are our CEO, Dr. Yan Li and our CFO, Mr. Hardy Zhang. Now let me turn the call over to Yan.

Thanks Jason, and thanks everyone for joining us on the call today. We have had a strong growth in Q3 with total sales volume reaching 251,000 units, a 67.9% year-over-year increase. The sales volume in the China market reached 245,000 units, a 70% year-over-year increase, whereas the volume in the international market reached 560,000 units, a 6.3% year-over-year increase. In the first three quarters, our sales volume reached 451,000 units, an increase of 43% compared with last year. Now our strong growth in China was driven both by the market factors and our operational performance in the new product rollout, marketing, and channel expansion. First, let me quickly comment on overall market landscape in China.Now, the overall electric bicycle market has increased by 30% to 22 million units in the first nine months, according to the Ministry of the Industry and Information Technology. This increase was driven by three factors. First, the post COVID-19 sentiment led to a high demand of individual mobility devices as more people find electric bicycles a more convenient, safer means for their daily commute. Now, second, with the adoption of 2019 China electric bicycle standards, more cities started to regulate this industry with license plates, removal of uncompliant products, and such created a safer environment for the users. And lastly, with lithium ion battery costs continuing to decline, the electric bicycle with portable lithium ion batteries become more affordable. It was estimated that 20% to 30% of electric bicycles this year are lithium versus 10% to 15% in 2019. Amid the fast growth of the electric bicycle market and in particular the lithium ion-based ones, we also accelerated our efforts in new product rollouts, marketing, and channel expansions. As we mentioned in the last earnings call, we introduced the M2 model in Q2 and the MS model in July. Both M2 and MS inherited the family design of our signature M product, viewed as a full cover electric bicycle. In Q3, M2 and MS series accounted for 18% of our total sales volume. Meanwhile, we also enriched the GOVA series family with our G Zero, G2, and upgraded G3 series. G0, our entry level product, was launched at the JD June 18 campaign. With G0, G1, G2, G3, the GOVA series now serves the full range of customers’ needs from electric bicycles to electric motorcycles in China with prices starting at RMB 2299. The entire GOVA series sales accounted for 37% of our total sales volume in Q3. Now the successful launch of our M and G series continues to demonstrate our strong capability in product design and rollout. Furthermore, with G series entry price at RMB 2299, it allowed us to cover the mid-end consumer segment and open up more markets in the lower tier cities, which accounted for more than 70% of the electric bicycle market. Supported by the newly introduced product, we continued to expand our footprint throughout store expansions and new market entries. In Q3, we increased our dedicated branded stores to 1,266 stores, an increase close to 200 stores as compared with Q2. This quarterly new store add was an all-time high as we significantly increased our effort in retail expansion. Despite the fast increase of number of stores, our per-store sales also increased by 40% to 50% in Q3 year-over-year compared with the same time last year. This demonstrated the healthiness of our retail operation as all retail stores enjoyed sales growth and were highly profitable. This is also a good indicator for future retail expansion. We are accelerating new store openings in Q4 this year as well as in 2021. Furthermore, with the GOVA series, we were not only able to consolidate our leadership position in top tier cities, but also able to build a good retail presence in the lower tier cities. To support our retail expansion, we also scaled up our marketing activities in Q3. On the mass media front, we kicked off Back to the Street, this is a new campaign, and partnered with the hottest online competition show, called Street Dance of China, in Q3. This campaign was a coordinated effort of advertising in the online show with more than 200 million views, interaction with all social media channels like DouYin, Kuaishou, WeChat and Weibo, and offline advertising in subways and buses. It generated a total of 800 million brand exposures and continue to enhance our brand image as a cool lifestyle brand. We also continued to build our brand image with co-branding efforts. This time we worked with Gundam, a popular Japanese cartoon in China, and rolled out a Gundam special edition based on our MS product. This co-branding has received quite a bit of market hype with close to 50 million views of new Gundam content across multiple channels. Now let me turn over to the overseas market. Our overseas market reached to 5,600 units, a small growth of 6.3% year-over-year, while in fact we had about another 1,000 orders in Q3 not able to ship in time due to the scarcity of international shipping. Even without the delayed 1,000 orders, this demonstrates a swing back to normality in the overseas market as our Q2 sales overseas were actually down by 62% year-over-year. This is only the start as most of the people in our core demographics are working from home, so as more individuals go back to work, we will continue to see growth across our markets for individual mobility. In Q3, we also increased our flagship and premium stores to 114 from 91 in Q2, and year-to-date we have added 88 flagship premium stores with now more than 40% of our sales from branded flagships and premium stores. Similar to China market, we will continue to expand our retail footprint with branded flagship and premium stores for Q4 and 2021. Along with our retail expansion, we have also upped our effort in social media with close to 800,000 interactions on Instagram and Facebook. While we are watching closely the COVID-19 situation globally, we are quite confident that our international sales will return to the healthy growth in Q4 this year. Now I will turn the call over to Hardy to discuss our financial results. Hardy?

Thank you, Yan, and hello everyone. Our press release contains all the figures and comparisons you need. We have also uploaded the Excel formatted figures to our IR website for easy reference. As I review our financial performance, we are referring to the third quarter figures unless I say otherwise. All monetary figures are RMB unless otherwise noted. Our Q3 sales volume reached 251,000 units, increased by 68% year-over-year. China sales volume increased by 70% as a result of retail sales network expansion and new product launch. International sales volume increased by 6%, lower than our expectations, mainly due to the result of COVID-19 and the difficulty to fill containers for international shipping. We expect some of these challenges to continue into the fourth quarter. We are currently working on different initiatives in order to deliver continued growth from international markets. Regarding product mix, as we launched a few new products, the mix changed accordingly. N series accounted for 12% of total volume, M series accounted for 23%, Q series accounted for 28%, and the GOVA series accounted for 37%. Out of the 37% from GOVA series, 27% is from the mid-end product G0 model and the remaining 10% from G2 and other GOVA models. The high percentage of G0 sales volume had a negative impact on our Q3 ASP and gross margin. Total revenues increased by 37% to RMB 894 million, in line with the guidance we provided earlier. The increased was driven by higher sales volume growth of 68% partially offset by decrease in revenue per scooter, or ASP of 19%. There are a few drivers for the ASP decline. First, sales of low price model G0 negatively affected ASP by around 11%. Second, the change in product mix to [indiscernible] models, especially lower percentage of sales from the high price N series products, negatively affected ASP by around 4%. Third, the sales and the promotions which directly counts to end customers affected our margins by around 1%. The remaining 3% decrease is mainly due to relatively slower growth in spare parts sales from overseas [indiscernible] operators due to the impact from COVID-19. We expect some of these drivers to continue into fourth quarter, therefore the ASP when compared with Q4 last year is expected to decrease by a similar percentage. Gross margin was 20.9%, 1.3 percentage points lower than this time last year. The lower gross margin was mainly due to a few factors. First, the sales promotion and discounts we offered to end customers impacted margin by 0.7%. Because we offer the sales discounts to end customers, we are able to save on marketing and sales expense. As a percentage of revenue, our sales and marketing spend reduced by 30%. Second, we disposed of discontinued products. The disposal price was below cost and hence negatively affected our margin by around 0.9%. Third, higher sales volume from our mid-end product G0, which has lower gross margin, the impact is around 4%, however we are able to offset such negative impacts from G0 by cost savings on battery packs and the various components. [Indiscernible] the margins for the products are relatively stable compared with both last quarter and last year. The decline in gross margin in Q3 was mainly caused by [indiscernible] and the disposal with total impact of 1.6%, which are both specific to this quarter. Our total operating expense, including share-based compensation was RMB 97 million, increased by RMB 16 million or 20% year-over-year. The increase was mainly caused by the higher R&D spend of RMB 10 million for staff costs and design spend. Higher G&A expense of RMB 14 million mainly related to foreign exchange loss, tax and surcharge, and professional fees. Sales and marketing expense, however, decreased by RMB 80 million. As I mentioned earlier, we offered a sales discount to end consumers which affected our revenue and the margin by 0.7%. We were then able to reduce our marketing expenditures. As a percentage of revenue, the sales and marketing expense, excluding share-based compensation was 5.4% compared with 8.5% in Q3 last year. Our government grants were RMB 1.1 million for this quarter, significantly lower than the RMB 12.6 million in Q3 last year. The company is eligible for additional government grants. We have applied for RMB 10 million government grants but the payment from government was delayed. We book government grants into our income statement only after we receive it in cash. Our share-based compensation expense were RMB 10.6 million, almost the same as what we had in the second quarter. Compared with Q3 last year, it is an increase of RMB 4.5 million due to the new grants to employees during the quarter. Our GAAP net income was RMB 80 million and adjusted net income was RMB 91 million, an increase of 25% year-over-year. The adjusted net income margin was 10.1%, one percentage point lower than Q3 last year. The 1% decrease was caused by a few factors. Our gross margin was 1.3% lower but was offset by higher operating leverage, which was 1.6%. We have lower government grants, which negatively affects our net margin by 1.8%. If we exclude the negative impact from government grants, our adjusted net income margin has actually improved against the last year. Turning to our balance sheet and cash flow, we ended the quarter with RMB 1.3 billion in cash, term deposits and short term investments, an improvement of RMB 300 million compared with last quarter. Our operating cash flow was around RMB 300 million because of improved profitability, reduced accounts receivable, reduced inventory, and increased accounts payable. Our capital expenditures were around RMB 13 million, mainly related to new store openings in China and international markets, additional new machinery, and R&D expenses. We have a healthy balance sheet and very strong cash flow in the third quarter. Now let’s turn to guidance. We expect fourth quarter revenues to be in the range of RMB 565 million to RMB 615 million, an increase of 5% to 15% year-over-year. We expect continued sales volume growth from both China and overseas market. The ASP will decrease year-over-year due to the change in product mix, similar to what we saw in the second and the third quarter. In addition, in Q4 last year we had strong sales in accessories and spare parts to sharing operators from overseas markets. We do not expect such high sales in this quarter. Throughout this year, our orders from sharing operators has reduced significantly as a result of COVID-19. The revenue and ASP for sharing operators are usually much higher than other orders because they order not only scooters but also manufactured spare parts. In the fourth quarter, we will continue expanding our retail sales network in China. We expect to open more new stores at such a speed as was in Q3. We are also working on the construction of our new manufacturing facilities in Changzhou, which will better prepare us for continued growth in 2021. Our overseas market began to recover. We had a very strong order book for Q4, which is a good start for demand recovery. With that, let’s now open the call for any questions that you may have for us. Operator, please go ahead.

[Operator instructions] We do have a first question from the line of Roger Duam [ph]. Please go ahead.

Hi Management, thank you for taking my questions. I have three questions. First, there are several international countries in which we have local dealerships have re-entered the lockdown. Can Management share the magnitude of negative impact we can expect from these international markets for 4Q and for potentially first quarter 2021? My second question is somewhat tied to the first one. How should we think about how ASP will trend for 4Q and 2021, given international markets continue to experience pressure and the lower price G series products continue to grow as a percentage of units sold? My third question is with regard to the competition, can Management share any insights on how we’re thinking about competition with industry leaders? In the past, we have largely avoided competing directly with them by offering products in different price categories, but it has somewhat changed after our launch of G series. What is our strategy to continue taking market share from these legacy e-scooter makers? Thank you.

Thank you. I think those are great questions. This is Yan, so I’ll try to cover question one and three, and I’ll have Hardy to cover two on the ASP front. I think on the international market, yes, I think our Q2 was our worst case where we actually see a decline of 50%-plus in Q2, because a lot of stores closed. In April, May, all the stores were closed, and that gives little confidence to our distributors in terms of ordering because you have to keep in mind that a lot of the Q2 sales, the quarterly sales we see on the international, usually there is, like that’s actually the time we ship the product, so in terms of retail, it’s basically a quarter after. Now, what happened in Q2 is most of the stores closed and that for our distributors are actually not ordering anything, that’s where we start seeing huge declines. But starting in May, stores started to open and then that gave distributors a bit of confidence, so we are seeing an uptick in orders in Q3, that’s why we say up to about 60%. But in reality, I think we should have seen more because we had 1,000 orders of scooters not able to out our door because there really is scarcity of international shipping with containers. We are actually quite confident with our Q4. From an order book point of view, actually a lot of orders are coming in. We expect really healthy growth for Q4. Now, the issue is actually booking the international shipping containers. This international shipping, actually, the containers at this point seems to be a scarce resource that a lot of ports in Europe you know, there’s not enough people working at the ports. But from an order perspective, we’re actually seeing a huge order take-up in Q4 for the international market. I think this is on the 2C side. Now a little bit on the 2B side, on the 2B side, we’re not seeing a great year this year by 2B. Most of our orders are for the sharing operators. Sharing operators this year haven’t really been doing well this year because of the COVID-19 situation, with people working from home, you’re not seeing a pick-up in share operators as opposed to last year, where we saw a lot of share operators order scooters, both from United States and from Europe. We are seeing some this year, but the orders have been slow. But on this one, we’re hoping that with Q4 and the next bit in Q1 in 2021, where the sharing operators you know, the orders from sharing operators will come in, because I think we’re already seeing a recovery like, for example, Rebel from United States, they’re already seeing a recovery in terms of the ridership in the United States. I think for the 2B side, we’re seeing probably a little bit in Q4 but most likely Q1 next year, Q1, Q2 next year where we’re going to see quite a bit of uptake on international markets. Now lastly is actually where we are as we put out in the press release, we are basically starting a pre-sales marketing campaign for the Indonesian market. This will be our official entry into the Indonesian market. The actual sales you know, the revenue, we won’t see that revenue in this year because the presales will happen in December, but most order fulfillment will be in February and March, but that actually will add healthy growth in Q1 2021 and potentially the entire 2021, where basically this marks a first step to enter into the Indonesian market or Southeast Asia, the major countries in Southeast Asia. Hopefully that addresses question number one. I think just lastly, I think on question I’ll address question number three, then I’ll give to Hardy to add on question number two. I think yes, with completions, we are with the GOVA series, we are entering into the mid end market segment or mid to high - I think it’s more or less mid to high market segment, where I think the traditional players like yes, other brands have presence in that market, but so far we have seen that our GOVA series has been able to achieve quite promising results. With the entry price at RMB 2299, I think we have priced product in from RMB 2299 up to RMB 4000, and the GOVA series in Q3 actually accounts for about 37% of our sales. It basically demonstrated and we are able to, when we compete with traditional brands in that market range, used to be we’re the only ones sitting on the high end, but now we come to mid end with the mid end product still with good looking design and also a great riding experience in terms of product experience. We are able to gain market share from the traditional players. Now the issue is we are not you know, this really marks the beginning of this journey, where you look at Q3, we added about 200 stores, so even with an additional 200 store adds, our per-store sales actually went up by 40%, particularly because with this mid end product, the stores are able to use this product to gain market share from competitors. This also allows us to open more stores in our stronger cities, like Tier 1 cities, Tier 2 cities where we’re able to approach, basically target the mid end market consumers in those cities, as well as allow us to open more stores in the lower tier cities where we used to have little presence or zero presence. With that, that’s where we actually have more confidence, looking at we’re going to accelerate the store opening effort, and 200 store openings in one quarter has marked an all-time high. I think that’s a historical all-time high, and we’ll continue to beat our record in terms of store openings. Now I’ll pass to Hardy to address the pricing part.

Yes, so the ASP, as you’ve already seen the third quarter numbers, the ASP in the third quarter was down by 19% year-over-year. In the fourth quarter, in short we expect the ASPs will compare with Q4 last year, they will decline at a similar percentage; however, we encourage you to look at the ASP by product segment, so the ASP for China scooter sales, the ASP for international markets, and the ASP for accessories and spare parts. [Indiscernible] and they tell a different story. The ASP for China market, if we look at third quarter, the price was down by around 18%. Of that 18%, around 13% was affected by a higher percentage of sales coming from G0. Last year, there was no [indiscernible] G0, this year G0 takes around 27% of total sales volume. That’s affected the China ASP by around 13%. The remaining 5% came from the changing product mix from other models, especially we have lower sales in the [indiscernible] product. If you look at this trend in China going forward, the [indiscernible] will continue to be there, however with [indiscernible] in the other models, we will see some improvement, therefore the ASP for the China market if you compare year over year, we will have some improvement in the fourth quarter. Then if we look at ASP for international markets, if you look at the year-over-year change, actually in this quarter our ASP for international markets increased by 27% [indiscernible] the improvement, mainly because of small sales volume there for the fixed change in the ASP. So the international market, our ASP is relatively stable - it’s always anywhere around RMB 9000 to [indiscernible], so for the international market we do see quite stable, relatively stable pricing. Then lastly on the ASP for accessories and spare parts services, this one of the China market, the price was relatively stable; however, for the overseas market it was significantly impacted by how much spare parts we can sell to the sharing operators. As mentioned in the call, this year we do not have as much orders from sharing operators in Q3 and expected in Q4, therefore we do see some pressure for the ASP going down. However, for next year with the recovery from the international market, we do begin to see some of the new orders coming in for both sharing operators and also from both shared scooters and also for the spare parts. For this part, we do see pressure into Q4, but next year we do see some potential for improvement. So in short, I think if you compare year-over-year in the fourth quarter, ASP will decline a similar percentage, but if you compare quarter to quarter, we do expect the fourth quarter ASP will improve compared with third quarter. If you look at next year, then that means the Q3 and Q4 ASPs [indiscernible] how much we had for next year. This should answer your second question.

Thank you so much, very clear.

Thank you. We have our next question coming from the line of Alex Potter from Piper Sandler. Please go ahead.

Great, thank you guys. I guess my first question is regarding capacity in Changzhou. You mentioned you’re still in the process of expanding the capacity there. What’s the update? How much is left to spend in terms of capex, and what is your annual capacity now versus what it will be next year?

Yes Alex, let me address your question. Currently our design capacity is around 1 million units, and the new capacity the new factory has another 1 million capacity, and we plan to bring the new capacity on board sometime during the second quarter next year, because from the second quarter, the peak season starts. The total capex for this new capacity will be anywhere between RMB 100 million to RMB 120 million, including the land including land. We started construction in October and it’s going to take us around six months, five to six months to complete the total construction. Hopefully this answers your question.

Okay, yes. Thanks very much. Was wondering if you could talk a little bit about the promotions and some of the price discounting you talked about also in the quarter, which was an impact on gross margin and ASP. What were the what products were you promoting specifically, what promotions were you running, and how long do you expect to keep doing that?

Yes, I think very good question. I think for Q3, we have a different format of promotions this year compared with both early years and also from last quarter. We gave cash [indiscernible] to our end customers, and they can use this cash [indiscernible] to deduct the sales price, therefore we spent around RMB 8 million for this promotion with a direct deduction from our revenue and also our gross margin. We have this kind of promotion mainly because with Q3 I mean, because of the COVID-19, people are more sensitive for full price, therefore we gave it directly to end consumers, it’s better than we send money in different ways. However, from Q4 this year, we have no such promotion spend, therefore we more attribute to these kind of promotions, kind of one-off promotions in the third quarter.

Okay, and was this specific for any certain types of products, or was it broad?

No, it’s broad, so it’s basically the customer, the end consumer goes to the store and they pick the model they like, and then it goes to a lottery system. Initially everyone will win, they’ll get something. Someone gets RMB 100 cash that is a direct deduction from their sales price, someone can get [indiscernible] which can be deducted directly from the sale price.

Okay, interesting.

[Indiscernible]

Okay, and then the last question from me is on the regulatory change. Can you remind us when exactly the new regulation will be enforced, and it sounds like you do think that you’re getting some demand because I know people are obviously going to be forced by the new regulation to replace their scooters. Do you think that people are doing that now? When do you expect the most of that demand to materialize?

Alex, it depends on city by city. First of all, the new regulations, basically the temporary new regulation was announced in 2018. It started being enforced on April 15, 2019, and different cities actually did different years. For example, a city like Beijing, they gave temporary license plates in 2018 and they said basically the temporary license plate, you can have a you can use the scooter for three years, which essentially means some of the scooters will be out of use by end of 2021 or, I think, early 2022, so which we won’t expect to see, what do you call a you know, the replacement of incompliant temporary license scooters actually starting next year. I think this is also an indicator I think this is actually a driver for us to quickly expand you know, add more stores in those cities, in highly regulated cities. The good thing for us is actually our market share and our presence is actually much, much stronger in the highly regulated cities, because most of the highly regulated cities are the Tier 1, Tier 2 cities, where in the Tier 3, Tier 4 cities I think the regulations still being enforced very in some places, very loosely, where you won’t see this uptake into model replacement yet.

Okay, great. Thanks very much guys.

Thank you. We have our next question coming from the line of Bin Wang from Credit Suisse. Please go ahead.

Okay, thank you. I also actually have three ones. The first one is about a very top-down angle, about the overall market, because [indiscernible] in number three quarter, the overall production in China increased by 61% year-over-year. For you actually outperform, yes, but if you really excluding the G series actually in the high end, it’s only around 11% growth, so can I come to the conclusion is that in the high end markets [indiscernible] slowing down and [indiscernible] is the key driver, can I have that conclusion? Meanwhile, actually because the regulation timing, regulation [indiscernible] have some impact on the high end and [indiscernible] people don’t care, so how to elaborate if understand the different second half, quite a bit of difference growth? That’s number one. Number two is about the guidance. Basically [indiscernible] numbers so bad, and [indiscernible] huge rebound in the growth in November and December, so based on your guidance in the revenue, we cannot get a number, say, 150,000 best guess, so it means November-December have more than 50% growth, so can you elaborate whether my calculations are correct or not about November-December growth? If was correct, why the reason have such a high growth after big dip in the [indiscernible]? Meanwhile, what’s the guidance for next year 2021 based on the November and December momentum? That’s the second one. The third one is about new growth and new stores, because if you see in the past one year you have been launch quite a few showcase, called MRI and RRI, but it doesn’t see this new product bring any more news, so number one, when will be next product, volume product, and why this [indiscernible] in volume, so how we think about your new product plans for the coming years, meanwhile what’s your store guidance of next year, or maybe end of this year and next year? Thank you.

I think your first question is about all the new [indiscernible]. I think if you look at the information published by the Minister of Information, Industry and Technology, their Q3 electric bicycle volume growth is anywhere between 40% to 50%, depending on which market you’re talking about. Our growth definitely is much higher - we are growing [indiscernible] about 70%. You’re also correct that [indiscernible] is a key driver for us to grow in China, and our high end, the MU series has a growth around 11%. I think one of the key reasons is after the new regulation was enforced, the new regulation says the top speed was going to be limited to the electric bicycles, therefore a lot of the function also, including [indiscernible] other functions, we were not able to add to this electric bicycle. Because of that, definitely customers do not want to pay high price for the extremely high high price models, and I think that’s one of the key reasons why the high price models have lower growth rates compared with the [indiscernible] bicycle categories. For your second question about the sales volume in October-November and December, I think that you have ranged roughly okay. I think in October, as already mentioned in our earnings release, it’s [indiscernible] because of the operational disruption in our factory, because in September we used up to the had full usage of our utilization of our factory because of the huge demand in the third quarter, therefore we have to make some [indiscernible] for our machinery for our factory to make sure we have a safe environment to produce [indiscernible] November and December. Because of that, we did some of the sales work prior to November and also December. This is one reason that’s why you see the high volume [indiscernible] November and December. The second reason, and as we already mentioned, we continue to open new stores in China as we already see our there’s more places for us to open new stores as we launch the G0 model, mid-end model. Mostly we have opened them all we have accelerated the opening process which will help us to increase our sales volume [indiscernible] so that’s a significant few drivers for continued sales volume growth in November and December. For next year’s guidance, we are making [indiscernible] next year, so we won’t [indiscernible] during this call. In terms of new product launch, I think I will comment a few words and then I will leave to Yan to comment on next year’s plan. For the new products, the TQi, RQi and also the EUB product we launched in early this year, they have not entered into mass production yet, therefore they are not the ones that will drive our volume growth for the year. The reason is the TQi, RQi, EUB, they are mainly [indiscernible] for overseas markets, they’re still priced much higher. This year because of COVID-19, the overseas market for different reasons, we are not able to achieve very high volume growth, therefore we postponed the mass production of some of the models for TQi and RQi and EUB. For next year, we do plan to launch additional models for China market and the new products we will launch sometime during the second quarter. We believe some of the new models we launched in China will be key products and continue to drive our volume growth in China. For the overseas market, what we are doing is we began to use our GOVA products to launch to enter into the Southeast Asian market, especially Indonesia market. Since already in December this year, we are going to launch GOVA motorcycle models in Indonesia market, and we began presale in the middle of December. We believe that will help us to drive the volume growth in the Southeast Asian market. So that’s some of the comments on the new product launch and how they can drive our volume growth in the next year. Yes, I think this is the answer to question from Bin.

Okay, thank you.

Thank you. We have our next question from the line of Jing Chang from CICC. Please go ahead.

Hi, thank you for taking my question. Basically, I had two questions. The first one is about the store and channel expansion. What’s our target next year for store expansions? We see other competitors opening stores at higher speed, so I want to know what our major concerns or difficulties in terms of opening stores. My second question is we are going to sell e-motorcycles in Indonesia, so can you share some details on our strategy in terms of production, so whether you export or build a factory there, and our channel and also our product compared to the local brand motorcycles, and also maybe a long-term sales target? Thank you.

Thanks for asking good questions. The first one store openings, so as I mentioned earlier, in Q3 we were able to add about 200 stores, and so keep in mind Q3 usually has been our busy sales quarter where our distributors are not willing to open stores, but this year actually with the effort, we see we actually have the capability to open 200 stores in one quarter. And now we’re actually thinking about up that game in Q4, opening more stores than Q3 and we actually have the higher ambition for next year. So, I guess, it really depends on how we wrap up the Q4 this year, we will have more relative growth for next year. So, I think that’s basically on the store expansion. And more importantly, if we look at the data here, it’s actually we have the capability to open fast and more, because even with Q3, with 200 store adds, our per-store sales still went up by 40%, so that means there is actually a lot of room to open new stores at this point. So you can easily see we can actually get to 200 or 300, 400 stores in Q4, and we’ll see how that it depends on how fast this construction can be finished. That will actually will set the the guidance for next year as well on a quarterly basis. Now with the Indonesian market, I think it’s - yes, one, we will have to - initially it will be local - it will be sort of a CKB method because Indonesia has a huge tariff. If you ship the entire product from China, I think the tariff is about 40%, so that will make the pricing not relevant. We want to actually enter the Indonesian market not - we have a high-end product, but we want to enter sort of at the mass affordable product level, affordable price range product, which actually will ensure we’re not being viewed as the luxury product but more a mass daily commute product. This will actually - right now, we have a basically manufacturing partner in Indonesia, will help us to assemble the product, even with some of the parts being locally sourced, and that will actually get to a lower tariff [indiscernible], less than 8% to 10%, because it’s mostly on parts. That’s what will happen for next year. Later half of next year, we’ll see, depending on how the sales volume goes. We might have to actually invest to build a factory in Indonesia. Hopefully that answers your questions.

Thank you, thank you. That’s all for my questions.

Thank you. [Operator Instructions] We have our next question coming from the line of Sebastian Van Hellen [ph]. Please go ahead.

Hi, good evening. With the upcoming importance of the GOVA series, to what extent do you intend to use after sales to protect your margin? Thank you.

I think even with GOVA series, I think the after sales will be still conducted by our friends in the retail stores. From using after sales to protect margin, I think it’s similar method as with other series. I think the question, if we look at the actual margin of the GOVA series, it’s actually slightly less than our MU series, but not significantly less. It’s probably a couple percentage less, because even though it’s actually marked at lower prices, because it’s using the battery uses, it’s not MCM or MCA batteries, it’s actually LFP batteries which actually it’s an alternative but it’s actually cheaper than the MCM MCA batteries. The lower end of GOVA series doesn’t have the smart IoT - the smart IoT is an add-on, so for people who actually take the series at the base basic level, it doesn’t have the smart IoT, so that actually helped to reduce the cost and reduce the price set as well. But our app does support the product, where the users can actually with or without IoT, the users can download the app and they actually register the scooter on the app, and then being able to receive the same level of after sales services on the app as well.

Okay, thank you.

Thank you. We have our next question from the line of Paul Gong from UBS. Please go ahead.

Yes, hi. Thanks for taking my question. Actually I have only one question. You mentioned the tariff for the Indonesian market is 40%, so that’s why you decide to build a factory over there. In view of the [indiscernible], how should we foresee the tariff going forward, and the local factory, is that still required in your view?

I think that’s a great question. I think we are actually looking we saw the news as well, but we haven’t really got sort of the detailed information yet, so if the actual detailed information, basically like motorcycle, electric motorcycles are actually covered by the treaty, then actually that will solve a lot of our issues as well. Let me put it this way - frankly, we’d rather have everything manufactured in China where we have really tight controls with our own factories, [indiscernible] insurance, everything, and from Management complexity, it’s actually much easier to get manufacturing in China versus shipping parts to Indonesia and having locally assembled and manufactured there. We understood why the tariff was there, because a lot of motorcycle brands are locally manufactured there, so there is actually a local protection there into that industry, but if that opened up where the tariff is being reduced significantly, actually that actually will change our manufacturing planning. That’s one of the reasons right now we don’t actually we decided not to, for example, buy land or build our own factory in Indonesia. We’re simply still watching out of the by using a more flexible, using a partner as assembly option at this point, because that gives us the flexibility, depending on how that whole treaty thing goes.

Okay, thank you very much. Very helpful, thank you.

Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks.

Right, so thank you Operator, and thank you all for participating on 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.

Thank you all again. This concludes the call. You may now disconnect.