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Edited Transcript of NIU.OQ earnings conference call or presentation 25-Nov-19 1:00pm GMT

Q3 2019 NIU Technologies Earnings Call

Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of NIU Technologies earnings conference call or presentation Monday, November 25, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hardy Peng Zhang

Niu Technologies - CFO & Compliance Officer

* Jason Yang

Niu Technologies - IR Manager

* Yan Li

Niu Technologies - Chairman, CEO & COO

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Conference Call Participants

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* Alexander Eugene Potter

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

* Bin Wang

Crédit Suisse AG, Research Division - China Auto Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Thank you for standing by, and welcome to the NIU Technologies Third Quarter 2019 Earnings Conference Call. (Operator Instructions) 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, sir.

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Jason Yang, Niu Technologies - IR Manager [2]

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Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss NIU Technologies' results for the third quarter 2019. The call is being webcast from company's IR website. An investor presentation and a replay of the call will be available soon at ir.niu.com.

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 certain 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 a reconciliation of GAAP to non-GAAP financial results.

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

Now let me turn the call to -- over to Yan.

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Yan Li, Niu Technologies - Chairman, CEO & COO [3]

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Thanks, Jason, and thanks everyone for joining us on the call today. We have observed a gradual market recovery in Q3 being traditionally a peak season of the year. Our sales volume has increased by 24% and revenue by 33% in Q3. We have also enhanced our gross margin to 22.2% and net profit margin at 10.1%, both were beyond our expectation.

We continue to build our leadership in urban mobility via products and technology developments, marketing events and user-based activities and retail expansions. First, we launched our global product line with 3 products: G1, G3 and G5 in late September. The GOVA product line is beautifully designed, but it was a different design style to expand our style diversity.

With product specs bias towards functionality, the GOVA product line is positioned as the value-for-money product, with the retail price started at RMB 2,999, perfect for entry-level users under the new China regulations. G1 was shipped in late September and the G3 and G5 were shipped in late October. Despite the market already headed to a low season in October, we have seen quite a bit of demand on this new product line.

Second, we have launched our first power-assisted bicycle product, NIU Aero EB-01 in Web Summit in Lisbon in November this year. The NIU Aero EB-01 is a hybrid model of the electric scooter and bicycle, combining best features from both sides, such as high-battery capacity and pedal assistance for longer range, scooter level 2 suspension with sports bike wheels for better riding experience and the intelligent lighting system for safety.

The EB-01 is classified as an electric bicycle in Europe and in the United States. And this is our first product to target annually more than 4 million units electric bicycle market in Europe and in U.S. The EB-01 will be manufactured in Europe, and we plan to ship this product first half 2020.

Third, we have also launched our full GT series, led by our newly designed N-GT scooter, together with the upgraded NGT and U-GT. Inheriting the design style of our award-winning N Series and combined with the GT powertrain technology, N-GT is a dual-battery electric moped with top speed up to 70 kilometer per hour and a range of 110 kilometers. We target to ship this product in first half 2020 as well.

Lastly, we will also attend the 2020 CES in Las Vegas, with quite a few revolutionary products to be launched at the CES. Make sure you do visit our booth then. Besides our products, we have also enhanced our fleet management solution. It is the hardware and software SaaS solution with our connected vehicles, the fleet management software and adaptive APIs. It's a one-stop solution for all the sharing operators and the fleet management businesses. We have supported 16 sharing operators across 14 countries year-to-date.

Now as NIU is the leading lifestyle brand in urban mobility, we continue to enhance our brand awareness through both verbal marketing and targeted marketing. We understood that the most efficient approach to enhance the brand awareness is through verbal marketing or words of mouth of our existing customers. Hence, the continuous improvement of customer experience and engagement is essential.

In July, we have rolled out a new point system on our app. Users can obtain NIU points via various activities and milestones, and redeem points for NIU lifestyle accessories such as T-shirt, mugs, key chains. To date, we have more than 86,000 users participating in the program, with over 5 million points distributed.

In September, we also rolled out our NIU wash program. Each user can obtain a free wash coupon via our app and redeem at any of the 1,000 stores in China. The program has been online for about 60 days, and we have more than 240,000 coupons claimed.

In September, we also launched a 1-month new user referral promotion sales, where existing users can receive NIU points by referring a new customer. More than 30,000 users have participated in this promotion. So all those programs enable us to engage our users more frequently online and off-line, and all those programs rely on our direct interaction with our users on the new app enabled by our smart scooters.

With the largest connected user fleet globally with more than 960,000 units, we have an unmatched competitive advantage over any competitors in this market, and we'll continue to add more user interaction features to increase user engagement.

Second, being a lifestyle brand and with the fashionable design scooters, we are very uniquely positioned to go viral on any social media channels. Besides the surprising celebrity spotting we mentioned last quarter, we continue to create content either internally or through our users to go viral on the main social media platforms, such as Weibo, Douyin and WeChat in China and the Instagram, Facebook and YouTube globally.

Our quarterly Douyin views across multiple accounts has increased from 3 million to 10 million. For example, our long-distance riding event of user riding to Tibet also received more than 8 million views on Douyin. Lastly, our 30-plus KOLs across Europe has also created more than 3,000 pieces of content and received more than 1 million views.

We continue to participate in many major exhibitions globally to build our brand awareness. We have attended IFA in Germany in September, Autonomy in France in October, Tokyo Auto Show in Japan in October, and the Web Summit in Lisbon, Portugal and EICMA in Milan, Italy in November. Collectively, we have received more than 100 media coverage. NIU is well positioned as the new variability for urban mobility in all those shows.

Now supported by the NIU products, the enhanced customer engagement and brand awareness, we continue to expand our footprint. By end of Q3, the number of franchise stores in China has reached to 1,020, covering 182 cities. Our flagship and premium stores overseas have also reached to 20 by Q3. We're also very happy that we had our first flagship store opened in London, U.K. and Milan, Italy in November, a great milestone for the future growth in those 2 countries. We're also signing our dealer showrooms across the United States, expecting to have more than 12 dealer showrooms from East Coast to West Coast by end of this year.

Now on the operation side, we have finished the build-up our Phase 1 of our new factory. The factory will be fully in operation in December, and this will add additional 700,000 units capacity, totaling our overall capacity to 1.08 million units a year.

Lastly, let me give a brief update on the China market. As mentioned last time, the overall retail market has been uncharacteristically soft since the implementation of the new regulation. We have observed a significant market contraction in May and June in the market where the regulations were strictly enforced. We have, though, observed some bounce back in Q3, partially due to Q3 was traditionally a high season and partially due to the spillover of the Q2's demand.

The retail market quickly declined in Q4, as Q4 was traditionally a low season and the true market demand has not really bounced back yet. The sluggishness will likely to extend to the Chinese New Year in 2020, and we do expect the market will start to bounce back post the Chinese New Year as consumers begin to get used to the new regulations and many administrative processes, such as getting license plates, are smoothed out.

Currently, we have 4 models: the U+, U1, US and the G1, complying with the new regulation for the electric bicycle category in China, where our N- and M-Series are classified as electric motorcycles. We're accelerating our product development effort and expecting to launch several new product lines for the electric bicycle categories in first half 2020. We believe those new products will put us in the [right] position when the market starts to recover next year.

Now I will turn the call over to Hardy to discuss our financial results. Hardy?

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Hardy Peng Zhang, Niu Technologies - CFO & Compliance Officer [4]

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Thank you, Yan, and hello, everyone. Our press release contains all the figures and comparisons you need. We have also uploaded Excel format figures to our IR website for easy reference. As I review our financial performance, keep in mind that we are referring to the third quarter figures unless I say otherwise and that all monetary figures are RMB unless otherwise noted.

As Yan mentioned, the China e-scooter market recovered gradually during the third quarter even though at low pace. Our Q3 sales volume reached 149,000 units, increased by 23.5% year-over-year compared with the 13.8% in the second quarter.

The new national standard continues to affect the China retail sales market and the competition has become more serious with competitors lowering sales price to maintain their market share. We are pleased to be able to deliver double-digit growth with improved margin. Our gross margin reached to 22.2% and net margin 10.1%.

Total revenues rose 33% to CNY 654 million in line with the guidance we provided earlier. The revenue growth was mainly driven by volume growth of 23.5% as a result of the recovery in China market and continued strong performance in the international market.

I want to highlight that our revenue growth in this quarter has high quality.

First, our accounts receivables reduced from CNY 120 million in the second quarter to CNY 62 million in the third quarter. And the customer received in advance, or in other words the prepayments from our distributors, was CNY 44 million.

Second, we maintained high gross margin at 22.2%, which is 9.8% higher than Q3 last year. We managed to grow our top line with higher profitability.

All of this translated to our strong cash flow and increased cash balance. By the end of Q3, we had cash, term deposits and short-term investments of CNY 919 million in aggregate compared with CNY 667 million in the second quarter, an increase of CNY 252 million to our cash balance. All of them demonstrated the high quality of our revenue growth.

Revenue per scooter was CNY 4,380, up 7.4% year-over-year. That growth was driven by both higher average sales price per scooter and a strong sales of accessories, spare parts and services. The average scooter sales price grew 1.5%, driven by 3 key factors.

First and more important, the higher proportion of scooter sales from international markets, where our sales prices are much higher than China sales price. In the third quarter, our international scooter sales accounted for 7.6% of the total scooter revenue compared with the 5.1% in the same period of last year.

Secondly, in April this year, we increased China retail sales price by 1% to 5% for selective models. Third, the unfavorable change of product mix in China market and this partially offset the 2 positive factors mentioned above.

The proportion of sales volume from the N- and M-Series was around 35% in the third quarter compared with the 65% in the same period last year. N- and M-Series in general have higher sales price, and therefore, the lower proportion of sales from the 2 series negatively affected our average sales price per scooter.

Our sales of accessories, spare parts and services continues to be very strong in this quarter. On average, for each scooter sold, we also sold RMB 524 of accessories, spare parts and services, increased significantly from RMB 278 per scooter last year. The increase was mainly driven by strong accessory and spare part sales in both China and international markets and also by the R&D service revenue from this development collaboration agreement we signed with the VW Group earlier this year.

Gross margin was 22.2%, 9.8 percentage points better than this time last year and 1.5% lower sequentially mainly due to seasonality. Over the longer term, we expect our gross margin to be in the range of 20% to 25%. So we are happy to be moving close to our long-term goal.

Margin expansion was helped by 3 key factors. First, the favorable revenue mix. Ancillary revenue from sales of accessories, spare parts and services was 12% of total revenue compared with 6.8% last year. International scooter sales was 7.6% of total scooter revenue compared with 5.1% last year. Both ancillary revenue and international scooter sales have higher gross margins, and hence, helped our margin expansion. I, however, want to caution you that our sales have a seasonality as the above-mentioned revenue mix will fluctuate from quarter-to-quarter.

Second, the margin expansion was helped by the price increase. As mentioned earlier, we increased retail sales price in April this year and adjusted the wholesale price to our distributors accordingly. That price increase contributed to the improved gross margin.

Third, our continued efforts to optimize costs helped the margin expansion. The cost of revenues on a comparable basis further declined. We secured cost savings on raw materials and benefited from the economy of scale in our production. We were able to negotiate lower procurement price because of our larger scale and in-depth knowledge of the supply chain. We believe such cost reductions are sustainable and will continue to benefit our gross margin for the coming quarters.

In summary, out of the total 9.8% margin expansion in the third quarter, we estimate roughly 2 percentage points came from revenue mix, another 2% came from price increase and the remaining 6 percentage points came from cost reduction.

Operating expenses on comparable basis increased in line with the growth of our business. Our total operating expense, excluding share-based compensation, was CNY 86 million, increased by 46% year-over-year. Operating expenses as a percentage of revenue was 13.1%, 1.2 percentage points higher than the same period last year. The increase was mainly due to our marketing and the promotional activities in the third quarter and also higher depreciation and amortization expense as a result of expanding retail sales network.

As you may recall that during our second quarter earnings release, we advised you that we intentionally postponed some of our sales and marketing expenditures from the second quarter to the third quarter due to the implementation of the new national standard. Therefore, the 1.2 percentage higher sales in the marketing this quarter was mainly driven by the timing of the spending.

When looking at the first 3 quarter numbers, our sales and marketing expenses, excluding share-based compensation, was 8.5% of total revenue, reduced by 1.7% compared with the 10.2% in the third quarter last year. We continue to see the leverage of operating expense.

In the third quarter, we had CNY 12.6 million government grants, out of which CNY 5 million is a one-off reward and remaining is related to our new factory expansion in Changzhou.

Our GAAP net income was CNY 66.4 million, with net income margin of 10.1%. We are pleased to operate profitably even as we invest heavily in growth, which demonstrates the strength of our business model.

Turning to our balance sheet. We ended the quarter with CNY 919 million cash, term deposits and short-term investment, CNY 252 million higher than last quarter. Operating cash flow was positive CNY 276 million. Capital expenditure was CNY 39 million, related mainly for building the new factory in Changzhou and for expanding our retail sales network.

Now let's turn to guidance. We expect fourth quarter revenue to be in the range of CNY 450 million to CNY 515 million. This represents year-over-year growth of 5% to 20%. We recognize the challenging market environment, and we are working hard to accelerate the growth next year with increased product portfolio in both China and international markets. Please keep in mind that this forecast reflects our current expectation and could change.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Alex Potter.

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Alexander Eugene Potter, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [2]

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I wanted to ask, first of all, about the competitive environment, given the new regulations. You mentioned a lot of the lower-end competitors are cutting price in order to try to maintain market share, yet you are increasing price, or you did in April, and it seems like your market share is increasing. So it sounds like the pressure on the low-end competitors must be rising pretty substantially. If you could comment on your ability to continue consolidating the market, that would be helpful.

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Yan Li, Niu Technologies - Chairman, CEO & COO [3]

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Thanks, Alex. I think that's a good question. So what we have observed basically in -- when the new regulation was in place in the China market, they -- due to -- actually due to the sluggish of the retail market, we do see traditional players really slashing prices, try to maintain the volume. We have seen fierce competition on product, which used to sold at a RMB 2,000-ish, now being sold at almost RMB 1,500 or RMB 1,200. Most of those products are still lead acid-based because there's -- at this point, there's still one version of lead acid-based electric scooter that meet the new regulation requirement. It's -- basically, it's a 60 -- sorry, it's a 48-volt and 12 M-power, lead acid battery-based scooters. They very much look like a bicycle type.

And most of the pricing competition is at that particular product line, where people competing really, RMB 1,500, less than RMB 1,500. So if you look at that particular product and then the market segment that product is addressing to, it's actually very different with our product lines. The most -- our main -- with the exception of GOVA before -- with NIU, even with our cheapest one in U.S. is RMB 3,500 and GOVA is at RMB 3,000. So we're actually addressing, sort of, at least the mid- to high end of the entire market, where that market to our extent, really there hasn't really been any sort of price competition there and we're sort of enjoying a -- more or less a unique leadership there.

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Alexander Eugene Potter, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [4]

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Okay. Very good. Also you mentioned, obviously, the gross margin holding up very nicely. You mentioned that the raw material pricing, obviously, you're getting some procurement benefits as your scale rises. Is this specifically related to battery procurement? Or is it across the board? What raw materials in particular are you benefiting from?

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Hardy Peng Zhang, Niu Technologies - CFO & Compliance Officer [5]

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Yes. This is Hardy. I think across the board, we do see the cost decline. And normally, we see the body parts of the scooter has declined anywhere between 3% to 5% depending on different components. And for the entire battery cell, also the battery pack, we see close to 10% decline. This is compared to the cost base last year. And in the third quarter, we see slightly a decline compared with the second quarter. And so far, based on the current trend of this market or the supply in the market, we do believe there is a potential for us to further negotiate for this cost so that we can benefit further in the future. Hope this answers to your question.

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Alexander Eugene Potter, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [6]

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Okay. That's great. And then last question. Obviously, you're generating cash. What are your plans for deploying this cash that you're raising? I mean is it primarily into more sales and marketing, new product development, breaking into overseas markets, what are your priorities? Because obviously, having a positive cash position and positive operating cash flow is a nice position to be in, just wondering how you're going to spend it?

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Yan Li, Niu Technologies - Chairman, CEO & COO [7]

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I think that's a good question. So we're looking at actually any sort of cash we're generating, eventually, it has to translate -- or transform to -- translate to profit, right? So we're looking at the profit are coming really through 3 parts. One is actually continuing to really accelerate the growth from this revenue from the sales volume perspective. That means some part of cash will be invested in building out the retail expansions.

When you look at this year, we actually have significantly accelerated our effort in the first half of this year to build up stores. We also start to build up retail stores globally. And that -- each of the store require a minimum anywhere between -- in China, it will be somewhere around 100 -- sorry, USD 10,000 versus globally, it's about like EUR 20,000-ish of CapEx investment per store. But having the retail footprint is actually essential for us to build up the brand and also support the sales growth. So I think that's one part of cash got invested in.

I think second, yes, we do have put cash into building up the capacity to support the growth. This year, you see we're actually building up the new factory this year to add another 700,000 units of annual capacity and really to support the future growth.

And third part is actually, I think there -- obviously, there will be -- so the first 2 mainly talk about CapEx part of it. I think the last part is actually, it's a cash or you can think of a portion of profit will be reinvested into the R&D such that we can continue to come up with new product lines as well as the marketing and branding expenses. I'll turn to Hardy for additional add.

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Hardy Peng Zhang, Niu Technologies - CFO & Compliance Officer [8]

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No. I think it is perfect.

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Operator [9]

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We have the next question from the line of Bin Wang.

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Bin Wang, Crédit Suisse AG, Research Division - China Auto Analyst [10]

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I'm Bin Wang. Actually, I have a few questions. Number one about the competition because we see the news flow, our list mentions YADEA, like #1 producer has been announced to build a 1.5 million plant in Chongqing, actually, maybe first on the high end. So naturally providing a new target will be around CNY 6 billion. So implying that ASP is around CNY 4,000. So if they can deliver, actually, as a high competitor, 1.5 million. So I just want to seek your view about this high-end production base for YADEA, a competitor, is number one question.

And number two is about dealer expansion. Actually because, in this quarter, only 15, 1-5, dealers established compared to a few hundred in the past several quarters. So I just want to know the reason why the expansion has been slowing down because this used to be the key driver for our future growth. And you guys just mentioned you had so many cash, so you're able to support the dealer expansion, but why is that just 15? And what's the guidance for the year-end? That's the second question about the dealer expansion.

And third one is about new products. As mentioned in CES, we have some new products. But at the same time, you also mentioned the revised version for M-Series will also to be debuted. I just want to check whether is that the same product? I mean, new M will be in the CES or is totally different to -- 2 different products? These are pretty much my questions.

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Yan Li, Niu Technologies - Chairman, CEO & COO [11]

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I think, Bin, great questions. So let me try to address one by one, and hopefully I don't miss any. I think, first of all, on the -- I think the market there, so there's nothing we can prevent other players to enter the market and try to sell or try to attack or address our market there. But if we look at the YADEA deal and the other competitors in this market, I think they -- obviously, we have seen those competitors actually announce or actually commercialized high-end products. And I don't think, actually, by simply building up a 1.5 million high-end capacity will allow them to actually obtain that market share. I think it's a combination of branding, having the right product and also having the right retail to actually to address that high-end market.

I mean, so far, we are still very confident. I don't have the exact data, but if you look at any -- some -- on a city-by-city basis, when you look at some of the cities, basically, you look at the price range anywhere between RMB 4,000 and up. In some of the key cities, we are almost holding more than 50% of market share. So as really a demonstration that de facto we are the dominant force in sort of the mid- to high-end market. So -- and with the competition coming, obviously, we're going to continue to also to ramp up our game as well with new product rolling out.

So let me address on the new product part, then I'll talk on the retail expansion.

So if you look and observe how we build up this business and build up this team, in 2015, '16, '17, that 3 years, each year, we only announced one new product line. 2018, we did about 3. And so far this year, we already announced -- actually, I'm counting myself right, but almost 5 to 6 or 7, right? So it's -- we had the U+, US, that's 2; and then we had the GOVA G1, G3, G5. So those are commercialized. And also the bicycle. Now we also have a product that's ready to be commercialized next year, which is the new Aero EB as well as the N-GT and the U-GT, right? So we really upped our game in terms of the new product development.

Now for the CES, the 2 revolutionary -- well, the couple of revolutionary products to be announced at CES are very different with the new M-Series. We will have a new M-Series announced in the first half next year. But the product that we're going to show in the CES are actually different. So -- and actually, next year, we're not just talking about 3 products. I think if you look at -- we have -- look at how, I guess, the number of products we developed in 2019, right, I think we're going to try to roll out basically -- I don't have the exact number in count, but we're going to try to roll out as many products as possible as well in 2020, with -- basically with the ramp-up R&D team.

And then lastly, on the retail expansions, yes, we have slowed down our retail expansion in Q3. Even if you look at our -- historically, if you look at 2018 and 2017, Q3 has always been a very low season to open retail stores because the Q3 has been traditionally a very hot season for selling scooters, so it's actually very difficult to turn over the stores. So typically, what -- the hot season to open stores are Q1 and Q4, so we're actually trying to accelerate our store opening in Q4 as well as Q1 2020.

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Bin Wang, Crédit Suisse AG, Research Division - China Auto Analyst [12]

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Actually, I have a last question about the outlook. It's not guidance, it's outlook. For next year, what's the operating volume number which we're expecting? If you possibly can break down about overseas and China, or especially in the China breakdown about our NIU brand and GOVA brand?

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Yan Li, Niu Technologies - Chairman, CEO & COO [13]

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This is...

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Hardy Peng Zhang, Niu Technologies - CFO & Compliance Officer [14]

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You're asking for the outlook for next year or for the fourth quarter?

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Bin Wang, Crédit Suisse AG, Research Division - China Auto Analyst [15]

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Yes. Next year, for sure. Full year next year, 2020.

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Hardy Peng Zhang, Niu Technologies - CFO & Compliance Officer [16]

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We're still working on our numbers. I think we'll probably provide an update probably through the release in next quarter.

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Operator [17]

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We have the next question from the line of [Tan Ho.]

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Unidentified Analyst, [18]

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A couple of detailed questions. One is for the bikes you sold, 149,000. And so could you please give us the breakdown for the N-, M- and U-Series? And also, how much did you sell for GOVA this series? That is number one.

Number two, the ASP in 3Q was down to CNY 3,856 and compared with 2Q at CNY 4,543. So I wonder what are the reasons behind that. That's number two. Number three. Q4, what's the plan for the store opens in Q4? That's all my questions.

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Hardy Peng Zhang, Niu Technologies - CFO & Compliance Officer [19]

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Sure. It's Hardy. Let me first answer your first 2 questions. So the mix between our product lines, as I mentioned, the N and M, the top-end 2 series, they constitute around 35% of the total sales volume in the third quarter and GOVA accounted to around 5% of the total volume, remaining 60% came from our U-Series. So this is the mix of the products in the second -- in the third quarter.

In terms of ASP, normally, we encourage you to look at the year-over-year comparison instead of quarter-to-quarter comparison, mainly because of the seasonality. If you look at the ASP from last year, you'll see a similar trend. Normally, the third quarter has the lowest average ASP throughout the year. And the reason is because the third quarter is the peak season for China sales, but the slowest season for overseas sales. Normally, the sales price of overseas products is more than double of the China sales price. So because of this mix of products, you see there is a change in the ASP. So this is first reason, part of the seasonality.

Second, it's linked to your first question, because of the change of the product mix. In last year, our top models, N and M, they accounted for around 65% of the total sales volume in that quarter. But this year, that percentage has reduced to around 35%. That also has an impact on our average sales price. So that's the 2 key contributors for the lower ASP compared with the second quarter.

For the last question on the retail expansion for the fourth quarter, I would like Yan to comment on that.

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Yan Li, Niu Technologies - Chairman, CEO & COO [20]

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So obviously, the Q4 hasn't really ended yet. So we still have a number of stores actually in construction. And so I don't -- I wouldn't be able to give an exact number by end of Q4 what number of stores we're going to have to open. And I think there will be a combination of either some of the stores that will get to open in December or some of the stores will get opened, actually, January next year. So basically, we're always looking at the Q4 this year and Q1 next year are sort of the season we need to open stores. So obviously, some stores got shifted in Q4, some stores might be got shifted in Q1.

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Operator [21]

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(Operator Instructions) At this time, there are no further questions. I'd like to hand the call back to your speakers for any closing remarks.

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Yan Li, Niu Technologies - Chairman, CEO & COO [22]

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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.

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Operator [23]

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Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.