Company Overview: Vmoto Limited (ASX: VMT) is engaged in the manufacture, development, marketing and distribution of electric two-wheel vehicles. The company has its operations in Australia, China, Europe and Singapore. It has its manufacturing unit located in Nanjing, China and has a warehouse and distribution centre in Netherlands and Italy.
VMT Details
Rise in Sales On the Back of International Expansion of Products: Vmoto Limited (ASX: VMT) is an electric two-wheel vehicle manufacturing and distribution company, which is primarily engaged in the manufacture of electric mopeds and electric motorcycles. The market capitalisation of the company as on 02 July 2021, stood at ~$98.87 million. The company has witnessed increased traction in sales and reported 5,869 total units sold in Q1FY21, reflecting an increase of ~42% on the previous corresponding quarter. The international unit sales stood at 5,636 units during the period, an increase of ~51% on pcp basis.
During Q1FY21, the company posted robust performance and have received international orders of 10,702 units as of 31 March 2021. This includes 5,904 units of B2B order from Greenmo Group, with 3,864 expected to be delivered in Q2FY21. It reported positive operational cash flow during the period. VMT ended Q1FY21 with a cash balance of $15.8 million, with no bank debt as at 31 March 2021.
Cash Balance Trend (Source: Analysis by Kalkine Group)
Growth in B2C and B2B Business Units: The company has witnessed an increased interest and demand for its B2C products amongst motorcycle enthusiasts and other consumers. The B2B product segment also received interest from food delivery, parcel delivery, ride-sharing operators, etc., to name a few. In this regard, VMT supplies products to seven ride-sharing players on a global basis and is in an advanced stage of discussions with an additional fifteen ride-sharing operators. It also supplies products to thirteen delivery customers and is in the middle of discussions with further fifteen potential new customers in the B2B market segment.
Signing of Distribution Agreements: During Q1FY21, the company has signed and renewed its distribution agreements with international distributors across the regions of Ecuador, Peru, French Polynesia, Israel, Vietnam and Georgia. This is in regards to the warehousing, distribution and marketing of its B2C range of electric two-wheel vehicles. It is also in the middle of discussions with potential distributors worldwide in order to expand its reach.
Sales Boost Through MotoE Agreement: The company has recently signed a sponsorship and marketing agreement with Europe based Dorna Sports S.L., a leading sports management firm. As per the agreement, VMT can supply its products and exhibit its brands at the world-class electric motorcycle racing event, FIM ENEL MotoE World Cup during the 2021-2023 seasons. This provides the company with an opportunity to expand its brand and presence and pitch to new customers.
Top 10 Shareholders: The top 10 shareholders together form around 42.18% of the total shareholding, while the top 4 constitute the maximum holding. Chen (Yiting Charles) and Munro (Raymond Edward) are holding a maximum stake in the company at 8.07% and 7.74%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: During FY20, the company delivered decent margin performance and reported gross margin at 24%, compared to 21.5% in FY19. There was also an improvement in the net margin to 6% in FY20. ROE of the company stood at 14.9%. The liquidity improved with the current ratio at 3.58x in FY20, from 2.21x in FY19.
Growth Profile and Profitability Metrics (Source: Analysis by Kalkine Group)
Key Risks: The company has the first-mover advantage in the industry, but it is still exposed to the risk of stiff competition from its peers who might have greater R&D capabilities, better product innovations and price advantages. The Group also partners with different organisations to carry out their business, and any adverse impact on the partner firm's performance might impact VMT's earnings. Its line of business also exposes it to prudent regulatory purview, and it has to comply with the rules and regulations.
Outlook: The company will look to build on its sale of high-performance electric vehicles into international markets and focus on expanding the B2B and B2C distribution network. It has maintained a decent order book and expects sales to increase with repeat orders from existing customers. VMT also anticipates orders from new customers globally in FY21 and beyond.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
**FY21E Sales Estimates are Based on Historical 7-year CAGR Performance in Sales
Stock Recommendation: The company is optimistic that it will be able to replicate its strategy with decent execution and achieve continued growth in FY21 and beyond. As per ASX, the stock of VMT is trading below its average 52-weeks’ levels of $0.305-$0.670. The stock of VMT gave a positive return of ~8.82% in the past one year and a positive return of ~2.77% in the past one week. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer median EV/Sales (NTM trading multiple), considering the historical discount of its trading multiple to its peers, and the prevalence of COVID-19 in its key markets worldwide, especially in India. For this purpose, we have taken peers such as GUD Holdings Ltd (ASX: GUD), Carbon Revolution Ltd (ASX: CBR), to name a few. Considering the expected upside in valuation and current trading levels, decent rise in the number of units sold, distribution agreements, MotoE agreement, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.36, up by 1.4% (as on 02 July 2021, 01:12 PM (GMT+10), Sydney, Eastern Australia).
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VMT Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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