By Michael Kim
NASDAQ:LOBO
READ THE FULL LOBO RESEARCH REPORT
We are initiating coverage of LOBO EV Technologies Ltd. (NASDAQ:LOBO) with a 12-month price target of $5.00, translating into sizeable upside from the stock’s current price. LOBO EV designs, develops, and manufactures micro mobility electric vehicles and sells products through a broad-based dealership network. The company’s product lineup includes e-Bicycles, e-Mopeds, e-Tricycles, and electric off-highway four-wheeled shuttles. In addition, LOBO provides automobile information and entertainment software development and design services.
Our investment thesis revolves around LOBO’s:
1. Unique Positioning: In our minds, LOBO EV maintains four key differentiating factors/competitive advantages. First, the company offers a full suite of environmentally-friendly electric vehicles designed to meet a diverse set of customer needs. Second, in-house manufacturing and an established supply chain facilitates quality control, flexible production, operating efficiencies, and capacity optimization. Third, LOBO EV utilizes a wholesale distribution model in which the company sells electric vehicles (EVs) to a network of 200 dealers that retail products to end customers across China, Southeast Asia, Eastern Europe, Latin America, and the U.S. Fourth, the company provides In-Vehicle Infotainment (IVI) software development and design services to top automobile manufacturers across Asia via leading third-party suppliers.
2. Multi-Layered Growth Story: The global e-Bike Total Addressable Market (TAM) is large (valued at $41 billion in 2022) and growing (projected to reach $78 billion by the end of 2028 – translating into a 12% CAGR). Looking ahead, we expect demand for e-Bikes to remain high reflecting a number of powerful tailwinds including rising ESG adoption, ongoing government/regulatory support, technological advancements driving product innovation, and improving accessibility and affordability reflecting building economies of scales as volumes across the industry trend higher and more efficient/streamlined manufacturing processes.
From a company-specific perspective, we see four key drivers underpinning accelerating growth, particularly outside of China. First, the company is increasing manufacturing capacity, with IPO proceeds allocated to further build out facilities and ramp up production in response to accelerating global demand. Second, management remains committed to increasingly penetrating foreign markets by establishing factories in Asia, Eastern Europe, Latin America, and the U.S., and forming partnerships with local manufacturers and distributors to better serve rising demand across these regions. Third, the company remains focused on ongoing product development, leveraging its competitive advantages in technology, R&D, and design processes. Finally, LOBO EV is enhancing the company’s marketing strategies, focusing on continued participation in industry exhibitions, utilizing Alibaba’s platform more effectively, launching new e-commerce capabilities, and expanding its presence on social media channels.
3. Reaccelerating Financials: We are introducing 2024 and 2025 EPS estimates of $0.17 and $0.26, respectively, implying 12% year-over-year growth this year (skewed by a 20% step up in shares outstanding as a result of LOBO’s March 2024 IPO) followed by 50%+ growth in 2025. Key modeling inputs include reaccelerating revenue growth reflecting increasingly penetrating higher-growth markets, a ramp up in production as manufacturing capacity expands, ongoing product development, broadening distribution reach, and accelerating export volumes. Furthermore, our model incorporates rising profitability given more favorable gross margins, as manufacturing and distribution continues to scale, combined with an ongoing focus on expense management.
4. Strong Capital Position: Pro forma LOBO’s IPO (1.38 million shares at $4.00), the company maintains $5+ million of cash and cash equivalents, with minimal debt on the balance sheet. As such, LOBO maintains a strong capital base to accelerate growth. More specifically, management plans to allocate ~40% of IPO proceeds to upgrade and expand the company’s manufacturing facilities/capacity, and approximately 10% to fund R&D initiatives, with the residual roughly 50% earmarked for working capital. Beyond a strong balance sheet, we forecast LOBO to generate accelerating free cash flows, as the business continues to scale.
Stepping back, LOBO maintains an asset-light business model. The company’s manufacturing process leverages a just-in-time production model to align supply and demand trends, streamline practices, optimize efficiencies, and minimize inventories. Furthermore, LOBO outsources the production of select models to allocate in-house manufacturing capacity to higher-margin products.
5. Attractive Valuation: Given LOBO’s unique e-Bike focused business model and long-term growth potential, the current stage in the company’s lifecycle, and the lack of truly comparable stocks, we are leaning on our DCF model to value LOBO. Furthermore, our analysis of peer valuation multiples supports our DCF-based price target. At a high level, despite what we believe to be conservative inputs/assumptions, our valuation work suggests a wide disconnect between LOBO’s fundamentals and the stock’s current price. The current discrepancy seemingly offers investors an attractive entry point as awareness and appreciation of the company’s business model, competitive positioning, and growth prospects increasingly emerges.
Our report provides a deep dive into LOBO EV’s broadly diversified product portfolio focused on EVs, in-house manufacturing and established supply chain, and expanding distribution network. In addition, we present LOBO EV’s multi-layered growth story, introduce the senior management team, and walk through our financial model and valuation analysis. The final section summarizes what we believe to be key investment risks specific to the macroeconomic backdrop and competitive landscape, LOBO EV’s dealer network, e-Bike affordability, and battery safety.
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