EPS Miss on Higher Expenses; Setting the Table for Accelerating Growth

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By Michael Kim

NASDAQ:LOBO

READ THE FULL LOBO RESEARCH REPORT

Pre-market open on 9/30/24, LOBO EV (NASDAQ:LOBO) reported 1H24 earnings results. For the first six months of 2024, LOBO reported a net loss of $0.3 million, or $(0.04) per share, or well below our $0.10 EPS estimate. Relative to our model, while revenues came in meaningfully ahead of expectations, the EPS miss was mostly a function of higher expenses, particularly General & Administrative, as well as less favorable other income.

After updating our model for 1H24 actuals, we are lowering our 2024 and 2025 EPS estimates from $0.17/$0.26 to $0.03/$0.20. Despite a more favorable revenue outlook, our lower earnings estimates primarily reflect the 1H24 EPS miss, combined with higher expenses (mostly G&A). Our DCF model points to a fair value of $4.00 per share, down from our prior $5.00 price target due to our lower earnings outlook.

We highlight the following key takeaways:

1. Building revenue profile: Beyond rising demand for EVs more broadly, lead indicators for sustainable revenue growth for LOBO remain favorable around the company’s broadening distribution footprint, ongoing product development, and expanded manufacturing capacity (discussed next).

Focusing on distribution, senior executives remain committed to expanding LOBO’s global reach by increasingly penetrating target markets outside of China (including Eastern Europe, Southeast Asia, and Latin America) to capitalize on accelerating demand trends. Indeed, LOBO continues to win new (and larger) orders from distributors, as the company’s competitive advantages increasingly resonate with international distributors. More recent business updates include the opening of a new office in Suriname to expand the company’s presence in high-growth Latin American markets, a strategic collaboration with a key distributor in Serbia, and a potential strategic partnership with a leading distributor in Brazil that would consolidate the sourcing of electric vehicles with LOBO.

Turning to product development, management remains proactive, with plans to rollout new models in the back half of this year leveraging LOBO’s user-centric product design approach and ongoing R&D efforts. More recent product introductions include new e-moped models featuring innovative frame designs offering enhanced structural stability, new three-wheeled EVs equipped with solar panels to facilitate battery charging, and high-speed motorcycles, which carry average prices around 3x higher compared to lower-speed e-Bikes and mopeds.

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2. Expanding manufacturing output: A key differentiating factor for LOBO remains the company’s in-house manufacturing facilities located in Beijing, Tianjin, and Wuxi. Importantly, the company recently opened a new manufacturing facility that more than doubles LOBO EV’s existing production capacity in Wuxi, and upgraded operations at LOBO’s factory in Tianjin. Recent upgrades enable more efficient operations as well as more diverse assembly capabilities, while expanded manufacturing capacity translates into stepped up production volumes over time – both boding well for sustainable revenue growth in 2H24 and beyond.

3. Setting the stage for margin expansion: As mentioned earlier, 1H24 operating expenses were up meaningfully on a year-over-year basis primarily reflecting stepped up selling and marketing (headcount increases), R&D (ongoing software/product development), and G&A (higher professional fees) costs. Looking ahead, we forecast a return to profitability in 2H24 and rising operating margins in 2025 driven by building manufacturing output, continued supply chain optimization, and an ongoing focus on expense management. Furthermore, we expect margins to increasingly benefit from a more potent sales mix – both from a product standpoint (mix shift in favor of newer higher-priced/higher-margin vehicle models), as well as from a distribution perspective (contributions from higher-margin international outlets continue to outpace domestic sales).

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