A Strong Beat for BYD With Third-Quarter Vehicle Margin; H-Shares Undervalued

BYD delivered a solid third quarter with net profit up by 3.5 times year over year and at the midpoint of company’s guidance. However, we consider the results a high-quality beat as BYD delivered 5 percentage points increase in vehicle margin and at the same time recorded a CNY 787 million impairment loss during the quarter. If stripping out noncash impairment loss and foreign exchange gain, net profit came in 3% higher than the high end of guidance. While the first nine months' revenue accounted for 75% of our full-year forecast, net profit for the nine months has already exceeded our full-year number thanks to a significant improvement in margin.