BYD’s Q4 Margin and Vehicle Profit Beat; FVE Raised To HKD 280; H-Shares Undervalued

BYD delivered a solid fourth quarter with net profit up by 11 times year over year and at the midpoint of the company’s preliminary announcement. The company delivered a 6-percentage-point increase in vehicle margin despite rising battery costs during the period. In view of the solid results, we raise our fair value estimate to HKD 280 (CNY 244) from HKD 265 (CNY 236), which implies a 2023 price/sales ratio of 1.4 times and price/earnings ratio of 36 times. Excluding its stake in BYD Electronics, the implied forward price/sales ratio for its combined automotive and battery business is 1.7 times. Trading at 25% below our fair value estimate, we view H-shares of BYD as undervalued.