BYD Earnings: Revenue and Profit In Line; Despite Competition, Vehicle Margin Beat on Scale

No-moat BYD’s second-quarter revenue and net profit grew by 67% and 1.4 times year over year, respectively. Despite rising industrywide price competition during the period, the company delivered a 4-percentage-point increase in vehicle margin compared with a year ago. Our revenue forecast is largely unchanged but we raise our 2023-25 net profit estimates to factor in a higher margin outlook. We raise our fair value estimate to HKD 306 (CNY 272) from HKD 295 (CNY 256), which implies a 2024 price/sales ratio of 1.2 times and price/earnings ratio of 23.3 times. Excluding its stake in BYD Electronics, the implied forward price/sales ratio for the combined automotive and battery business is 1.4 times, in our estimate. Trading at 25% below our fair value estimate, we view BYD's H-shares as undervalued.