BYD Earnings: Revenue and Net Profit In Line; Solid Vehicle Margin Despite Price Competition Concern

BYD’s 01211 first-quarter revenue and net profit grew by 80% and 411% year over year, respectively, accounting for 23% and 21% of our full-year forecast. Despite rising industrywide price competition during the period, the company delivered a 5-percentage-point increase in vehicle margin compared with a year ago. We maintain our revenue forecast but raise 2023-25 net profit by 2%-7% to factor in a higher margin outlook. We raise our fair value estimate to HKD 295 (CNY 256) from HKD 280 (CNY 244), which implies a 2023 price/sales ratio of 1.4 times and price/earnings ratio of 37 times. Excluding its stake in BYD Electronics, we estimate the implied forward price/sales ratio for the combined automotive and battery business is 1.7 times. Trading at 20% below our fair value estimate, we view H-shares of BYD as undervalued.

With passenger new energy vehicle volume up 92% year over year in the first quarter, we believe sales momentum will remain robust for BYD. We forecast total vehicle sales to reach 2.7 million units in 2023, up 45% year over year. Its recently launched new models—the Song L sport utility vehicle and the Destroyer 07—should further solidify its leading position in the mass NEV segment. The company also unveiled a new entry level small sedan Seagull for a wider customer base. The company’s premium brands Denza and Yangwang also released new models to penetrate the luxury segment.

We believe BYD’s current model portfolio, built on leading in-house blade battery and DM-i technology, is competitive in terms of driving range and energy efficiency. Driven by expansion in vehicle delivery, we estimate the company’s revenue to register a 23% CAGR in 2022-25. The development of battery density would result in higher profitability over the longer term. As a result, lower unit production cost would lead to improved outlook for vehicle profit. We see the company’s net profit growing at 34% CAGR during 2022-25, reaching CNY 40 billion in 2025.