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

No-moat BYD’s 01211 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.

We raise our 2023-25 vehicle sales forecasts by 5%-7% to reflect the year-to-date run-rate but our revenue forecast is largely unchanged, due to lower average selling price assumptions given continued competition. In anticipation of economies of scale and lower battery costs to offset the price competition, we factor in higher vehicle margins and raise 2023-25 earnings by 15%-19%. Our increased net profit forecast also reflects noncash foreign exchange gains as witnessed in the first two quarters.

We believe sales momentum will remain robust for the second half. We forecast total vehicle sales to reach 2.9 million units in 2023, up 55% year over year. Recently launched new models—the Song L SUV, the new-generation Tang sedan, and the Seagull DM-i sedan—should further solidify its leading position in the mass new energy vehicle segment. In addition, the company’s premium brands Denza and Yangwang also released new models, such as the Denza N7 and Denza N8, to penetrate the luxury segment.