20230330-招银国际-比亚迪股份-01211.HK-Fair_valuation_despite_FY22_high_earnings_quality_4页_835kb

BYD Company (1211 HK) Summary

Core Content

This report provides an equity research update on BYD Company (1211 HK), analyzing its financial performance, valuation, and future outlook for FY23 and FY24. The report highlights that despite strong earnings in FY22, the company's current valuation is considered fair. The analysts maintain a HOLD rating with a target price of HK$230, reflecting a +5.5% upside from the current price of HK$218.00.

Main Points

• Earnings Quality in FY22:
  BYD's FY22 net profit of RMB 16.6bn was in line with its profit alert. The gross profit margin (GPM) for the auto segment was 0.7 ppt higher than previous estimates. While the company capitalized only 8% of its RMB 20.2bn R&D investments, this still contributed to high-quality earnings. However, its PP&E more than doubled to RMB 132bn, which may pose a challenge if capacity utilization declines.

• FY23E Profitability Outlook:
  The report raises the FY23E GPM forecast for the auto business by 1 ppt to 18.9%, although it is 1.5 ppts lower than FY22. This adjustment accounts for the subsidy phase-out, with the analysts assuming 2/3 of the margin impact will be absorbed by economies of scale. Additionally, the FY23E sales volume is increased by 0.29mn units to 2.75mn units, driven by the export boom. Consequently, the FY23E net profit is estimated at RMB 22.9bn, or RMB 7,800 per vehicle (excluding BYDE's net profit contribution).

• Valuation and Key Risks:
  The analysts maintain a HOLD rating and a target price of HK$230, based on a 25x FY23E P/E multiple. They believe that P/E is a suitable valuation method given the company's current profitability. The current P/E is significantly higher than Chinese traditional automakers (5-15x) but lower than Tesla's (40x). A sum-of-the-parts (SOTP) valuation is also provided, as shown in Figure 4, which supports the target price. Key risks include variations in NEV sales volume and margins, as well as sector re-rating or de-rating.

• Growth Potential:
  While BYD's market share in China may limit its earnings growth potential in the next 2-3 years, the analysts suggest that overseas markets will be crucial for future growth. However, the maturity of the industry may reduce the effectiveness of its vertically integrated supply chain, which was a key advantage in recent years.

Financial Highlights

Key Risks

• Limited Earnings Growth in China:
  With a significant market share in China, the upside potential for earnings growth may be limited.

• Impact of Subsidy Phase-Out:
  The analysts believe that 2/3 of the margin impact from the subsidy phase-out will be offset by economies of scale.

• PP&E Burden:
  A doubling of PP&E in FY22 could become a burden if capacity utilization declines.

• Sector Re-rating/De-rating:
  A potential re-rating or de-rating of the auto sector could affect the company's valuation.

• Overseas Growth Uncertainty:
  While the overseas market is seen as a key growth driver, it is still too early to determine the success of this strategy.

Analysts

• SHI Ji, CFA
  (852) 3761 8728
  shiji@cmbi.com.hk

• DOU Wenjing, CFA
  (852) 6939 4751
  douwenjing@cmbi.com.hk

• GU Sijie
  jasongu@cmbi.com.hk

Shareholding Structure

Share Performance

SOTP Valuation

Financial Summary

Income Statement

Cash Flow Summary

Balance Sheet

Key Ratios

Analyst Certification

The research analyst certifies that:

1. The views expressed in the report accurately reflect his or her personal views.
2. No part of his or her compensation is directly or indirectly related to the specific views expressed.
3. The analyst has not traded in the stock covered in the report within 30 calendar days prior to the report's release.
4. The analyst will not trade in the stock covered in the report for 3 business days after the report's release.
5. The analyst does not serve as an officer of any Hong Kong listed company covered in the report.
6. The analyst has no financial interests in the Hong Kong listed companies covered in the report.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• HOLD: Stock with potential return of +15% to -10% over the next 12 months.
• SELL: Stock with potential loss of over 10% over the next 12 months.
• NOT RATED: Stock not rated by CMBIGM.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Important Disclosures

• This report is for informational purposes only and is not investment advice.
• Past performance does not guarantee future results.
• The report may be subject to change without notice.
• CMBIGM does not assume liability for any loss, damage, or expense arising from reliance on the report.
• The information is based on public data and is not guaranteed for accuracy or completeness.
• The report is intended for specific recipients and may not be reproduced or distributed without prior consent.

Legal and Distribution Notes

• The report is not an offer or solicitation to buy or sell any securities.
• It is intended solely for major US institutional investors in the United States.
• In the UK, it is only provided to individuals falling within Article 19(5) of the Financial Promotion Order.
• In Singapore, the report is distributed by CMBISG, an Exempt Financial Adviser, and is only legally responsible to Accredited Investors, Expert Investors, or Institutional Investors.

Contact Information

CMB International Global Markets Limited
Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong
Tel: (852) 3900 0888
Fax: (852) 3900 0800