20200723-招银国际-比亚迪-002594.SZ-Hidden_giant_in_the_cave_52页_4mb

BYD (002594 CH) Equity Research Summary

Core Content Overview

CMB International Securities initiates coverage of BYD (002594 CH) with a BUY rating and a target price of RMB112.12 per share, which represents a 26.0% upside potential from the current price of RMB88.99. The research highlights BYD's strong position in the rapidly growing New Energy Vehicle (NEV) market in China, driven by government policy support and technological innovation. The NEV market is projected to grow at a CAGR of 43% from 2020E to 2025E, with sales expected to reach 6.22 million units by 2025E.

Main Points

1. NEV Market Growth

• Growth Potential: The NEV market in China is expected to grow rapidly, with a CAGR of 43.4% from 2020E to 2025E.
• Subsidy Policy: The government has extended subsidies until the end of 2022, and introduced double credit policy to support long-term development.
• Market Maturity: The NEV market is becoming more mature, with cost reduction and technology advancement as key drivers.
• Sales Forecast: NEV sales in 2020E are expected to decline by 15% YoY to 1.02 million units, but will rebound significantly in 2021E due to policy support and cost efficiency.

2. BYD's Competitive Position

• Market Leader: BYD is a pioneer in the NEV sector, ranking No.1 in NEPV and No.4 in NECV in 2019.
• Product Diversification: BYD offers a wide range of NEV products, including BEV, PHEV, and EV buses, and is expanding its product matrix to cover both lower and higher-end markets.
• Strategic Innovations:
  • Blade Battery: Launched in 2020, this battery improves safety and range, and is expected to drive significant incremental income.
  • DM4.0 Platform: Expected to be launched in 4Q20E, supporting NEV sales growth.
  • IGBT Module: BYD has introduced strategic investors and is preparing to externalize IGBT sales, which is crucial for import substitution in the NEV supply chain.

3. Financial Performance

• Revenue Growth: BYD's auto segment revenue is expected to grow by 47% YoY to RMB83.3bn in 2021E, with total vehicle sales (ICE and NEV) expected to rise by 34% YoY.
• Earnings Growth: Net income is projected to increase significantly, with EPS rising from RMB1.04 in 2021E to RMB2.58 in 2022E, reflecting a 147% CAGR.
• Valuation Metrics:
  • P/E Ratio: Expected to drop from 85.24x in 2021E to 34.53x in 2022E.
  • P/B Ratio: Expected to decline from 3.91x in 2021E to 3.45x in 2022E.

4. Business Segments

• Auto Segment: Accounts for 49.5% of sales and 66.5% of gross profit in 2019, with NEV being a key growth driver.
• Handset Components & Assembly Services: Contributes 41.8% of sales and 24.0% of gross profit.
• Secondary Rechargeable Batteries & Photovoltaics: Contributes 8.2% of sales and 9.4% of gross profit.
• Other Business (Cloud rail, etc.): Contributes 0.5% of sales and 0.1% of gross profit.

Key Information

• Blade Battery: A new product that improves safety, range, and cost efficiency. The second generation is being developed with better cost and energy density.
• IGBT Business: BYD holds 72.3% equity in the IGBT business, which has a CAGR of 68% expected through 2025E.
• Market Position: BYD is the global leader in PHEV sales, No.2 in NEV sales, and No.3 in BEV sales.
• Technology Leadership: BYD has adopted international talent in key areas like design, NVH, chassis, and interior to enhance product quality and brand recognition.
• Shareholding Structure:
  • Wang Chuanfu: 18.83%
  • Lv Xiangyang: 8.77%
  • Bershire Hathaway Energy: 8.25%

Valuation and Investment Outlook

• Target Price: RMB112.12, offering a 26.0% upside potential.
• Earnings Outlook: BYD is expected to benefit from increased NEV sales, cost reductions, and component business growth, which will significantly lift its valuation.
• Re-rating Process: The company is undergoing a re-rating process due to supply chain openness and value release in power battery and IGBT segments.
• Long-term Growth: The NEV market is expected to reach cost parity with ICE by 2023E, which will drive accelerated sales growth and higher ASPs.

Risk Factors

• Market Competition: Increased competition from both domestic and international OEMs.
• Policy Uncertainty: Potential changes in government subsidies and regulations.
• Technological Challenges: The need for continuous innovation in battery and component technology.
• Economic Conditions: Demand fluctuations due to economic downturns or policy changes.

Conclusion

BYD is well-positioned to benefit from the rapid growth of the NEV market in China, driven by policy support, technological advancements, and strategic product launches. The company's strong brand recognition, technical expertise, and diversified business segments make it a compelling investment in the NEV and renewable energy sectors.