20150617-光大证券-Poised_to_Gain_from_Strong_Product_Line-up_13页_249kb

BYD Co Ltd (1211 HK) Summary

Core Content

BYD Co Ltd is a Chinese multinational company primarily involved in the manufacturing and sale of traditional and new energy vehicles (NEVs), as well as in the production of batteries and handset components. The company is positioned to benefit from its strong product lineup and supportive policy environment in China.

Key Highlights

• Product Launches in 2015:
  BYD plans to launch four new NEV models in 2015, including the Tang in June, Song in 3Q15, and Yuan and Shang in 4Q15. This expands its NEV product mix to five models, with the Tang priced below Rmb300k.
  In the traditional vehicle segment, the company will also introduce two new SUVs, S3 and S1, in 2H15.

• Capital Raising:
  BYD announced a private A-share placement to raise up to Rmb15bn, with the issue price at least Rmb57.4. The funds will be allocated to battery capacity expansion, NEV R&D, and working capital.
  The capital replenishment is expected to strengthen the NEV product pipeline and alleviate the company's financial burden, as its net gearing at the end of 2014 was 103%.

• Subsidy Reductions:
  The central government plans to reduce subsidies for NEVs, with a 20% cut from 2016 levels in 2017-18 and a 40% cut in 2019-20. This could affect consumer sentiment and demand for NEVs, though supportive policies are expected to mitigate the impact over the medium term.

• Growth Outlook:
  Sales volume for NEVs is expected to grow by 202% y/y to 63,000 units in 2015, driven by policy incentives and increasing popularity.
  Traditional vehicle sales are projected to grow by 12% in 2015, though the segment faces intense competition and declining prices.
  Total revenue for 2015 is estimated at Rmb70bn, with NEVs accounting for 57% of total revenue and automobiles for 65%.

• Valuation:
  The target price of HK$56 is based on a 50x PE multiple for 2015 earnings, which are estimated at Rmb2,171m.
  The current share price of HK$50.85 suggests a 10% upside potential.
  The company trades at a higher PE and PB than its traditional ICE peers, indicating a premium valuation.

Financial Performance and Metrics

Investment Summary

• Growth Drivers:

  • Launch of new NEVs, including Tang, Song, Yuan, and Shang.
  • Expansion into the SUV segment, with S7 and S6 as best-selling models.
  • Capital raising to support R&D and production.
  • Government subsidies and policy support for NEVs.

• Risks:

  • Fierce competition from global automakers in the EV market.
  • Potential reduction in subsidies from 2017 onwards, which may affect consumer demand.
  • Risk of product recalls or battery-related issues.

Business Segments

• Automobile Segment (57% of 2015 revenue):

  • Includes both traditional ICE vehicles and NEVs.
  • NEVs accounted for 28% of 2015 revenue, up from 12% in 2014.

• Handset Components and Assembly (36% of 2015 revenue):

  • Uses proprietary PMH technology, which is popular among global manufacturers.
  • Expected to see margin improvement due to rising demand for metallic casings.

• Rechargeable Batteries and PV (7% of 2015 revenue):

  • Active in developing high-energy-density batteries, such as LFP batteries.
  • The solar segment continues to report losses due to price competition.

Strategic Initiatives

• Overseas Expansion:

  • Established a production facility in Brazil for electric buses and batteries.
  • Secured a major order in the U.S. for 60 electric buses, enhancing credibility in international markets.

• Subsidiary Performance:

  • BYD Electronic (285.HK) is expected to see a significant contribution to earnings, with metallic casings accounting for 50% of its revenue in 2015.

Valuation Comparison

Conclusion

BYD is positioned for growth through its expanding NEV product line, strong R&D focus, and strategic capital raising. The company benefits from supportive government policies and is expected to see a significant increase in earnings due to new models and a one-off gain from the sale of its subsidiary. Despite potential challenges from subsidy reductions and competition, the company's valuation is considered attractive, and it is recommended for an Accumulate rating.