20220419-招银国际-比亚迪电子-00285.HK-1Q22_profit_warning__Headwinds_to_persist_into_2Q22_6页_952kb

BYD Electronics (285 HK) Company Update Summary

Core Content

This report provides an update on the financial performance and outlook for BYD Electronics (285 HK), highlighting the challenges the company faces in the first quarter of 2022 and beyond. The report includes an analysis of earnings, revenue, profit margins, and valuation metrics, alongside a review of the company's shareholding structure and market performance.

Key Information

• Profit Warning: BYD Electronics issued a profit warning for 1Q22, with a net profit decline of 75–85% YoY, far below expectations. The mid-point of the range was RMB 162 million, which represents 6% / 5% of the analyst's / consensus FY22E net profit estimates.
• Reasons for the Miss: The decline was attributed to weak customer demand, low production utilization, and tightened COVID-19 control measures affecting production bases in Shanghai, Kunshan, and Huizhou.
• 1H22 Outlook: The first half of 2022 is expected to remain challenging due to Android demand weakness (comprising 55% of sales), slower ramp-up in iPad and e-cigarette segments, and margin pressure.
• Revenue and Profit Forecasts:
  • 1H22E revenue is projected to decline by 27% YoY, primarily due to a 34% YoY drop in assembly/component sales.
  • 1H22E net profit is expected to drop 57% YoY, driven by conservative gross margin estimates (6.1% vs 6.9% in 1H21).
• Earnings Revision: The analyst has revised FY22–24E EPS downward by 14–30%, reflecting the challenges mentioned above.
• Valuation: The target price (TP) has been adjusted to HK$12.45, implying a 13.1x FY22E P/E. This is considered fair given the current valuation of 15.4x FY22E P/E and the lower earnings visibility amid ongoing headwinds.
• Market Position: The company is a wholly-owned subsidiary of China Merchants Bank, and the report includes a comparison with other listed companies in the sector.

Main Points

• Challenges:
  • Weak demand for Android devices.
  • Slower ramp-up in iPad and e-cigarette segments.
  • Margin pressure from industry slowdown.
  • Impact of COVID-19 on production and consumer demand.
• Performance:
  • Net profit for 1Q22 was RMB 162 million, 17% below the analyst's estimate and 14% below the consensus.
  • Gross margin for 1Q22 was 6.1%, down from 6.9% in 1H21.
  • Net margin was 1.1%, down from 2.8% in the same period.
• Valuation Analysis:
  • The target price is HK$12.45, 15% below the previous target price of HK$17.98.
  • The implied P/E is 13.1x, based on a weighted average of P/E multiples for different business segments.
  • The current P/E is 15.4x, which is considered fair due to the uncertainty in earnings.

Business Segments and Revenue Breakdown

• Assembly:
  • Comprises 55% of FY22E revenue.
  • FY22E revenue is RMB 43,500 million.
  • Gross margin is 7.1%.
• Components (metal/glass/plastic):
  • Comprises 26% of FY22E profit.
  • FY22E revenue is RMB 12,650 million.
  • Gross margin is 8.4%.
• Masks:
  • Comprises 2% of FY22E profit.
  • FY22E revenue is RMB 610 million.
  • Gross margin is 7.1%.
• New Intelligent Products:
  • Comprises 20% of FY22E profit.
  • FY22E revenue is RMB 15,547 million.
  • Gross margin is 9.5%.
• Auto Intelligent Systems:
  • Comprises 8% of FY22E profit.
  • FY22E revenue is RMB 6,409 million.
  • Gross margin is 4.0%.

Shareholding and Stock Performance

• Shareholding Structure:
  • Golden Link Worldwide Ltd holds 65.76% of shares.
  • Gold Dragonfly Ltd holds 4.98%.
  • Vanguard Group holds 1.25%.
• Stock Performance:
  • 1-month return: -20.0%.
  • 3-month return: -42.6%.
  • 6-month return: -39.4%.
  • 12-month return: -28.4% relative to the market.

Financial Summary

• Revenue:
  • FY20A: RMB 73,121 million.
  • FY21A: RMB 89,057 million.
  • FY22E: RMB 78,716 million.
• Net Profit:
  • FY20A: RMB 5,441 million.
  • FY21A: RMB 2,310 million.
  • FY22E: RMB 1,781 million.
• EPS:
  • FY20A: RMB 2.41.
  • FY21A: RMB 1.03.
  • FY22E: RMB 0.79.
• P/E:
  • FY20A: 5.0x.
  • FY21A: 11.9x.
  • FY22E: 15.4x.
• P/B:
  • FY20A: 1.8x.
  • FY21A: 1.7x.
  • FY22E: 1.6x.

Analyst Recommendations

• Current Rating: HOLD.
• Target Price: HK$12.45.
• CMBIGM Ratings:
  • BUY: Potential return of over 15% over the next 12 months.
  • HOLD: Potential return of +15% to -10% over the next 12 months.
  • SELL: Potential loss of over 10% over the next 12 months.
  • NOT RATED: Stock not rated by CMBIGM.
  • OUTPERFORM: Industry expected to outperform the market.
  • MARKET-PERFORM: Industry expected to perform in-line with the market.
  • UNDERPERFORM: Industry expected to underperform the market.

Conclusion

The report concludes that BYD Electronics is facing significant challenges in the first quarter of 2022, with a profit warning and lower-than-expected earnings. Despite the positive outlook for the company's Apple OEM/components and expansion into the automotive segment, the analyst maintains a HOLD rating due to ongoing headwinds and lower earnings visibility. The target price is adjusted to reflect the revised earnings forecasts and lower growth expectations. The current valuation is considered fair, given the lower earnings visibility and industry challenges.