BYD Earnings: Strong Vehicle Margin and Handset Component Recovery

We raise our fair value estimate for the EV maker.

Morningstar 02.11.2023
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Key Morningstar Metrics for BYD

  • Fair Value Estimate: HK$ 316
  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: None
  • Morningstar Uncertainty Rating: High

 

BYD Earnings Update

BYD delivered solid third-quarter results with net profit up by 82% year over year, at the midpoint of the company’s preliminary announcement. Thanks to the strong vehicle margin and recovery of the mobile handset segment, both revenue and net profit beat our expectations. Despite rising industrywide price competition during the period, the company delivered a 3-percentage-point increase in vehicle margin compared with a year ago. In view of the solid results, we lift our 2023-25 net profit forecasts to factor in a higher margin outlook.

We raise our fair value estimate to HKD 316 (CNY 281) from HKD 306 (CNY 272), which implies a 2024 price/sales ratio of 1.2 times and price/earnings ratio of 22.7 times. Excluding its stake in BYD Electronics, the implied forward price/sales ratio for the combined automotive and battery business is 1.4 times. Trading at about 25% below our fair value estimate, we view H-shares of BYD as undervalued.

With passenger new energy vehicle, or NEV, volume up 53% year over year in the third quarter, we believe sales momentum will remain robust for the rest of the year. Recently launched new models—the Song L SUV, new generation Tang sedan and Seagull DM-i sedan—should further solidify its leading position in the mass NEV 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.

We slightly raise our 2023 vehicle sales forecast by 2% to reflect the year-to-date run-rate. We forecast total vehicle sales to reach 2.9 million units in 2023, up 57% year over year. Together with sales recovery of the handset component segment, we increase our 2023-25 revenue forecasts by 3%-4%. As we factor in the higher vehicle margin witnessed in the third quarter, we raise 2023-25 net profit by 6%-19% in anticipation of lower battery costs and economies of scale to offset the price competition.

Vincent Sun, equity analyst at Morningstar

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BYD Co Ltd ADR53.40 USD0.62
BYD Co Ltd Class H205.00 HKD-0.97Rating

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