Investment Summary

BYD Took a Firm Lead for its 3Q23 Results

BYD recently published the forecast for its results of Q3 2023. It reported the net profit attributable to the parent company of RMB20.5-22.5 billion in 9M 2023, up 120-142% yoy; the net profit after deduction of non-recurring profit or loss of RMB 18.3-20.2 billion, up 119-142% yoy, with the basic EPS of RMB7.06-7.74. Calculated based on the data from the latest report, its net profit in Q1/Q2/Q3 would be RMB 4.13/6.8/9.5-11.5 billion, up 411%/145%/67-102% yoy.

In 9M 2023, the industry of new energy vehicle in China maintained rapid growth, with sales volume increasing by 37.5% yoy. BYD's sales volume of new energy vehicles robustly increased by 76% from the high base (1,180 thousand units) of 9M last year to 2,079.6 thousand units, with a market share in the market of new energy vehicles reaching 40%, increasing by 11.4 pcts from the level of 2022. In 2023, BYD owned constantly boosted brand strength, the scale advantage of continuously expanded sales volume, the cost-control capabilities of industrial chains, and the dropping prices of upstream raw materials. Due to these strong points, in the auto industry with intensified competition during H1, BYD continued to maintain good profitability, giving it a markedly rising single vehicle profit. In H1, BYD had a net single vehicle profit of approximately RMB 11,600, which increased by near 30% qoq. In terms of the component and assembly business of mobile phones, benefiting from the increased shares of major customers, and boosted emerging business such as new energy vehicles, and new types of smart products, BYD promoted its capacity utilization, further optimized its business structure, and substantially improved its profits.

BYD Set Sales Record in Sep. by Boosting Passenger and Commercial Vehicle together

According to the production and marketing update, BYD's sales volume of new energy vehicles in July was 262.2 thousand units, up 61% yoy and 4% mom, and BYD's cumulative sales volume from January to July was 1,517.8 thousand units, with an increase of 89% yoy. Among the sales volume in July, that of pure electric passenger vehicles was134 thousand units (up 66.4% yoy and 5.1% mom), that of plug-in hybrid passenger vehicles was 126 thousand units (up 55.5% yoy and 2.3% mom), and that of commercial vehicles was 1,056 units (up 234.2% yoy, and down 22.4% mom). Besides advancing successfully in the market of new energy passenger vehicles, in the sector of new energy commercial vehicles, BYD also performed conspicuously, with the sales volume of new energy commercial vehicles of 8,532 units and an increase of 143.15% yoy during the first 7 months. We believe that, the industry of new energy commercial vehicles is being in its early days of accelerated growth, e.g., the gradually decreasing operating costs of electric heavy trucks in their full life circle are expected to rapidly boost their market penetration. Moreover, the unit prices and profitability of commercial vehicles are both higher than those of passenger vehicles, so although having less stable sales volume compared with passenger vehicles, commercial vehicles have provided the resilience for the growth of BYD's performance.

Maintained Continuous and Robust Momentum in Export Sale

By proactively expanding the distribution in the overseas market, since the start of H2 2022, BYD has enabled its new energy passenger vehicles to successively enter 53 countries and regions, such as Japan, Germany, Australia, Singapore, Thailand, Brazil, and New Zealand, with overseas sales volume rising rapidly. In Sep., BYD exported new energy passenger vehicles of 28,039 units, up 12% mom, accounting for 9.75% of the total; from Jan to Sep, BYD cumulatively exported such vehicles of approximately 145.5 thousand units, with the proportion of the total increased to 7%. BYD has overseas distribution across Asia, Europe and Americas, and even performs well in some countries, e.g., Thailand and Israel where BYD was the sales champion of EVs in H1 this year. It is predicted that, supported by its highly competitive and abundant product lines, BYD has enormous potential in the overseas market, so BYD is expected to break through the sales volume of exported passenger vehicles of 200 thousand in 2023.

BYD takes constant action for high-end-based products: Its Denza brand grows better, with the sales volume of D9 breaking through 10 thousand units, and N7 and N8 successively becoming members of the brand; its Fang Cheng Bao brand features high-end, personalized, and tough off-road vehicle models; and its Yangwang brand strives for the market of premium cars each with a price tag of over RMB1 million. In the future, BYD will form a matrix comprising the brands of BYD, Denza, Yangwang, and Fang Cheng Bao, covering the comprehensive demand of users for vehicles in all dimensions and full scenarios from home-used to premium vehicles, and from public-used to personalized vehicles..

Investment Thesis

For better-than-expected FY23Q3 result, we revised the EPS forecast for 2023/2024 to 10.79/13.38 yuan, and introduce 2025E EPS to 17.74yuan. Therefore, we given the target price of 321 HK$, corresponding to 2023/2024/2025 27/22/17x P/E, BUY rating. (Closing price as at 19 October)

Risk

Sales of NEVs is not as good as expected

New business risk

Slow-down of Hand-set components business

Financials

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