Company Profile

Founded in 1995, BYD's main business is now composed by IT (rechargeable battery and handset component), automobiles and new energy (solar farm, battery energy storage station, electric vehicle, and LED, etc). In 2003, It entered automobile business by purchasing Tsinchuan Auto. BYD was listed on HKEx in July 2002.

Summary

-Sales increased by 16% y-y in the first eleven months: After the boom season in September and October, there was still a bull market in China's Nov. passenger vehicle sector, monthly sales reached the second highest this year. In Nov., sales of China's passenger vehicles increased by 16% y-y and 5.6% m-m respectively to 1.6963 million units, among which sedan and SUV increase by 9.2% and 59% y-y respectively. The sales of BYD reached to 45,363 units, dropped 10% y-y due to the high base of the same period of last year, but up 7.5% m-m. The cumulative sales recorded 0.4597 million units in the first eleven months, up 16.4% y-y, around 92% of the sales target, which will most probably achieve the previous target, and we estimate the annual sales would increase by 15% approximately.

-Closer look for different models: As for different models, BYD's SUV S6 recorded the sales with the amount of 10,054 units, up 29.5% y-y, and the same growth rate compared with October, ranking in the top 9 in the domestic SUV market. For compact sedan, Speed and L3 had the better performance with the amount of 21, 271 units in sales totally, up 5.5% y-y. F3 only sold 5,114 units due to the coming upgrading of the model, down 41% y-y. In the mid-size models, Sirui and G6 sold 3,600 units in total. Small-sized model F0 maintained the sales of 4,000 units approximately.

-The new journey of its new energy cars from the launch of Qin: On 17th Dec., BYD's second-generation PHEV model “Qin” has been launched, with the maximum output of 300 horsepower, the maximum speed of 185km/h, 1.6L/100km of comprehensive fuel consumption, 70km at the all-electric model (which basically meet the needs of the working in the city). There are two models with the selling prices of RMB189,800 and RMB209,800 respectively, which can have national subsidy RMB35,000, and add RMB35,000 more in Shenzhen, with the lowest price of around RMB120,000. We think Qin has quite strong price advantages considering 12.1 inch LCD touching screen, and other technology equipments such as the i-robot. However, we believe the volume of Qin will only increase sharply after the detailed of the subsidy in each city announced in future, given the wait-and-see attitude of its potential customers.

-New models will help to increase the ASP in 2014: the new cars worth expecting in 2014 include: the new generation of F3, which vehicle wheelbase increases, and it is expected to carry 1.5L/1.5T/1.2T engine and dual clutch transmission. If it can continue last generation's value for money performance, the market performance is hopeful to be optimism. For SUV, the new type of S6, with 2.0T is expected to be introduced, whose interior equipment will be obviously improved. As the new energy car is concerned, the EV model “DENZA “ which is coproduced with Daimler and the PHEV SUV “Tang” are expected to be introduced, and the latter's power will be stronger, which 100km speed acceleration reaches 4.9s. Besides, the small type of SUV S3, 1.2T edition L3, Speed Sport edition and a new A+ sedan G5 will also be launched one after another.

-The IT business will be the new bright spot of performance this year: pushed by the demand eruption for its composite material and metal-material phone casing, the profits of BYD's phone business increased strongly, which performances in the first half year have surpass all last year. The company has developed orders of shell equipments and tablet computers from such famous phone brands as HTC, Samsung, Apple and HP recently, which made the company's production structure and gross profit level improved continuously. We believe the new high-tech orders have helped the company's IT business usher the harvest period of achievements. .

-Valuation: We revise our EPS forecast to RMB0.37/0.67/0.87 for FY2013/2014/2015. However, under the improvement of its performance and the room of the technologies of new energy automobiles, it is worth looking forward to the Company's development prospects in future. We lift our target price to HKD 44, equivalent to 94/51/39 x of the expected P/E, and 3.6/3.3/3 x of expected P/B for 2013/2014/2015 respectively, “accumulate” rating.

Risk

1) Slackened economy largely reduced demands for auto, handset and batteries;

2) Uncertainty of new energy's future development;

3) Rising raw material cost;

4) Lower‐than‐expected new car model sales and distributor network risk

Click Here for PDF format...