Company Overview
BYD Co Ltd, established in 1995, is a Chinese company that has grown from a battery manufacturer to a major player in the new energy vehicle (NEV) industry. The company has also diversified into mobile phone components, assembly services, and renewable energy, particularly photovoltaics.
Financial Performance
1H24 Results: BYD reported a strong financial performance for the first half of 2024, with a net profit of CNY 13.6 billion, marking a 24% increase year-on-year. The second quarter alone saw a net profit of CNY 9.1 billion, driven by increased sales volumes despite a lower average selling price (ASP).
Revenue Growth: The company’s revenue is expected to grow significantly, with projections indicating a rise from CNY 602 billion in 2023 to CNY 963 billion by 2025.
Challenges and Market Position
ASP Decline: BYD has faced a decline in ASP over the past six quarters, falling from CNY 179,000 in 2022 to CNY 139,000 in the second quarter of 2024. Despite this, the company has managed to maintain profitability through economies of scale and cost control.
Innovation and R&D: BYD’s commitment to innovation is a key differentiator. The company has the largest R&D team in the automotive industry, with 100,000 engineers, and holds a significant number of patents, particularly in battery technology.
Industry Consolidation: The report anticipates industry consolidation over the next 3-5 years, with BYD well-positioned to emerge stronger due to its technological prowess and cost competitiveness.
Investment Thesis
Market Potential: BYD is expected to continue growing its production volumes, potentially reaching monthly shipments of over 400,000 units. The company is also expected to maintain its leadership in both battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs).
Valuation: The report maintains a “Buy” rating on BYD, with a fair value estimate of CNY 348 per share, suggesting significant upside from its last closing price of CNY 236.85.
ESG and Risks
ESG Concerns: BYD’s ESG rating has been downgraded due to governance issues, including a tax investigation in India. While the company performs well in product safety and carbon footprint, it faces challenges in chemical safety and labor management.
Potential Risks: Key risks include the possibility of a global recession, execution failures leading to recalls, and the impact of higher input costs on operating income.
This report underscores BYD’s strong market position despite challenges, supported by innovation, strategic growth, and effective cost management. The company’s prospects appear robust, with significant room for future growth.
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