20180228-兴业金融证券-比亚迪股份-01211.HK-Better_2018,_But_Uncertainties_Ahead_12页_474kb

BYD Co Ltd 2018 Summary

Core Content

BYD Co Ltd released its preliminary results for 2017, indicating a revenue of CNY105.9bn (+2.3% YoY) and earnings and minority interests of CNY4,057m (-19.7% YoY) and CNY1,377bn (+221.8% YoY) respectively. The report highlighted that the company's earnings were worse than expected, leading to a downward adjustment of FY17-19F earnings by 20%, 14%, and 12% respectively. This was attributed to a drop in the auto division's revenue and margins, as well as a significant increase in the battery business's margins.

The company's financial performance was also influenced by a shift in revenue mix, with the high-margin auto business declining and the low-margin handset business rising. The report noted that the auto division's revenue may have dropped by approximately 10% due to a decline in internal combustion engine (ICE) sales and a drop in electric vehicle (EV) ASPs due to subsidy cuts.

Main Points

• Earnings Growth Outlook: The analyst expects a 56% increase in earnings for FY18 and a 34% increase for FY19, driven by a new EV model pipeline, increased subsidies, potential NEV credit income, and the possibility of spinning off the battery business.
• New EV Models: The Tang II PHEV, Yuan EV, Qin II EV/PHEV, and Song Max II EVs are set to launch in 2018, with all models offering a driving range of over 400km, qualifying for higher subsidies.
• Handset Business: The net earnings drop in the handset business is attributed to a revenue mix improvement led by the casings segment, and this trend is expected to continue.
• Battery Business: BYD may spin off its battery business in 2019, but internal demand for batteries is 90% of its capacity, suggesting that the spin-off might not significantly impact the company's overall operations.
• Valuation: The analyst's target price (TP) for BYD is HKD78.70, a 9% upside from the current price of HKD72.50. The valuation model includes multiple P/E ratios based on different segments and a P/BV ratio that is expected to decrease over time.

Key Information

• Market Cap: USD26,662m
• Share Data: Average daily turnover is HKD457m/USD58.5m, with a 52-week price range of HKD42.8 to HKD80.5.
• Shareholders: Wang Chuanfu holds 18.8%, LV Xiangyang and Zhang Changhong hold 8.8%, and Berkshire Hathaway Energy holds 8.2%.
• Share Performance: The share has shown a YTD return of 6.4%, with a 1-month return of -3.0% and a 3-month return of -0.1%.
• Dividend Yield: The dividend yield is expected to increase from 0.5% in Dec-17F to 1.0% in Dec-19F.
• Financial Metrics:
  • Recurring EPS: Increased from CNY1.14 in Dec-15 to CNY3.03 in Dec-19F.
  • Gross Margin: Stabilized at 18.4% for FY19F.
  • Operating EBITDA Margin: Improved to 17.6% in FY19F.
  • Net Profit Margin: Increased to 5.1% in FY19F.
• Valuation Metrics:
  • P/E: Expected to decrease from 51.3x in Dec-15 to 19.3x in Dec-19F.
  • P/BV: Expected to decrease from 4.40x in Dec-15 to 2.15x in Dec-19F.
  • EV/EBITDA: Expected to decrease from 15.2x in Dec-15 to 7.9x in Dec-19F.
  • DCF: The present equity value is estimated at HKD170,371m, with a DCF value per share of HKD74.6.

Analyst and Recommendations

• Analyst: Zhuang Dan
• Recommendation: NEUTRAL
• Target Price: HKD78.70
• Valuation Basis: SOTP (Sum of the Parts) valuation with different P/E ratios applied to each segment.

Key Drivers and Risks

• Drivers: Leading position in NEV auto sales and the SkyRail business.
• Risks: Lower-than-expected sales volumes for NEV models, subsidy cuts, and potential margin pressure.

Peer Comparison

• Chinese OEMs: BYD's performance is compared with companies such as Geely, Great Wall, and Dongfeng, with varying P/E and P/BV ratios.
• European OEMs: BYD is compared with BMW, Daimler, and others, with a focus on financial metrics like P/E, P/BV, and EPS growth.
• US OEMs: BYD is compared with Ford and General Motors, with similar valuation and performance metrics.
• Korean OEMs: BYD is compared with Hyundai and Kia, with performance metrics showing potential for growth.
• India OEMs: BYD's performance is compared with companies like Maruti Suzuki and Tata Motors, indicating a competitive landscape.

Financial Highlights

• Income Statement: Total turnover is expected to increase from CNY102,718m in Dec-17F to CNY161,109m in Dec-19F.
• Cash Flow: BYD is expected to have positive cash flow from operations in FY19F, with a significant increase in cash flow from financing activities.
• Balance Sheet: Total assets are expected to increase from CNY154,777m in Dec-17F to CNY206,335m in Dec-19F, while total liabilities are expected to increase as well.

Conclusion

BYD's 2017 performance was below expectations, primarily due to margin pressures from subsidy cuts. However, the company is positioned for growth in 2018 and 2019 with the launch of new EV models and potential revenue from NEV credit trading. Despite the positive outlook, the analyst remains cautious due to the uncertainties surrounding subsidy cuts and the potential impact on sales volumes. The TP of HKD78.70 reflects the analyst's confidence in the company's future growth potential, albeit with a neutral recommendation.