<News Alert> BYD (1211 HK): Berkshire further reduced its stake; limited impact
- Berkshire sold 820,500 BYD shares for HK$201.73m, translating to approximately HK$245.86 per share. Berkshire’s stake in BYD has reduced to 7.98% after the shares disposal
- Expect limited impact on BYD share price as market is well aware of Berkshire’s intention to divest its stake
- Instead, market concerns of slowing vehicle demand and rising competition is affecting the sentiment on the stock
- We believe BYD is in a relatively better position to mitigate some of these impacts given its vertical integration and exports segment
During the severe vehicle price competition in 1H23, the company suffered slightly in its 1Q23 gross margins but managed to show improvements as the overall market stabilised in the next few quarters and backed by scale benefit and lowering of raw material cost pressure. We anticipate the raw material cost environment to remain subdued in 4Q23, and coupled with the company’s vertical integration strategy, it should mitigate some of the pricing pressure. Besides, the company is ramping up its overseas operations to drive volume and profit growth. Hence, we do not expect a sharp decline in gross margin but possibly a 1ppt pullback in the near-term. Previously, we have highlighted the potential risk of rising market competition in 4Q23 likely to be triggered by auto companies with weak sales rates for 9M23. On the other hand, the electronic division gross margin is expected to improve on higher new orders in-take in the smartphone segment and strong EV electronics demand.
Apart from the vehicle market competition concerns, the broad market weakness is also impacting the overall sentiment of the auto sector. We currently have Buy rating on BYD and TP of HK$410.
Adjusted quarterly blended gross margin trends
Source: Company; DBS