Better product mix supports higher margins
- BYD’s 4Q23F net profit likely fell 17% qoq (+19% yoy) as price cuts for the Dynasty and Ocean-series offset its strong overseas sales.
- We project strong NEV deliveries of 3.72m units in FY24F and 4.32m units in FY25F, driven by low- to medium-priced models, and overseas sales.
- Reiterate Add, with a higher SOP-based TP of HK$394.0.
4Q23F net profit 17% lower than 3Q23’s
BYD guided that its FY23F net profit grew 74-87% to c.Rmb29bn-31bn. This implies a midpoint net profit of Rmb9.0bn for 4Q23F (-14% qoq), largely in line with our expectation of Rmb8.7bn (-17% qoq, +19% yoy). We believe the qoq decline was due to price cuts for its mass market models (priced Rmb150k-300k), increased promotion expenses for dealers, and slower shipment growth for premium models.
Strong NEV deliveries to continue in FY24-25F
BYD delivered 945k new energy vehicles (NEVs) in 4Q23, up 38% yoy and 15% qoq, thanks to strong sales for its low- to mid-priced A-class and B-class models and increased overseas shipments. We expect BYD to deliver c.630k NEVs in 1Q24F, up 14% yoy (-33% qoq), driven by low-to mid-priced models and overseas sales, but with ASP down 5% qoq due to the price cuts for its Dynasty and Ocean-series in Nov 2023, and change in product mix. Despite expecting persistent competition in China’s NEV market, we believe BYD’s vehicle profit margin (VPM) will remain healthy at around 20% in 1Q24F (we estimate VPM at 25% in 3Q23 and 22% in 4Q23F) as a result of lower battery costs, stronger premium model sales, and higher export shipments. We estimate that BYD enjoys a c.10bp higher VPM for its NEVs delivered overseas vs. those sold domestically.
Product mix and operating leverage support a healthy VPM
We project BYD’s NEV deliveries to rise to 3.72m units (+24% yoy) in FY24F and 4.32m units (+16% yoy) in FY25F, driven by 1) rising consumer preference for plug-in hybrid EVs (PHEVs), 2) increasing shipments for its premium models Denza, Fang Cheng Bao (FCB), and Yangwang, and 3) fast-growing overseas shipments. As we estimate that on average, the VPM of its premium models is 10% pts higher vs. low- to mid-priced models, and VPM of overseas sales is 20% pts higher, we expect its blended VPM to stay high at c.21% in FY24-25F, owing to better product mix and operational efficiency, as well as stable battery costs.
Reiterate Add, SOP target price to HK$394.0
We reiterate Add as we expect its strong NEV deliveries to sustain in FY24-25F, supported by higher overseas EV sales, introduction of >10 new models p.a. in FY24-25F, and strong PHEV deliveries in low-tier cities. Our earnings forecasts remain intact as we see stable VPM for its NEV sales in FY24-25F. As we roll forward our valuation to FY24F, our SOP based TP rises to HK$394.0 (implies 27x FY24F P/E and 16x FY24F EV/EBITDA). Rerating catalysts: strong NEV delivery growth in 1Q24F, stable VPM, and robust export shipment growth. Downside risks: higher-than-expected promotion expenses to expand overseas, and higher lithium carbonate costs lifting its EV battery costs.
