Accumulate. 4 September 2014 BYD(1211.HK) The new energy automobile will welcome its return time HONG KONG AUTOMOBILE INTERIM RESULTS.

Transcription

1 BYD(1211.HK) The new energy automobile will welcome its return time HONG KONG AUTOMOBILE INTERIM RESULTS 1H14 Revenue grew 4.01% yoy to RMB billion Yuan, and the pretax profit of RMB 0.65 billion Yuan, up 5% yoy Profits attributable to shareholders dropped down to RMB billion Yuan by 15.5% yoy, with the gain per share of RMB 0.15 Yuan The gross profit margin of the company in this period rose to 14.94% from 13.6% in last year No interim DPS. Meanwhile, the company estimated that the net profit in the first three quarters would fluctuate between -22.5% and -11.7% yoy Maintain "Accumulate, with changed TP of HK$60 It is noteworthy that the new energy automobile cultivated by the company for years begins to make great progress, reaching the income of RMB 2.72 billion Yuan, with the growth rate of times yoy, accounting for 10.8% of the gross income of the company, which exceeded 10% for the first time. LiFePO4 battery newly studied by BYD had broken through. After the technology is applied to the new energy automobile, the endurance power of BYD electric motor cars will be greatly boosted. How we view this The interim results were a little lower than our expectation: the main negative effects lie in the obviously down-sliding traditional automobile business and the photovoltaic business with narrowing losses but little positive contribution to the profits, while the positive factors lie in the powerful increase in the business of mobile parts and the explosive growth of the sales volume of the new energy automobile. The gross profit margin of the company in this period rose to 14.94% from 13.6% in last year, and it is mainly because the gross profit margin of the mobile business increased and the proportion of the income from the new energy automobile with high gross profit increased. Although we have positive views on the Company s future development, we remind investors to concern about the possible frustrations the Company may encounter in the cultivation of the individual new energy vehicle market. Investment Action We change the Company s estimated EPS to RMB0.51 and 0.92 in 2014 and 2015 respectively. The short-term benefits have been priced in partly, and we maintain the rating to Cautiously Accumulate, with the target price to HK$60, equivalent to 93/51x P/E and 4.6/4.3x P/B in 2014/2015 respectively. Key Financial Summary FYE Dec 12/12 12/13 12/14F 12/15F Revenue (RMB mn) 44,381 49,768 58,557 67,437 Net Profit, adj. (RMB mn) ,197 2,186 EPS, adj. (RMB) P/E (X),adj. 1, BVPS (RMB) P/B (X) DPS (RMB) Div. Yield (%) 0.0% 0.1% 0.2% 0.4% Source: Bloomberg, PSR est. *All multiples & yields based on current market price Rating: Accumulate Maintained at Accumulate Target Price (HKD) Forecast Dividend (HKD) Closing Price (HKD) Potential Return Company Description 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 w as listed on HKEx in July Raw Beta (Past 2yrs w eekly data) 0.86 Market Cap. (HKD bn) 154,128 Enterprise Value (HKD mn) 147, w eek range (HKD) Closing Price in 52 w eek range Major Shareholders 1.Wang Chuan-fu 24.24% 2.Lu Xiang-yang(10.16%) 10.16% 3.MidAmerican Energy Holdings Company 9.56% Valuation Method PE&PB 03-Sep-13 Analyst 03-Oct-13 Zhang Jing zhangjing@phillip.com.cn Nov Dec Jan Feb Mar % 0% 50% 100% 03-Apr May Jun Jul-14 Volume, mn 1211 hk equity HSI 03-Aug Sep Page 1

2 Earnings reducing 16% in the first half year BYD released the interim results (2014): Revenue of RMB billion Yuan, with a small growth rate of 4.01% yoy, and the pretax profit of RMB 0.65 billion Yuan, with a small growth rate of 5% yoy. However, the profits attributable to shareholders dropped down to RMB billion Yuan by 15.5% yoy, with the gain per share of RMB 0.15 Yuan, without any interim interest to be paid. The interim results were a little lower than our expectation: the main negative effects lie in the obviously down-sliding traditional automobile business and the photovoltaic business with narrowing losses but little positive contribution to the profits, while the positive factors lie in the powerful increase in the business of mobile parts and the explosive growth of the sales volume of the new energy automobile. Fig H Result Review Result at a glance 2013H 2014H yoy Revenue % Cost of sales % Gross profit % Other incomes % Subsidies % Sales exp % R&D exp % Administrative exp % other exp % Financial costs % Profit before tax % Tax % Profit for the period % Minority interests % Net profit % Per share data(yuan) % Source: Company Differences in development of three sectors By the end of June, the income from the automobile business had declined to RMB billion Yuan by 6.48% yoy, the income from the business of mobile parts had reached up to RMB billion Yuan with the growth rate of 21% yoy, and the income from battery and photovoltaic business had been about RMB billion Yuan, with a slight decrease of 3.9% yoy. It is noteworthy that the new energy automobile cultivated by the company for years begins to make progress, reaching the income of RMB 2.72 billion Yuan, with the growth rate of times yoy, accounting for 10.8% of the gross income of the company, which exceeded 10% for the first time. Fig2. Revenue breakdown by segments Battery & Solar 9% Auto 48% Handset 43% Source: Company, PSR est. Page 2

3 As to the contributions to the profit of the company, affected by the sustainable benefit from the advantages of metal miscibility technology, the profit contributed by the business of the mobile increased to RMB billion Yuan by 57% yoy, balancing out the negative effects of the profits from the business of automobile, battery and the photovoltaic business dropping down 23% and 22.95% respectively. The proportion of the profit from the business of the mobile accordingly increased to 62% of the total profit and the ones of the latter two accounted for 29.7% and 8.2% respectively. Fig3. Segment result breakdown Others 0% Battery & Solar 8% Auto 30% Handset 62% Source: Company, PSR est. Meanwhile, the company estimated that the net profit in the first three quarters would fluctuate between -22.5% and -11.7% yoy, that is to say, the profit in the third quarter would be less than RMB 50 million Yuan and the one in the same period in last year was RMB 38 million Yuan. The company claimed that the third quarter was the traditional dead season of the automobile industry. Due to the seasonal effects and the sustainable extrusion of survival space of the domestic self-owned brand automobile, it is estimated that the third quarter will be the low profit point of the automobile business of the company. Fig4. BYD s Monthly sales of Passenger vehicles 80, ,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan Feb Mar Source: Company, PSR est. Apr May Jun Jul Aug Sep Oct Nov Dec Gross profit margin rising by 1.34% The gross profit margin of the company in this period rose to 14.94% from 13.6% in last year, and it is mainly because the gross profit margin of the mobile business increased and the proportion of the income from the new energy automobile with high gross profit increased. The gross profit margin of BYD new energy automobile is 3-5 ppts higher than that of the traditional fuel automobile. Page 3

4 Fig5. BYD s gross margin 25% 20% 15% 10% 5% 0% 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015E Source: Company, PSR est. Breakthrough development in iron battery, falling upon the sustainable launching of the new-round national policy Recently, Wang Chuanfu, the president of BYD, disclosed in the interview that LiFePO4 battery newly studied by BYD had broken through the energy density restriction of the traditional LFP battery and reached up to the level of the ternary materials (about 150Wh/Kg); in addition, it is more excellent than the latter as to the cost control. After the technology is applied to the new energy automobile, the endurance power of BYD electric motor cars will be greatly boosted. At the end of May, the company raised HKD 4.2 billion financed for the placement of the new shares and it would be mainly used for expanding the capacity of the iron battery so as to satisfy the demand arising from the rapid growth in the new energy automobile. At present, the at-hand order for K9 exceeds 5000 vehicles, and the sales volume of Qin is restricted by the insufficient battery capacity. With the launching of the new-round national supporting policy for the new energy automobile (including exemption of the purchase tax, the launching of the same catalogue of the state, gradual put-into-place of the local allowances and the further perfection of the charging nodes construction), it is expected that the new energy automobile of the company will welcome its return period. Furthermore, according to 7+4 strategy for the new energy automobile of the company, the models of the new energy automobile of the company will cover 7 main target markets and 4 special automobile markets, wherein 7 refers to the private car, public traffic, tax, sanitation truck, inter-city passenger train, logistics light truck and engineering truck, and 4 refers to the special vehicles and forklift trucks for the warehousing, air port, mine and port. At present, BYD has entered into the former 3 fields and plans to launch the related models of the vehicles in other fields from the last half year of this year to the next year. Valuation: Considering the lower-than-expected sales on the Company s traditional car in 1H14, we change the Company s estimated EPS to RMB0.51 and 0.92 in 2014 and 2015 respectively. Although we have positive views on the Company s future development, we remind investors to concern about the possible frustrations the Company may encounter in the cultivation of the individual new energy vehicle market. The short-term benefits have been priced in partly, and we maintain the rating to Cautiously Accumulate, with the target price to HK$60, equivalent to 93/51x P/E and 4.6/4.3x P/B in 2014/2015 respectively. 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 Page 4

5 FYE DEC FY11 FY12 FY13 FY14F FY15F Valuation Ratios P/E (X), adj , P/B (X) Dividend Yield (%) 0.0% 0.0% 0.1% 0.2% 0.4% Dividend payout ratio (%) 0.0% 0.0% 21.3% 19.8% 21.6% Per share data (RMB) EPS, reported EPS, adj DPS BVPS Growth & Margins (%) Grow th Revenue -0.8% -4.2% 12.1% 17.7% 15.2% EBIT -27.9% -53.3% 60.4% 64.3% 44.4% Net Income, adj % -94.1% 579.6% 116.4% 82.7% Margins Gross margin 14.8% 11.6% 13.1% 15.0% 16.4% EBIT margin 5.3% 2.6% 3.7% 5.2% 6.5% Net Profit Margin 3.0% 0.2% 1.1% 2.0% 3.2% Key Ratios ROE (%) 7.00% 0.38% 2.58% 5.2% 8.8% ROA (%) 2.31% 0.12% 0.75% 1.5% 2.6% Income Statement (RMB mn) Revenue ,557 67,437 Cost of sales (39,445) (39,255) (43,252) (49,803) (56,377) Gross profit ,754 11,060 Other income and gains ,217 1,280 Operating expenditure (5,688) (4,922) (5,752) (6,910) (7,931) Financial costs (742) (862) (1,017) (1,152) (1,210) Profit before tax 1, ,887 3,179 Tax (132) (78) (56) (283) (572) Profit for the period 1, ,604 2,607 Minority interests (210) (132) (223) (407) (421) Net profit 1, ,197 2,186 FYE DEC FY11 FY12 FY13 FY14F FY15F Balance Sheet (RMB mn) Total Assets 66,881 70,008 78,015 82,954 86,197 Cash & cash equivalent 3,737 4,042 4,511 5,900 6,785 Total Liabilities 42,901 45,863 53,158 55,721 57,018 Non-controlling interest 2,856 2,947 3,147 3,287 3,403 Total Equity 23,980 24,144 24,856 27,233 29,179 Shareholder Equity 21,125 21,197 21,710 23,946 25,776 Source: PSR Page 5

6 Ratings History Market Price Target Price Source: Bloomberg, PSR Jan-14 May-13 Sep-12 Jan-12 May-11 Sep-10 Jan-10 May-09 Sep PSR Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate 2-5% to +5% Neutral 3-5% to -20% Reduce 4 <-20% Sell 5 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation Page 6

7 PHILLIP RESEARCH STOCK SELECTION SYSTEMS Total Return Recommendation Rating Remarks >+20% Buy 1 >20% upside from the current price +5% to +20% Accumulate 2 +5% to +20%upside from the current price -5% to +5% Neutral 3 Trade within ± 5% from the current price -5% to -20% Reduce 4-5% to -20% downside from the current price <-20% Sell 5 >20%downside from the current price We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation GENERAL DISCLAIMER This publication is prepared by Phillip Securities (Hong Kong) Ltd ( Phillip Securities ). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below. This publication shall not be reproduced in whole or in part, distributed or published by you for any purpose. Phillip Securities shall not be liable for any direct or consequential loss arising from any use of material contained in this publication. The information contained in this publication has been obtained from public sources which Phillip Securities has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the Research ) contained in this publication are based on such information and are expressions of belief only. Phillip Securities has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this publication is subject to change, and Phillip Securities shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will Phillip Securities be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this material are as of the date indicated and are subject to change at any time without prior notice. This material is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this material may not be suitable for all investors and a person receiving or reading this material should seek advice from a financial adviser regarding the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products. This publication should not be relied upon as authoritative without further being subject to the recipient s own independent verification and exercise of judgment. The fact that this publication has been made available constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described in this material is suitable or appropriate for the recipient. Recipients should be aware that many of the products which may be described in this publication involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks. Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in this research should take into account existing public information, including any registered prospectus in respect of such security. Disclosure of Interest Analyst Disclosure: Neither the analyst(s) preparing this report nor his associate has any financial interest in or serves as an officer of the listed corporation covered in this report. Firm s Disclosure: Phillip Securities does not have any investment banking relationship with the listed corporation covered in this report nor any financial interest of 1% or more of the market capitalization in the listed corporation. In addition, no executive staff of Phillip Securities serves as an officer of the listed corporation. Availability The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction. Information contained herein is based on sources that Phillip Securities (Hong Kong) Limited ( PSHK ) believed to be accurate. PSHK does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. PSHK (or its affiliates or employees) may have positions in relevant investment products. For details of different product's risks, please visit the Risk Disclosures Statement on Phillip Securities (Hong Kong) Limited Page 7

8 Contact Information (Regional Member Companies) SINGAPORE Phillip Securities Pte Ltd Raffles City Tower 250, North Bridge Road #06-00 Singapore Tel : (65) Fax : (65) Website: HONG KONG Phillip Securities (HK) Ltd Exchange Participant of the Stock Exchange of Hong Kong 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax (852) Websites: INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta Indonesia Tel (62-21) Fax (62-21) Website: THAILAND Phillip Securities (Thailand) Public Co. Ltd 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok Thailand Tel (66-2) / Fax (66-2) Website UNITED KINGDOM King & Shaxson Capital Limited 6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS Tel (44-20) Fax (44-20) Website: MALAYSIA Phillip Capital Management Sdn Bhd B-3-6 Block B Level 3 Megan Avenue II, Number 12, Jalan Yap Kwan Seng, Kuala Lumpur Tel (603) Fax (603) Website: JAPAN PhillipCapital Japan K.K. Nagata-cho Bldg., 8F, Nagata-cho, Chiyoda-ku, Tokyo Tel (81-3) Fax (81-3) Website: CHINA Phillip Financial Advisory (Shanghai) Co. Ltd No 436 Heng Feng Road, Green Tech Tower Unit 604, Postal code Tel (86-21) Fax (86-21) Website: FRANCE King & Shaxson Capital Limited 3rd Floor, 35 Rue de la Bienfaisance Paris France Tel (33-1) Fax (33-1) Website: UNITED STATES Phillip Futures Inc 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL USA Tel Fax AUSTRALIA PhillipCapital Australia Level 12, 15 William Street, Melbourne, Victoria 3000, Australia Tel (613) Fax (613) Website: Page 8