BYD announced its 1H20 results. 1H20 top-line dropped by 3% YoY to RMB60.5bn while NP increased by 14% YoY to RMB1.7bn, implying 2Q20 bottom-line recorded a YoY increase of 120%. We think 1H20 results were excellent on stronger-than-expected auto segment performance and mask business from BYDE. The Company guided bottom-line growth of 850%-1017% YoY in 3Q20E, implying the good momentum to sustain in 2H20. We revised up FY20-22E EPS by 114%/53%/43% to reflect the strong earnings rebound. TP is lifted slightly to RMB113.09. Maintain BUY.
- 1H20 excellent results. In 1H20, revenue from auto and related products decreased by 6% YoY to RMB32.0bn, whereas revenue from handset components and assembly services remained flat at RMB23.3bn. GPM from auto and related products increased by 0.7ppt to 23.93% while GPM from HCAS business increased by 5.0ppt to 13.6%. Revenue from rechargeable batteries and photovoltaic increased 8% YoY to RMB4.8bn, whereas revenue from other businesses decreased by 39% YoY to RMB260mn.
- Strong 2Q20 results were supported by BYD’s mask business under BYDE (285 HK). It can be partially confirmed as the GPM for HCAS increased by 5ppt. In 1H20, operating cash inflow was RMB15.5bn with an OCF/Core profit ratio of 5.2. Advance receipt of good/service increased by RMB3.7bn compared with the beginning of the year, partially reflecting strong order on hand. One notable item was that BYD has a total of RMB658mn asset impairment (AR /inventory/ Intangible asset, etc.). We believe BYD was flashing out all historical burdens under the disguise of COVID-19, which will provide a healthier balance sheet in the future.
- Auto segment beat our expectations in 1H20. Given sales volume slashed in 1H20, the auto segment achieved revenue of RMB32bn in 1H20 with a decrease of only 6% YoY. Even though sales volume fell by 30.4% YoY in 1H20, the unit revenue increased by 36% YoY to RMB202K, and GPM from auto sales also increased by 0.7ppt YoY to 23.9%. We believe it was mainly driven by higher proportion (+2ppt YoY) of CV sales within the NEV segment in 1H20, and that comes from strong NEV bus delivery with higher ASP both in the domestic market and abroad.
- Auto sales to have further rebound in 2H20E. Led by strong sales from “Song Pro”, ICE sales grew by 13% YoY, while the magnitude of NEV decline narrowed to 9% YoY in Jul. Looking ahead to 2H20E, supported by strong consumer demand for “Han”, we expect PV sales to have a significant rebound. Mgmt. disclosed Han had accumulated order backlog of 300k, while BYD is ramping up capacity with bottleneck from blade battery supply. BYD guided 4k/6k/8k shipment capability for Han EV in Aug/Sep/Oct and thereafter. Furthermore, due to the gradual rise in the proportion of Han, we expect that the ASP of NEPV for 2020E will increase by 18% YoY to RMB196K. Along with the recovery of overall China’s NEV market (both to B/to C business), we expect BYD’s NEPV sales volume to increase by 74% YoY in 2H20E.
- BYDE to become a major supplier of Apple for iPad/iWatch. Benefited from the 1) orders ramp up from its major customers (Apple/Xiaomi); 2) the increase in shipments of high-margin smartphones and tablets; 3) the shipment of glass and ceramic products, BYDE is entering into a high growth stage. The new smart products (drone/electronic cigarettes) will bring incremental revenue.
- Valuation is largely unchanged. Based on 1H20 operating updates, we revise BYD’s FY20-22E EPS up by 114%/53%/43% mainly on 1) more optimistic auto sales for higher volume and ASP, 2) strong HCIS earnings growth in the near-term and 3) we trim down cloud rail’s contribution on more conservative assumption. We raise our NEV segment valuation to reflect the strong NEV sales forecast supported by Han and new PHEV products with DM4.0 in 2021E. In the meanwhile, we revised down our cloud rail valuation to reflect the possible contact delay affected by the COVID-19 situation in Brazil. CMBI TMT team (Alex Ng) has raised THE valuation forecast for BYDE (285 HK) on 31 Aug 2020. We directly take CMBI valuation on BYDE to be consistent. Based on the SOTP method, we derive BYD’s overall value at RMB363.0bn in 2021E. Our TP for BYD-A is lifted slightly to RMB113.09, reflecting 79.0/70.6x FY20/21E PER. Reiterate BUY rating.
