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Automobiles| Company Research Bringing China to the World

31 October, 2016

BUY
Unchanged
Environmental support
BYD (1211 HK)
Market Data: October 28, 2016 Financial summary and valuation
Closing Price (HK$) 51.4 2014 2015 2016E 2017E 2018E
Price Target (HK$) 66.0 Revenue (RMB million) 55,366 77,612 112,307 131,985 151,780
HSCEI 9,515 YOY (%) 11.2 40.2 44.7 17.5 15.0
HSCCI 3,789 Net income (RMB million) 434 2,823 4,372 5,461 6,672
YOY (%) -21.6 551.3 54.8 24.9 22.2
52-week High/Low (HK$) 57.25 /32.05
EPS (RMB) 0.18 1.14 1.60 2.00 2.45
Market Cap (USD Mn) 21,754 Diluted EPS (RMB) 0.18 1.14 1.60 2.00 2.45
Market Cap (HK$ Mn) 168,636 ROE (%) 2.6 8.7 9.2 10.9 12.8
Shares Outstanding (Mn) 2,728 Debt/asset (%) 69.3 68.8 61.8 61.3 62.5
Exchange Rate (RMB-HK$) 0.87 Dividend Yield (%) 0.0 0.0 0.8 0.9 1.1
Price Performance Chart: P/E (x) 255.4 39.2 27.9 22.3 18.3
P/B (x) 3.8 3.1 2.3 2.2 2.1
20.0%
EV/EBITDA (x) 32.8 21.1 16.8 14.6 21.5
0.0% Note: Diluted EPS is calculated as if all outstanding convertible securities, such as convertible preferred shares, convertible
debentures, stock options and warrants, were exercised. P/E is calculated as closing price divided by each years EPS..
-20.0%

-40.0% BYD reported total revenue of Rmb72.8bn (+50.1% YoY) and net profit of Rmb3.66bn
(+86.8% YoY) in 9M16, in line with our forecast and management guidance. Bottom
BYD-H HSI Index
line growth is supported by strong electric vehicle (EV) sales and the fast-growing
domestic handset business. We maintain our EPS forecasts of Rmb1.60 in 16E (+54.8%
Source: Bloomberg YoY), Rmb2.00 in 17E (+24.9% YoY) and Rmb2.45 in 18E (+22.2% YoY). We maintain our
Analyst target price of HK$66.00. With 28.4% upside, we maintain our BUY rating.
Alison Zhang
A0230115050003
Robust EV sales. According to the China Association of Automobile Manufacturers
BFR269 (CAAM), BYD realized EV sales of 28,851 units in 9M16, up 461% YoY, while plug-in
[email protected] hybrid electric vehicle (PHEV) sales grew 54.3% YoY in 9M16. The robust sales growth
for EVs is mainly attributable to sharp growth in Beijing building on strong nationwide
Related Reports EV taxi orders. We expect BYDs new energy vehicle (NEV) sales to remain strong in
BYD (1211:HK) Pole position" 4Q16, as the market expects new NEV subsidy policies to be released by end-2016,
August 29,2016
which will boost NEV sales. We forecast BYDs NEV unit sales to reach 122k in 16E
BYD (1211:HK) Partnering up" (+110.3% YoY), 170k in 17E (+39.3% YoY) and 200k in 18E (+17.6% YoY), on the back of
July 22, 2016
its competitiveness in the segment.
Upstream expansion. On 24 October, BYD announced plans to form of a joint venture
with Qinghai Salt Lake Industry (000792:CH N-R) to develop lithium carbonate, with
an initial investment of Rmb245m, giving it a 49% stake. The JV will have an annual
The company does not hold any equities
capacity of 30,000t of lithium carbonate, helping supply BYDs demand for lithium
or derivatives of the listed company carbonate at stable prices.
mentioned in this report (target), but then
we shall provide financial advisory
services subject to the relevant laws and
Improving margin. BYDs gross margin expanded from 18.3% in 3Q15 to 21.5% in
regulations. Any affiliates of the company 3Q16, as the companys product mix shifted toward high-margin NEV and SUV models.
may hold equities of the target, which may
exceed 1 percent of issued shares subject SG&A expenses as a proportion of revenue rose 0.8ppts YoY to 12.5% in 3Q16, as the
to the relevant laws and regulations. The
company may also provide investment
company raised spending on advertising. Core operating margin (excluding
banking services to the target. The government subsidies and other one-off gains from disposals of assets) picked up from
Company fulfills its duty of disclosure
within its sphere of knowledge. The clients 3.0% in 3Q15 to 6.9% in 3Q16.
may contact
[email protected] for Maintain BUY. We maintain our EPS forecasts of Rmb1.60 in 16E (+54.8% YoY),
relevant disclosure materials or log into
www.swsresearch.com under disclosure Rmb2.00 in 17E (+24.9% YoY) and Rmb2.45 in 18E (+22.2% YoY). The company is
column for further information. The clients
shall have a comprehensive trading at 27.2x 16E PE, 21.8x 17E PE and 17.8x 18E PE. We maintain our target price
understanding of the disclosure and
disclaimer upon the last page.
at HK$66.00. The company is trading at 27.9x 16E PE and 22.3x 17E PE. With 28.4%
upside, we maintain our BUY rating on BYD.
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October 2016
12, 2010 Automobiles| Company Research

728 50.1%
36.6 86.8%
16/17/18
54.8%24.9% 22.2% 1.60 2.00 2.45 66.0
28.4%

2.9 (
461%) 54.3%
e5e6
4Q16
16 12.2 ( 110.3%)17 17 ( 39.3%)
18 20 ( 17.6%)

10 24 (000792:SZ)
2.45 49%
3

SUV 3Q15 18.3%

3Q16 21.5%3Q16 0.8
12.5% 3Q15 3.0% 3Q16
6.9%

16/17/18 54.8%24.9%
22.2% 1.60 2.00 2.45 66.0 28.4%

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Robust EV sales
According to the China Association of Automobile Manufacturers (CAAM), BYD
realized EV sales of 28,851 units in 9M16, up 461% YoY, while plug-in hybrid electric
vehicle (PHEV) sales grew 54.3% YoY in 9M16. The robust sales growth for EVs is
mainly attributable to sharp growth in Beijing building on strong nationwide EV taxi
orders.
We expect BYDs new energy vehicle (NEV) sales to remain strong in 4Q16, as the
market expects new NEV subsidy policies to be released by end-2016, which will
boost NEV sales. We forecast BYDs NEV unit sales to reach 122k in 16E (+110.3%
YoY), 170k in 17E (+39.3% YoY) and 200k in 18E (+17.6% YoY), on the back of its
competitiveness in the segment.
Fig 1: Monthly sales of major EV models
2,500 (units)

2,000

1,500

1,000

500

e5 e6

Source: CAAM, SWS Research

Fig 2: Monthly sales of major PHEV models

6,000 (units)

5,000

4,000

3,000

2,000

1,000

Qin Tang

Source: CAAM, SWS Research

Upstream expansion. On 24 October, BYD announced plans to form of a joint

venture with Qinghai Salt Lake Industry (000792:CH N-R) to develop lithium
carbonate, with an initial investment of Rmb245m, giving it a 49% stake. The JV will

Please refer to the last page for important disclosures Page 2

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HONG KONG, TH Building Materials | Company Research
31 October
October 2016
12, 2010 Automobiles| Company Research

have an annual capacity of 30,000t of lithium carbonate, helping supply BYDs

demand for lithium carbonate at stable prices.

Improving margins
BYDs gross margin expanded from 18.3% in 3Q15 to 21.5% in 3Q16, as the
companys product mix shifted toward high-margin NEV and SUV models. SG&A
expenses as a proportion of revenue rose 0.8ppts YoY to 12.5% in 3Q16, as the
company raised spending on advertising. Core operating margin (excluding
government subsidies and other one-off gains from disposals of assets) picked up
from 3.0% in 3Q15 to 6.9% in 3Q16.

Fig 3: BYDs gross profit margin

25%
22.3%
21.5%
19.1%
20% 18.3%
17.0% 16.5% 17.2% 17.7%
16.0% 15.5%
15% 12.7%

10%

5%

0%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: Company data, SWS Research

Fig 4: BYDs administrative expense ratio

10%
8.5% 8.7%
8.2%
7.7% 7.6%
8% 7.2% 7.3%
6.9% 7.0%
6.4%

6% 5.3%

4%

2%

0%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: Company data, SWS Research

Please refer to the last page for important disclosures Page 3

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October 2016
12, 2010 Automobiles| Company Research

Fig 5: BYDs selling expense ratio

6%

4.9%
4.4%
4.0% 4.0%
3.8%
4% 3.6% 3.6% 3.6%
3.4%
3.2%
3.0%

2%

0%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: Company data, SWS Research

Valuation
We maintain our EPS forecasts of Rmb1.60 in 16E (+54.8% YoY), Rmb2.00 in 17E
(+24.9% YoY) and Rmb2.45 in 18E (+22.2% YoY). The company is trading at 27.2x 16E
PE, 21.8x 17E PE and 17.8x 18E PE. We maintain our target price at HK$66.00. The
company is trading at 27.9x 16E PE and 22.3x 17E PE. With 28.4% upside, we
maintain our BUY rating on BYD.
Fig 6: BYDs forward PE ratio
50 (x)

40

30

20

10

1-year forward PE +1 std average -1 std

Source: Bloomberg, SWS Research

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Appendix
Consolidated income statement
Rmbm 2014 2015 2016E 2017E 2018E

Revenue 55,366 77,612 112,307 131,985 151,780

Cost of Sales 47,743 65,753 93,573 109,573 125,599
Gross Profit 7,623 11,859 18,733 22,412 26,182
Other Income 923 1,991 1,123 1,188 1,366
Repairs and maintenance 2,229 2,868 4,605 5,543 6,375
Administrative expenses 2,601 3,429 4,941 5,807 6,678
EBITDA 6,721 10,451 13,081 15,033 10,245
EBIT 2,393 5,555 7,503 8,685 10,245
Finance Costs 1,397 1,517 1,633 1,346 1,265
Profit before tax 874 3,795 5,870 7,339 8,980
Income tax expense 134 657 1,015 1,270 1,554
Minority interests 306 315 482 609 755
Profit for the year 434 2,823 4,372 5,461 6,672
Source: SWS Research

Consolidated Balance Sheet

Rmbm 2014 2015 2016E 2017E 2018E

Current Assets 40,834 54,519 73,568 76,864 86,884

Bank balances and cash 3,950 6,011 12,154 4,462 5,495
Trade and other receivables 22,435 26,679 34,032 38,819 43,366
Inventories 9,978 15,751 18,967 24,184 27,997
Other current assets 4,471 6,079 8,414 9,398 10,027
Long-term investment 1,449 4,960 5,112 5,112 5,280
PP&E 36,379 38,126 40,198 41,799 42,707
Intangible and other assets 15,347 17,880 18,766 19,383 19,954
Total Assets 94,009 115,486 137,644 143,158 154,826
Current Liabilities 53,022 66,110 77,819 79,984 88,588
Borrowings 19,173 26,413 23,182 21,654 19,939
Trade and other payables 25,851 30,656 38,658 39,609 44,124
Other current liabilities 7,998 9,041 15,980 18,721 24,525
Long-term liabilities 12,092 13,346 7,309 7,701 8,109
Total Liabilities 65,114 79,457 85,129 87,686 96,697
Minority Interests 3,529 3,735 3,912 4,231 4,588
Shareholder Equity 28,894 36,029 52,515 55,472 58,129
Share Capital 2,476 2,476 2,737 2,737 2,737
Reserves 22,890 26,618 42,667 45,304 47,604
Equity attributable 25,366 32,294 48,604 51,241 53,541
Total Liabilities and equity 94,009 115,486 137,644 143,158 154,826
Source: SWS Research

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Cash Flow Statement

Rmbm 2014 2015 2016E 2017E 2018E

Profit before taxation 874 3,795 5,870 7,339 8,980

PlusDepr. and amortisation 4,212 5,314 5,578 6,348 7,148
Finance cost 1,397 1,517 1,633 1,346 1,265
Losses from investments 122 243 0 0 0
Change in working capital (6,106) (5,705) (2,256) (12,359) (2,663)
Others (461) (1,321) (1,251) (1,507) (1,827)
CF from operating activities 38 3,842 9,574 1,167 12,903
CAPEX (2,137) (4,091) (4,071) (1,602) (2,296)
Other CF from investing activities (5,764) (6,645) (2,266) (1,384) (3,596)
CF from investing activities (7,901) (10,736) (6,338) (2,985) (5,892)
Equity financing 3,342 (8) 14,500 0 0
Net change in liabilities 5,314 7,274 (9,960) (1,527) (1,715)
Dividend and interest paid (1,790) (1,763) (1,633) (1,346) (1,264)
Other CF from financing activities 404 3,247 0 (3,000) (3,000)
CF from financing activities 7,271 8,750 2,907 (5,873) (5,979)
Net cash flow (592) 1,856 6,143 (7,691) 1,032
SourceSWS Research

Key Financial Ratios

2014 2015 2016E 2017E 2018E

Ratios per share (RMB)

Earnings per share 0.18 1.12 1.60 2.00 2.45
Diluted earnings per share 0.18 1.12 1.60 2.00 2.45
Operating CF per share 0.02 1.55 3.51 0.43 4.73
Dividend per share 0.00 0.00 0.37 0.40 0.49
Net assets per share 11.67 14.55 19.25 20.33 21.31
Key Operating Ratios(%)
ROIC 3.65 6.72 8.13 9.28 10.86
ROE 2.56 8.71 9.24 10.94 12.78
Gross profit margin 13.77 15.28 16.68 16.98 17.25
EBITDA Margin 11.93 14.00 11.65 11.39 11.46
EBIT Margin 4.32 7.16 6.68 6.58 6.75
Growth rate of Revenue(YoY) 11.25 40.18 44.70 17.52 15.00
Growth rate of Profit(YoY) (21.62) 551.29 54.84 24.91 22.17
Debt-to-asset ratio 69.26 68.80 61.85 61.25 62.46
Turnover rate of net assets 206.01 239.09 253.67 244.45 267.22
Turnover rate of total assets 64.37 74.09 88.73 94.01 101.87
Effective tax rate (%) 15.34 17.31 17.30 17.30 17.30
Dividend yield (%) 0.00 0.00 0.82 0.90 1.09
Valuation Ratios (X)
P/E 255.4 39.2 27.9 22.3 18.3
P/B 3.8 3.1 2.3 2.2 2.1
EV/Sale 4.0 2.8 2.0 1.7 1.5
EV/EBITDA 32.8 21.1 16.8 14.6 21.5
Source: SWS Research

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Information Disclosure
The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate
serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed
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I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered
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The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact [email protected] for the relevant
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Introduction of Share Investment Rating

Security Investment Rating
When measuring the difference between the markup of the security and that of the markets benchmark within six months after the release of this report,
we define the terms as follows:
Trading BUY: Share price performance is expected to generate more than 20% upside over a 6-month period.
BUY: Share price performance is expected to generate more than 20% upside over a 12-month period.
Outperform: Share price performance is expected to generate between 10-20% upside over a 12-month period.
Hold: Share price performance is expected to generate between 10% downside to 10% upside over a 12-month period.
Underperform: Share price performance is expected to generate between 10-20% downside over a 12-month period.
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Industry Investment Rating:
When measuring the difference between the markup of the industry index and that of the markets benchmark within six months after the release of the
report, we define the terms as follows:
OverweightIndustry performs better than that of the whole market
Equal weight Industry performs about the same as that of the whole market
UnderweightIndustry performs worse than that of the whole market.

We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative
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