Buffett continues to reduce his holdings of BYD Morningstar's latest voice: performance will continue to maintain high growth

 　　"Stock God" Buffett reduced his holdings of BYD Hong Kong shares twice within a week, which made the market worry. Since he first bought BYD in 2008, Buffett has gained more than 30 times the book floating profit in BYD in the 14 years.

　　With this reduction, investors are worried that the "stock god" is no longer optimistic about BYD. However, compared with the original number of shares, the two reductions are not high, accounting for only 1.4% of the initial 219 million shares. Compared with Buffett’s latest reduction in Apple’s holdings, which occurred in the fourth quarter of 2020, a total of 57 million shares were reduced, accounting for 6% of the original holdings. Buffett has reduced and then increased Apple's positions several times, but Apple has always been Berkshire's largest stock.

　　Moreover, since the beginning of this year, BYD's performance growth has been much more beautiful than Apple's. The second quarterly report shows that sales, revenue and profits of new energy vehicles have all risen sharply. Morningstar, a well-known rating agency, predicts that BYD's profits may maintain high growth in the second half of the year.

　　The risk of a recession in Europe, more than at home, is now the focus of global investors, and this week, such a crisis escalated again, with the Bank for International Settlements sounding the alarm about soaring debt risks in Europe. After the Fed's "hawkish" stance, Europe's near-term economic outlook appears to be increasingly bleak.

　　China is also affected by the Fed's "hawkish" stance. This week, the onshore renminbi was quoted at 6.9028 against the dollar, down 407 basis points, hitting a new low for the renminbi against the dollar in nearly two years.

　　Under the influence of various micro and macro factors, capital markets at home and abroad have experienced rapid declines this week. However, the long-term trend remains unchanged, and opportunities are still emerging. For example, from the point of view collected by "Red Weekly", the Metaverse and the US pharmaceutical distribution giants are quite cost-effective.

　　Moderator Li Jian

　　Editor ’s note: According to the website of the Hong Kong Stock Exchange, on September 1, Berkshire Hathaway, which is in charge of Buffett, sold 1.716 million shares of BYD. After the reduction, the shareholding ratio dropped to 18.87%, and the total number of shares held after the reduction was 217 million shares. This is the second time Berkshire has reduced its holdings of BYD after August 24.

　　Affected by this news, BYD's share price fluctuated. Hong Kong stock BYD fell 13.55% from August 30 to September 2, and A-share BYD fell 10%.

　　In stark contrast to the panic in the market, BYD's second quarterly report data performed very well. Revenue was up 68% year over year, and vehicle sales were up 149% year over year. Morningstar researchers estimate that BYD may reach a net profit of 20.4 billion yuan in 2024. Taking into account the current price-earnings ratio of 114 times (dynamic, September 2), Morningstar believes that a reasonable fair price is around 258 yuan.

　　However, developments in new energy vehicle technology and battery energy density will lead to higher profit margins in the long run. Growing economies of scale also keep improving the outlook for auto sales profits. "Red Week" exclusively obtained this research report from Morningstar, and shared it with readers after compiling.

Maintain fair valuation of HK$315 per share

　　In the second quarter, BYD's performance remained solid, with revenue increasing by 68% year-on-year to 83.8 billion yuan. Net profit also tripled, from 936 million yuan in the previous year to 2.8 billion yuan.

　　There are some detailed factors that need to be clarified. First, according to our estimate, BYD's foreign exchange gain in the second quarter was about 610 million yuan; second, there was an impairment loss of 400 million yuan in the second quarter. If the above two factors are excluded, BYD's second-quarter net profit was 2.6 billion yuan, 8% higher than the previous median estimate of the company.

　　As can be seen from the financial report, in the second quarter, BYD auto sales reached 355,021 units, an increase of 149%. While the industry is facing a 3% drop in the average selling price of vehicles, BYD is partly offsetting this negative impact by relying on sales growth. In addition, mobile phone components are also in a sluggish cycle, but BYD's performance has not been dragged down.

　　In the second quarter, BYD's gross profit margin also increased. Despite lower automotive margins due to higher upstream battery costs, overall gross margin in the second quarter improved by 1.5 percentage points to 14.4% from 12.9% a year ago, due to a lower contribution from the mobile phone business.

　　Since the revenue and profit in the first half of the year accounted for 42% and 44% of our full-year forecast respectively, and the second half of the year is the peak season for auto sales, we maintain a fair valuation of HKD 315 (equivalent to RMB 258) per share, which means With a price-to-sales ratio of 1.7 times in 2023. Excluding the company's stake in BYD Electronics (BYD Electronics), the combined auto and battery business has an implied forward price-to-sales ratio of 2.1x, which is consistent with the 2.0x price-to-sales ratio of other Chinese new energy vehicle (NEV) players Consistent.

Net profit in 2024 may reach 20.5 billion yuan with a compound growth rate of 88.8%

　　With total vehicle sales increasing by 1.8 times year-on-year in July and passenger new energy vehicles increasing by 2.2 times, we believe that sales in the second 4 months of this year will still be optimistic, and we reserve the assumption that total vehicle sales in 2022 will reach 1.7 million units. Forecast, that is, a year-on-year increase of 1.3 times.

　　From the perspective of product line, the sales volume of "Dynasty" series models, such as "Han" plug-in hybrid vehicle, "Song" plug-in hybrid vehicle, "Tang" electric vehicle and "Qin" electric vehicle, have remained stable so far. strong momentum. The "Ocean" series has also been welcomed by the market, and the "Dolphin" electric mini car recorded monthly sales of more than 20,000 units in July. Meanwhile, the electric mid-size sedan "Seal" was launched last month, and the compact SUV "Sea Lion" will be launched next year.

　　We believe that relying on the industry-leading blade battery and DM-(i super hybrid system) technology, BYD has a considerable competitive advantage in terms of driving range and energy efficiency. Against the backdrop of expanding vehicle deliveries, we estimate that BYD's revenue will record a CAGR of 39.6% from 2021 to 2024.

　　Although the rise in raw material prices with the rise in commodity prices has put a lot of pressure on BYD, the development of new energy vehicle battery technology will continue to bring higher profit margins. And, with the expansion of economies of scale, lower and lower unit production costs will continue to increase the level of profit margins. Therefore, we expect the company's net profit to grow at a CAGR of 88.8% between 2021 and 2024, reaching a net profit of RMB 20.5 billion in 2024.