Date of Report: 26 September 2024
Broker: UOB Kay Hian

Overview

BYD (1211 HK) is discussed in the report with a HOLD recommendation. The stock’s target price is set at HK$220.00, reflecting a cautious outlook despite the company’s recent developments. The company’s performance and challenges within the high-end electric vehicle (EV) market are examined.

Full Ownership of Denza

BYD has recently acquired Mercedes-Benz’s entire 10% stake in Denza, increasing its ownership from 90% to 100%. This acquisition transforms Denza from a joint venture into a fully-owned proprietary brand. The report highlights the significance of this move in BYD’s strategy to expand in the luxury EV segment.

Background of the BYD-Denza Partnership

The BYD-Daimler partnership began in May 2010, with both companies holding equal shares in Shenzhen BYD Daimler New Technology Co., Ltd.. Over time, BYD increased its stake to 90%, leading to comprehensive reforms in Denza’s technology, products, and target markets, positioning it in the luxury EV market.

Sales Performance and Challenges

Despite the full acquisition of Denza, the company has faced difficulties in moving up the price curve in the luxury EV segment. Denza’s weekly sales have remained stable at around 2,000 units year-to-date. However, Denza dropped out of the top 10 weekly sales rankings for pure-play EV brands, with sales falling below 1,700 units. This suggests that BYD faces significant challenges in gaining traction within the high-end market.

BYD’s Overall Sales

In the 38th week of 2024 (16-22 September), BYD’s insurance registrations reached 80,600 units, marking a 30.6% year-on-year increase but an 8.2% month-on-month decline. This brings BYD’s cumulative insurance registrations for the first 38 weeks of 2024 to 2.20 million units, aligning with the company’s estimated domestic sales of 3.6 million units for the year.

Recent Product Launches

On 23 September 2024, BYD introduced two new compact hybrid SUVs, the Sealion 05 DM-i and the second-generation Song Pro DM-i. Both models feature the more fuel-efficient DM-i 5.0 technology. The starting price of the second-generation Song Pro DM-i is set at RMB112,800, representing a price increase of RMB3,000 (or 2.7%) over the Song Pro DM-i Glory Edition.

Financial Outlook

The report maintains BYD’s net profit forecasts for 2024-2026 at RMB37.07 billion, RMB37.54 billion, and RMB38.87 billion respectively. These projections are based on sales volumes of 4.0 million, 4.5 million, and 5.0 million units and net profits per vehicle of RMB8,060, RMB7,060, and RMB6,400 for the corresponding years.

Conclusion

While BYD continues to perform well in the mass market and has successfully gained full ownership of Denza, it faces challenges in moving up the luxury EV segment, as evidenced by Denza’s underperformance in sales rankings.