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BYD’s sales volume rose 35.0% YoY and 3.0% MoM to 341,658 units in June.

Comments

Sales volume continued to ramp up in June; YoY and QoQ growth was encouraging in 2Q24. By brand, sales volume of the BYD brand was 324,838 units in June, up 35.0% YoY and 3.0% MoM; sales volume of Denza totaled 12,275 units, up 11.0% YoY and largely flat MoM;

Yangwang and Formula Leopard’s sales volumes totaled 418 and 2,680 units. BYD’s export volume rose 156.2% YoY and fell 28.0% MoM to 26,995 units in June. We attribute the MoM decline to tight shipping capacity and mass production at overseas factories, which weighed on the pace of exports. We expect the firm’s overseas sales volume to maintain MoM growth driven by regional expansion and the launch of new products. In 2Q24, the firm's sales volume rose 40.2% YoY and 57.6% QoQ to 986,720 units.

BYD embraces a cycle of DM 5.0 new models, and is likely to fill the gap in some of the price ranges of hybrid vehicles, and to strengthen its market share. BYD released its fifth-generation DM (DM 5.0) technology at end-May to further improve driving range and reduce energy consumption. This technology can achieve fuel consumption of 2.9L per 100km and a driving range of 2,100km, which is the longest in the world. As the first models based on the DM 5.0, the Qin L and Seal 06 remain popular. We expect their monthly sales to reach 30,000-40,000 units.

Looking ahead, we believe the cycle of new models based on DM 5.0 has just started. We expect the firm to launch new or modified models such as the Seal and Sea Lion series, the Song series, and the Han series. In our view, these products together with DM 4.0-based vehicles enable the firm to fill the price gap of hybrid vehicles and offer products covering a full range of prices. We expect DM 5.0-based models to gain market share from joint venture brands thanks to their advantages in prices and fuel consumption, thus further strengthening the firm's market share in the hybrid vehicle market.

Upbeat on per-vehicle revenue and earnings in 2H24; accelerating capacity expansion overseas creates a new medium- to long-term growth driver. In the near term, we believe the firm's product and inventory cycles in 2H24 could be better than in 2H23. We think BYD may launch multiple new models under the BYD, Denza, and Formula Leopard brands in 2H24. Thanks to new models, we expect the firm's sales volume to continue growing QoQ in 3-4Q24 and its per-vehicle revenue to return to QoQ growth. In addition, we expect the firm’s per-vehicle earnings to rise quarter by quarter from 2Q24 onwards driven by improving product mix and economies of scale.

In 2025, we believe the DM 5.0-based product cycle may continue to drive sales volume growth. Compared with the price cuts for Honor and Champion-edition models in 2022 and 2023, we believe the cuts for new models could be milder and slower. We expect per-vehicle earnings to remain solid in 2025 thanks to the rising proportion of overseas sales volume, optimization of domestic product mix, and cost reduction by suppliers. In the medium to long term, we believe the firm's leading position in the domestic market is solid. As construction of its factory in Thailand is completed, BYD has accelerated overseas capacity expansion. We are optimistic about the firm’s efforts to explore the global market with its advanced technologies, products, and value chain capabilities in the domestic market, which we believe will create a new growth driver for BYD.

Financials and valuation

We largely maintain our 2024 and 2025 net profit forecasts. BYD’s A- shares and H-shares are trading at 17.8x and 15.6x 2024e P/E. Maintain OUTPERFORM rating. Given the firm’s DM 5.0 technology and improving product cycle, we raise our target price 21% to Rmb309 for the A-shares and 13% to HK$300 for the H-shares, implying 23x and 20x 2024e P/E and offering 28% and 28% upsides.

Risks

Disappointing domestic demand; weaker-than-expected sales volume of new models.