BYD Company Limited's first-quarter operating profit for 2026 significantly exceeded Goldman Sachs' expectations, with overseas sales surging to nearly half of the total. The gross margin surpassed the market consensus by almost two percentage points. Goldman Sachs maintained its Buy rating on the stock, identifying the overseas business as the most critical second growth pillar for BYD over the next decade.
According to a report released by Goldman Sachs on April 28, BYD's first-quarter EBIT was 82% higher than the firm's forecast. Gross profit exceeded expectations by 18%, and operating revenue beat estimates by 12%. All three core operating indicators surpassed sell-side consensus. Regarding net profit, it was 19% higher than the Visible Alpha consensus and largely in line with the Bloomberg consensus. However, it came in 19% below Goldman Sachs' own projection, primarily due to non-operating losses such as foreign exchange losses, which amounted to CNY 1.2 billion in the quarter, and asset impairments.
Goldman Sachs maintained its Buy ratings on BYD's A-shares and H-shares. Based on a DCF model, the firm set 12-month price targets of CNY 137 and HKD 134, respectively. Goldman Sachs highlighted that the key driver behind the better-than-expected performance was a significant jump in the proportion of overseas sales, which reached 46% in the first quarter. This compares to 21% in the first quarter of 2025 and 26% in the fourth quarter of 2025. The gross margin for the period was 18.8%, exceeding Goldman Sachs' forecast of 17.8% and the market consensus of 16.8%, demonstrating the company's strong pricing power and cost control capabilities amid rising raw material costs.
Goldman Sachs is scheduled to host a post-earnings investor call with BYD's management on April 29. The firm anticipates that investor focus will center on the demand outlook in the domestic market, potential upside overseas, market reception for new models featuring the second-generation Blade Battery, the pace of international expansion and supply chain bottlenecks, as well as the impact of cost inflation on margins and the timing of its bottoming.
First-quarter operating revenue declined 12% year-on-year and 37% quarter-on-quarter, corresponding to a 30% year-on-year and 48% quarter-on-quarter decrease in vehicle sales. Despite overall sales pressure, revenue still surpassed Goldman Sachs' expectations by 12%. This was mainly attributable to structural improvements from the sharply higher overseas sales mix and better-than-expected revenue from external battery sales. Revenue from the handset components business was below expectations, partially offsetting the overall revenue performance.
The gross margin reached 18.8%, surpassing estimates. Goldman Sachs attributed this to favorable product pricing and effective management of Bill of Materials costs, leading to an outperformance despite external pressure from rising raw material prices. Operating expenses decreased 16% year-on-year and 23% quarter-on-quarter and were lower than Goldman Sachs had anticipated. Although Selling, General and Administrative expenses increased, this was offset by a significant decline in other expenses. The combination of these factors drove EBIT to exceed Goldman Sachs' forecast by 82%.
Net profit declined 55% year-on-year and 56% quarter-on-quarter. Goldman Sachs analysis pointed to two main drags. First, the company recorded a foreign exchange loss of CNY 1.2 billion in the quarter, compared to a gain of CNY 2.8 billion in Q1 2025 and a loss of CNY 1.7 billion in Q4 2025. The substantial volatility in foreign exchange gains and losses significantly impacted net profit. Second, non-operating losses, including asset impairments, added further pressure.
Notably, although net profit was 19% below Goldman Sachs' expectation, it was 19% above the Visible Alpha consensus and largely aligned with the Bloomberg consensus. This suggests that market expectations for net profit were already relatively conservative, and the actual result fell within the broader market's anticipated range.
Goldman Sachs emphasized in its investment thesis that the overseas market is the core growth driver for BYD's future. The firm forecasts that from 2025 to 2030, overseas markets will contribute 83% of the incremental growth in BYD's vehicle sales. The profit contribution from overseas operations is expected to rise from 40% in 2025 to 62% by 2030. The unexpected surge in the overseas sales mix to 46% in the first quarter, from 21% previously, further strengthens Goldman Sachs' confidence in this long-term thesis.
Regarding overall sales projections, Goldman Sachs expects BYD's total vehicle sales to increase from 4.6 million units in 2025 to 7.1 million units by 2030. The firm believes that BYD, with its comprehensive product portfolio spanning mass market to premium segments and strong in-house R&D capabilities, is well-positioned to continue driving innovation in vehicle technology. Both BYD's A-shares and H-shares currently trade below their historical average 12-month forward P/E ratios, leading Goldman Sachs to view the current valuation as attractive.
Comments