To The Moon

Hey Tigers,

Today, let's take a look at the story of one of the new energy vehicle giants: $BYD Co., Ltd.(BYDDF)$, $BYD COMPANY(01211)$BYD. 

Recently, Buffett reduced his holdings of BYD twice, directly cashing out nearly HK $820 million. BYD's market value was evaporated by about 120.8 billionRMB!

In the face of Buffett's reduction, there is a lot of discussion in the market, BYD said: Shareholders' reduction of holdings is a decision made by shareholders.

The company's sales volume has repeatedly hit new highs, its operations are healthy, and everything is normal.

And domestic macro analyst Zeping Ren thinks "Warren Buffett era is over".

In his opinion, new energy is the most promising and explosive industry in the future, short-term adjustment is normal, and long-term potential is huge.

On the one hand, Buffett is reducing his holdings, on the other hand, economists are optimistic about it.

As investors, they fall into the classic triple question:

• Reduce share position or not? Buy it or not?
• How often? How long does it sell?
• Is this stock still good or not?

The old friends who are familiar with me know that I never gives trading tips, but really teaches everyone to make investment decisions through the analysis of fundamentals and underlying data.

For the current "precarious" BYD, this time i uses the following four simple steps to analyze BYD, so that you can truly understand it and be aware of it:

01 The development of BYD

The development of BYD can be divided into five stages:

1. 1995~2003: Started with consumer batteries, entered the supply chain of international giants MOTOROLA and Nokia, and successfully listed in Hong Kong;
2. 2003~2010: Entered the automobile industry by acquiring Xi 'an Qinchuan, acquired Ningbo Zhongwei to develop electric drive motor research, development and production, and laid out the whole industrial chain of new energy. The sales volume of the first car F3 increased rapidly with the advantage of cost performance after its launch;
3. 2010~2019: The product price of joint venture car companies in the car market dropped and poured in, missing the dividend of the domestic SUV industry, the independent brand entered the platform period, and determined the new energy development route;
4. 2019 ~ 2021: Tesla was introduced into the Chinese market. BYD grasped the market change and launched the third-generation battery system blade battery, helping the brand to break the cocoon and regenerate with the first-ride model "Han";
5. From 2021 to now: fully switch to new energy, launch the fourth generation hybrid system DM-I/DM-P, and new pure level platform E platform 3.0, hybrid/pure power.

02 The main business of BYD

At present, BYD has four main businesses:

They are automobile businesses, handset components and assembly business, rechargeable batteries, cloud rail and other businesses.

1. As is known to all, the automobile business is the core business of BYD: in 2021, the automobile business revenue accounted for 52.03 %, and the gross profit accounted for more than 69 %. It is BYD's most important source of revenue and profit.

BYD has become the largest new energy vehicle company in China. The sales volume of new energy vehicles has occupied the first place in China for many consecutive years, and commercial vehicles such as pure electric buses and special purpose vehicles have also achieved good results overseas.

2. Handset components and assembly business mainly includes metal, glass, ceramic, composite plate and other structural parts of electronic products, charger, secondary charging battery and other parts manufacturing, whole machine design and assembly;

Product coverage is also very wide, including consumer electronics, automotive electronics and other fields. According to the company's 2021 semi-annual report, the mobile phone parts and assembly business achieved revenue of 86.5 billion RMB in the first half of 2021, accounting for 40.01 percent of the company's revenue.

3. Secondary rechargeable batteries mainly include lithium ion batteries and iron batteries, which are widely used in mobile phones, power tools and other portable electronic devices;

Its main customers include leading consumer electronics manufacturers such as Samsung and Dell, as well as leading global robot manufacturing brands such as Ecovacs and iRobot. This accounted for 7.63% of BYD's total revenue in 2021.

4. In addition, BYD is also actively expanding rail transportation, but the income share is still very low (less than 1%).

Generally speaking, BYD takes the automobile business as the core.

From the perspective of the structure of the company's main business, it is not excluded that they will focus their strategic focus on the new energy field, which is consistent with the national policy and the general direction of the automobile market, and has a great development prospect.

03 BYD’s operating performance

The company recorded a CAGR of 15.87% in operating revenue from 2016 to 2021, and achieved a revenue of 216.14 billion RMB in 2021, up 38.02% yoy.

From 2016 to 2019, the net profit attributable to the parent of the company showed a downward trend, and in 2020, the net profit recovered to 4.234 billion RMB, with a yoy growth of 162.27%.

In 2021, the company has a total of assets impairment and credit impairment of nearly 1.25 billion RMB, superimposing the impact of the epidemic and raw material price rise, the annual net profit of 3.045 billion RMB, a yoy decrease of 28.09 %.

Automobile and mobile phone parts assembly business, which together accounted for nearly 90% of revenue in 2021, accounted for a slight decrease in the proportion of automobile business in 2021, while the proportion of mobile phone parts and assembly business increased to 40.00%. The revenue of the secondary rechargeable battery business was stable at 7%-9%.

The gross profit margin of the company fluctuates around 15%, and the gross profit margin of the automobile business is the highest.

From 2018 to 2020, the gross profit margin of the company's automotive business improved steadily. In 2021, due to the price increase of raw materials, the gross profit margin of the company's automotive business decreased to 17.4%.

Secondary rechargeable battery business: affected by the price increase of lithium carbonate, the company's gross margin of secondary rechargeable batteries in 2021 decreased;

Handset components and assembly business: due to factors such as BYD Electronics downstream boom and customer structure adjustment, gross margin decreased to 7.8% in 2021.

In terms of research and development investment, the company's long-term research and development investment, the three expense rate has steadily decreased.

The company attaches importance to the research and development of products and technologies, and the research and development continues to advance, with a CAGR of 19.36 percent in R&D investment from 2015 to 2021. The company's expense ratio level has steadily decreased, with the three-expense rate decreasing from 9.0 % in 2018 to 6.3 % in 2021.

After reading so much data, I would like to summarize to you in one sentence: BYD's operating revenue has grown steadily, and the effect of reducing cost and increasing efficiency has gradually been obvious; Performance continues to improve, with a good development trend.

04 How to view Buffet's reduction of BYD's holdings

After understanding the main business and performance of BYD, we return to the most important question: how will BYD change after being reduced by Buffett? Can we still buy it?

In fact, judging from historical factors, Buffett's decision to reduce his stock holdings may be more due to his own investment framework and individual stock aesthetics, and "not fit" is not the same as "not good."

Let's look at two cases:

$Wal-Mart(WMT)$ (ROE dropped) and $Procter & Gamble(PG)$  (PB rose), which Buffett cut in 2016, have seen their stock prices rise sharply.

1. In 2016, when Walmart competed with $Amazon.com(AMZN)$  in the online market, ROE dropped from 21.0% in March 2015 to 18.6% in September 2016, and Buffett's position decreased from 68 million shares in 2014 to only 10 million shares in the third quarter of 2016. $Wal-Mart(WMT)$ 's ROE and stock price rebounded.

2. The price-to-book ratio of$Procter & Gamble(PG)$  increased from 2.5X in 2012 to about 3.5X, while the ROE declined. Buffett sold down his holdings until 2016. After Buffett sold, P&G began a series of capital operations, PB and ROE rose across the board, driving the stock price to double.

From the above data, it can be seen that Buffett's reduced holdings of stocks, not necessarily into the abyss, but may rise; BYD owners should not be overly pessimistic about Buffett's reduction.

After all, in the 14 years he owned BYD, he has made a return of more than 3,000 per cent. The seeds are already ripe, and when it is time to harvest, it is routine to reduce the warehouse and collect cash.

Finally, let's wrap up today's highlights:

1. Before making investment decisions, we must first understandthe company's development, main business, performance and other key data.
2. Stocks that have been reduced by the gods do not mean that they are not good, and "not fit" is not the same as "not good."

Have you learned? Today, I will continue to recommend our free course to you.I believe this course can systematically help you to improve investment ability. hope you like it～[Shy] 

US Stock Financial Statements for Beginners（Click the link to start learning）

If you have more ideas, let me know in the comment section below.

(Disclaimer: This article is for learning and communication purposes only and does not represent any investment advice.)