To The Moon

According to Hong Kong Stock Exchange documents, $Berkshire Hathaway(BRK.B)$ sold 1.33 million $BYD COMPANY(01211)$ on Aug. 24.

This document confirms previous market rumors that Warren Buffett began selling at a profit after holding BYD for many years.

The move will be a blow to investor confidence after Warren Buffett reduced his holdings.

• Can BYD can also return to trillion market cap(RMB)?

Let's start from the latest report to analyze its fundamentals.

1. Why did a 206% Spike in Net Income not push the stock price?

Yesterday, BYD released its half year earnings with net income surging 206%.

The earnings report itself is very stunning, but the market reaction is tepid due to 2 reasons.

1. on July 14, BYD released its performance forecast, and core data such as revenue and net profit are already known to the market.

2. BYD releases monthly car sales data, and the big increase in performance has long been reflected in the stock price.

Therefore, after the half year report, BYD closed with a small decline of 0.9%.

In addition to revenue and net income, BYD has many surprises in this earnings report.

2. How to value BYD?

First, let's break down BYD's revenue structure to facilitate the subsequent valuation of BYD.

BYD's main business is auto sales, but it also has battery, photovoltaic, and electronic product assembly businesses. If cars, photovoltaics and batteries are all new energy businesses, then they can enjoy high valuation. But electronics assembly can't.

In the first half of this year, BYD's total revenue was 150.6 billion. Among them, the revenue of automobile and related products is 109.3 billion, up 130% year-on-year, accounting for 72.6% of the total revenue.

It is worth noting that in this half year report, the company combined the battery and photovoltaic business, which were previously listed separately.

In addition to the automotive business, revenue from cell phone components, assembly and other products reached 41.1 billion in the first half of 2022, down 5% year-on-year.

According to research firm IDC,

in the first half of this year, global smartphone shipments fell 8.8% year-on-year, down for 4 consecutive quarters; global PC market shipments fell 10.2% and tablet shipments fell 1.7%.

As a result, the electronics assembly business only has gross margin of 6.08% in the first half of this year.

The P/S ratio (market cap/revenue) of this business is only worth 0.5 x. In 2021, BYD's revenue from assembly business is 86.45 billion yuan, which accounts for only a fraction of BYD's 900 billion market cap.

After figuring out BYD's revenue structure, let's look at the second quarter.

3. Q2 Earnings Data

In the Q1, BYD's revenue was 66.8 billion, an increase of 63% year-on-year, net income of 800 million.

According to this projection, the Q2 revenue of 83.8 billion, an increase of 68% year-on-year, net income of 2.8 billion.

Q2 BYD gross margin: 14.39%, higher than 12.4% in the first quarter.

As we all know, the upstream battery costs of new energy vehicles have repeatedly raised.

Under such pressure, the gross margin of most new energy car companies have declined, such as $Li Auto(LI)$ , $XPeng Inc.(XPEV)$.

BYD's ability to achieve higher gross margins demonstrates the competitiveness of its products and its control of the entire supply chain.

Once BYD solves the capacity bottleneck, the overseas market is expected to become the second growth curve.

According to WIND,

BYD's 2022 revenue is expected to be at 370 billion yuan, and automotive and related products revenue at about 300 billion if excluding electronics assembly business.

According to this calculation, BYD's P/S ratio is 3x, much lower than $Tesla Motors(TSLA)$ 13x and another 2 new energy car companies $NIO Inc.(NIO)$ , $XPeng Inc.(XPEV)$ and $Li Auto(LI)$ .

Bottom Line

However, BYD's net profit margin needs to continue to improve. The company's PE valuation is as high as 163x. Plus, after Buffett sold its shares, the stock price may continue to fluctuate.

In the future, as long as the company's car sales climb, $BYD COMPANY(01211)$ will eventually return to trillion market value.

What's your opinion towards $BYD COMPANY(01211)$ 's earnings?

Share your opinions in the comment section?