BYDDY - BYD: Subsidized Conquest Of The Automotive Market At The Expense Of Profitability

2024-07-03 22:22:09 ET

Summary

• Expected significant revenue expansion, tripling from 2023 levels, driven by aggressive pricing, government subsidies, and overseas expansion.
• Low prices expected to impact profitability, with operating margins remaining below industry levels due to low prices.
• At current prices, our assumptions suggest that BYD’s risk-reward profile has the potential to generate a negative return.

Executive Summary

BYD Company Limited (BYDDF) (BYDDY) stocks are currently trading above their fair market price.

We expect BYD to significantly expand its market share in the foreseeable future, more than tripling its revenues compared to 2023 levels, poised by the aggressive price strategy, subsidised by the Chinese government, and overseas expansion despite the headwinds of Western tariffs.

Sales expansion is expected to come at the expense of the firm’s profitability, with operating margins remaining below industry levels as a consequence of low prices.

Despite the great working capital management shown in the past years, which led to reduced reinvestment needs and positive free cash flow generation, due to low profitability, in the long term we expect FCFF margins to decline considerably towards the industry average....

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