Abandoned by Buffett? BYD is domineering

$ BYD.SZ released its third quarterly report for 2022 on the evening of October 28, Beijing time. The main points are as follows:

1. Want to make money machine? $ BYD shares.HK’s net profit attributable to the parent in the third quarter was 5.7 billion yuan, which is basically consistent with the previous announcement. The profit of one quarter is already the sum of the past four quarters. More importantly, the quality of profits this time is very high, most of which are Contributed by the automotive business.

2. Gross profit rate rises: BYD’s gross profit rate, which has been criticized before, is close to the expense rate, and it only sells cars without making money. The situation in this quarter has improved significantly, and the single-quarter gross profit rate has directly increased by 5 percentage points month-on-month. Dolphin estimates that the price of its own battery metal dropped from the high level of the second quarter in the third quarter, and the company’s price increase in the first quarter began to fully enter the delivery orders in the third quarter, and after the delivery volume increased, it continued to compress the depreciation expense rate and other factors.

3. Get out of the ASP decline range, double-drive car sales and bicycle prices, and high-speed revenue: BYD’s new energy vehicle sales have reached 540,000, and the monthly sales in September have exceeded 200,000, and the company will work hard to deliver by the end of the year. The volume has been pulled to 280,000 units, and the market share in the third quarter has further increased by more than 28%. At the same time, the price has increased + some higher-priced vehicles launched in the first half of the year have begun to be delivered. In turn, BYD’s bicycle price has begun to become a part of revenue growth. Push hands.

4. Profitability of the automobile business: Although BYD’s R&D expenses and sales expenses are still rising, the rapid growth of gross profit margin and the inflated revenue growth in this quarter have increased the profit of the automobile business by as much as 470%, and the profit attributable to the parent is 5.3 billion.

5. The mobile phone parts and assembly business has stepped out of the trough : After stepping out of the trough of the epidemic in the second quarter, BYD Electronics, which mainly manufactures mobile phones, is recovering in both revenue indicators and profitability indicators, but with the booming automotive business , the relative importance of this business has become lower and lower.

Dolphin’s overall view:

This quarter’s BYD, it can be said that no matter in terms of sales, revenue and profit release, it has shown the momentum that a domestic new energy vehicle should take the lead. And from the perspective of the car series, in addition to the ultra-high-end series, BYD has gradually covered a relatively complete price band with the Dynasty family, the marine life family, the marine warship family + Tengshi.

This quarter, BYD has already fully forecasted the gold content of BYD’s third-quarter results through monthly sales announcements + advance profit forecasts. However, during this period, the stock price continued to decline irreversibly. Perhaps the current valuation is too high, and there is Buffett’s selling pressure. Next year will be another year of changes in competition, and the market’s reluctance to take over at a high level may be a key flaw.

From a fundamental point of view, the key is to understand the changes in competition next year. For example, after the price of more than 300,000 yuan is saturated with competition, the price of new energy vehicle companies in this segment will drop, subsidies will be withdrawn, consumption will be sluggish, and the penetration rate of new energy vehicles will exceed 30%. Node, how to continue to be brilliant next year and so on.

For BYD’s third quarterly report, what does Dolphin focus on?

BYD is a company with a complex business structure, covering automotive, mobile phone components and assembly, rechargeable batteries and photovoltaics:

At present, the battery and energy storage business has been merged into the automobile business, and the second largest business mobile phone components and assembly are mainly in the separate listed entity BYD Electronics. As the data of BYD’s large automobile business.

In addition, the sales volume of BYD cars is a clear brand, and the amazing profit attributable to the parent has also been disclosed in advance. This quarter, more detailed data are used to observe the source of profit release, the general price trend of bicycles, and so on.

Under the above split logic, we focus on the following issues:

1. Growth rate of automobile business: BYD’s automobile business has a complex model structure, including gasoline vehicles and new energy vehicles, including passenger cars and passenger cars. Even if the sales volume is based on the clear brand, the income generation of the automobile business is also uncertain. , so we pay attention to the changes in the revenue growth rate of the automotive business;

2. Profits from the automobile business: Did the parental profit of over RMB 5 billion in the third quarter come from BYD Electronics or the large automobile business? Is it the release of operating leverage? Or an improvement in gross margins?

3. Mobile phone parts and assembly: Although the mobile phone parts and assembly business is not the core of BYD’s valuation, it is currently the core of its performance and covers a large number of businesses with high volatility. Therefore, let’s take a look at the business from the perspective of BYD Electronics. Performance;

4. Overall situation: There are many factors affecting BYD’s overall performance, so we pay attention to the overall performance growth rate and changes in profitability.

With the above questions, let’s analyze BYD’s 2022 third quarter report in detail:

1. BYD: High-speed racing, you can’t stop the brakes

Whether it is consumer goods or manufacturing, the market likes the scale effect of revenue: a large enough sales scale means that the back-end can dilute the amortization and depreciation of the factory, can reduce the price of goods for suppliers, and the front-end can dilute the company’s research and development, promotion and even Management and other investment, and because the scale is large enough to dilute these endogenous R&D and management expenses, the product may tolerate a lower gross profit margin level.

Although BYD at the current stage has not yet achieved the level of diluting the front-end three costs, at least the growth of income has been properly done: with DMI super hybrid, blade battery, e 3.0 pure electric platform and new CTB technology, since 2021 The cars launched are all super capable, and they have been running wildly all the way and producing flowers all the way.

1. Automobile sales: In addition to the continuous increase in the volume of DM platform models, the e3.0 platform pure electric models will be boosted together. The company’s new energy vehicle sales in the third quarter of 2022 are already 540,000 quarterly sales, a year-on-year increase of 197%.

The production and supply of traditional fuel vehicles has stopped in March this year, so the company’s current sales are all new energy vehicles. Even considering last year’s fuel vehicle base, the company’s vehicle sales growth rate is 160%+.

From the perspective of sales structure, the power of pure electric and hybrid electric vehicles is balanced, and both are in the high-speed growth channel. Looking at the industry, in addition to continuing to consolidate the dominance of plug-in hybrid vehicles in the third quarter, the market share of pure electric vehicles also seems to have a gradual upward trend. .

2. Power battery and energy storage capacity:

With the soaring sales of automobiles, BYD’s installed capacity of power batteries and energy storage (including self-supply and external supply) has reached 23.5GWh in the third quarter, a year-on-year increase of 120%. However, compared with the same period, the sales of new energy vehicles increased by nearly 200%. It seems that the growth of the energy business is still a little difficult.

3. Revenue: outpacing sales growth, bicycle prices are no longer a drag

After excluding BYD Electronics in the third quarter, BYD’s revenue was 89.6 billion, a year-on-year increase of 170%. Basically, it has come out of the embarrassing period when the proportion of low-priced new energy vehicles is too high and the revenue cannot exceed sales.

At the same time, after adding the relatively high-priced models updated and newly launched in the first half of this year, such as the Han DM-i, DM-p, and the seals of the marine life series, the price of bicycles is no longer a drag, and revenue growth is even outpacing sales. increase.

In a previous in-depth article, Longqiao Dolphin had been looking for BYD’s core, which mentioned BYD’s revenue structure and gross profit structure. The core of the automobile business and mobile phone business contributed more than 90% of the revenue and gross profit. Therefore, in the company’s Without directly disclosing the revenue and gross profit of the automobile business, Changqiao Dolphin will approximate the data after deducting the mobile phone business (with Hong Kong-listed BYD Electronics as the operating entity) as the data of the automobile business. Watch for trends.

4. Gross profit margin soared: If the high growth of revenue can be roughly inferred from the sales volume and unit price of various models that have been announced in advance, it is not an accident, and the profit of the parent has been released in advance. The real core of this quarterly earnings report is to observe the quality of earnings, and the answer sheet in the third quarter answered unequivocally: “The gold content of earnings is very high.”

After deducting BYD Electronics, the company’s gross profit in a single quarter was 20.4 billion, which is a real release of scale effect after the company’s revenue has grown.

Dolphin-kun estimates such an increase, except for the last time in “Tear-off the label moment: BYD will usher in the gorgeous turn of the “money-making machine”? “In addition to the dilution of fixed costs mentioned in the previous quarter, the prices of raw materials themselves fell slightly in the last quarter, and BYD’s orders for models with price increases in the first quarter (which digested a large backlog of historical orders in the second quarter) were delivered in the third quarter, which together drove the gross profit performance to exceed market expectations. .

Note that after BYD’s centralized price increase in February and March, Dolphin Jun estimates that the company should have begun to deliver some orders after the price increase.

5. Net profit: Even if the ability to control expenses is insufficient, it cannot stand the substantial release of gross profit

In the case of BYD’s (deducted electronics) gross profit margin increasing by five percentage points month-on-month, the profit margin attributable to the parent has only increased by less than two percentage points, which is equivalent to a large increase in gross profit margin or eroded by expenses.

And if the results of the company’s overall expenses can also confirm this: this quarter’s R&D expenses and sales expenses have grown too fast, and there is no such thing as the opening of Dolphin’s text-scale effect on front-end R&D and sales. Expenses are diluted. The absolute value of BYD’s large-scale revenue and such a fast revenue growth rate still cannot effectively dilute the current R&D and sales expenses of drag racing. The improvement of operating efficiency is probably a question that BYD will continue to answer.

2. Mobile phone components and assembly: comprehensive recovery

After stepping out of the epidemic disturbance in the second quarter, mobile phone components and assembly (contributing about 20%-25% of revenue) have recovered in the third quarter.

In the third quarter, the mobile phone components and assembly business with BYD Electronics as the main operating body achieved revenue of 27.5 billion yuan, a year-on-year increase of 30% from a negative quarterly growth.

Profitability recovered together . The gross profit margin of BYD Electronics in the third quarter of 2022 was 6.5%. Although it was not as good as the same period last year, it has rebounded significantly from the trough in the second quarter.

BYD Electronics’ net profit attributable to its parent in this quarter was 600 million, with a profit margin of 2.2%, a year-on-year increase of 17%.

3. Overall performance: a rare honor student

With the sales of high-speed racing and the quick release of profits, BYD can be said to be a top-notch student in the entire A-share market:

[1] Revenue and net profit attributable to the parent: In the third quarter of 2022, the company achieved revenue of 117.1 billion yuan, a year-on-year increase of 116%.

The company’s overall profit attributable to the parent was 5.7 billion, a year-on-year increase of 350%. This quarter, the auto energy business contributed 5.3 billion. This is completely different from the previous situation where BYD had cars to sell but had no money to make, and the profits were made up by OEMs, and the quality of profits was leveraged. of.

And judging from the unanimous expectations of Wind sellers, the market obviously underestimated BYD’s revenue generation and profitability: the current market forecast for BYD’s full-year revenue is close to 400 billion, and the profit attributable to the parent is forecast to be a little more than 12 billion, and the first three quarters have been achieved respectively. 270 billion and 9.3 billion.

The company has already said that it will cooperate with the wave of orders before the subsidy is withdrawn. It plans to produce 280,000 units per month by the end of 2022. Currently, the monthly delivery has just exceeded 200,000 units. The accelerated growth month-on-month is already a deterministic trend. It may be underestimated by 15 billion, and the profit is implicitly underestimated by nearly double the profit in the fourth quarter. BYD is properly on the road of exceeding market expectations.

[2] Both automobiles and electronics are online, and the overall gross profit margin is rising rapidly

BYD’s gross profit in this quarter was 22.2 billion, a year-on-year increase of more than 200%, and the gross profit margin was 19%. Both the auto business and BYD Electronics contributed to the improvement of the gross profit margin, but the most important thing was that the gross profit margin of the auto business improved relatively quickly.

[3] The stubborn and high-increasing R&D and sales expenses, the release of operating leverage is too slow

Expense ratios drop, freeing up profit margins. The company’s period expense ratio was 10.6% in this quarter, both increasing year-on-year and month-on-month.

1) The main problem is sales expenses : in the third quarter, the company’s sales expenses were 4.6 billion yuan, and the sales expense ratio was 4%, which was the first time in four years to stand above 4%. With such a high growth in revenue, the sales expenses can be so sturdy, Surprising indeed.

2) R&D expenses remain high : R&D expenses in the third quarter were RMB 5.45 billion, the highest among the three expenses. However, since the battery, intelligence, and new car research and development all require the company to maintain continuous research and development investment, it is not surprising that the high-growth market of research and development under the continuous expansion of income.

3) Only management expenses reflect the release of operating leverage: this quarter, the company’s management expenses were more than 2.7 billion, and the expense ratio was 2.3%. After the large-scale release of revenue, the expense ratio of this part continued to be relatively low.

Summary: High-quality and high-volume top students, will the market buy them?

Judging from its own performance in the third quarter, BYD’s answer sheet can be said to be high-quality and high-volume, with good auto sales and profits. However, under such a high valuation of BYD, the current market is more concerned about the uncertainty of the year of new energy changes next year. When subsidies are withdrawn, production capacity is released in a centralized manner, and Tesla’s leading price cuts, how much will this bring about market competition? change? It doesn’t seem clear yet.

In addition, Buffett’s sell-off is still under pressure on BYD’s head. From the perspective of BYD’s trend, because the valuation is too high, it seems that the market is still relatively conservative.