BYD Earnings: Profit As Guided; Gain in Vehicle Margin Offset by Higher Operating Expenses

BYD delivered an in-line fourth quarter, with net profit up by 19% year over year and at the midpoint of the company’s preliminary announcement. Thanks to lower battery raw material costs, the company delivered about a 2-percentage-point increase in vehicle margin compared with a year ago despite price competition. We reduce our 2024-25 net profit forecasts to factor in lower vehicle prices and higher operating expenses. We cut our fair value estimate to HKD 300 per share (CNY 267) from HKD 316 (CNY 281), which implies a 2024 price/sales ratio of 1.2 times and a price/earnings ratio of 23.4 times. Trading at more than 25% below our fair value estimate, we view H-shares of BYD as undervalued.