Profit may continue to beat in next few quarters

（以下内容从招银国际《Profit may continue to beat in next few quarters》研报附件原文摘录）
比亚迪(002594)
Upgrade to BUY. Although BYD-A’s share price has been between -15% and +13% of our previous target price of RMB 270, our major concerns with a prior HOLD rating were more about model cycle and margin dent from a potential overcapacity. It turned out that BYD’s sales volume growth has lasted longer than expected and its earnings have been more solid than our prior forecasts. We now think that such trends could continue in the next few quarters, aided by premium models, exports and greater economies of scale. Unlike some investors, we think BYD’s catch up in intelligent connectivity may be faster than expected.
3Q23 earnings beat. BYD’s 3Q23 net profit of RMB 10.4bn was in the middle of its preliminary earnings range, thanks to its strong GPM and SG&A cost control. Its 3Q23 GPM of 21.7% was about 1.5 ppts higher than our prior forecast. GPM excluding BYDE (285 HK, BUY) reached 25.7%. SG&A ratio also narrowed by 0.8 ppts QoQ. R&D expenses exceeded RMB 11bn in 3Q23,or 6.8% of revenue. Net profit per vehicle (excluding BYDE) reached RMB 11,400, the highest in history.
Solid earnings outlook ahead. We expect BYD’s sales volume to rise 23% YoY to 3.7mn units in FY24E, in line with our projected growth of NEV wholesale volume for China. We revise up our FY24E net profit forecast by 29% to RMB 39.4bn (net profit of RMB 9,700 per vehicle excluding BYDE),assuming that GPM in FY24E is to narrow slightly YoY to account for rising competition. Yet, we believe BYD still has room to beat such profitability,should its more premium new models and exports offset dent from price war.Its new-generation DM technology could also help cut costs.
Catch-up in autonomous driving and smart cockpit could be faster than expected. BYD’s R&D expenses in FY23E could be 30% higher than Li Auto (LI US, BUY), NIO (NIO US, HOLD) and Xpeng (XPEV US, HOLD) combined.We believe such R&D investments, along with its partnership with Momenta (which also works with SAIC (600104 CH, NR)), could help BYD catch up.
Earnings/Valuation. We upgrade our rating of BYD-A from Hold to BUY and raise target price from RMB 270 to RMB 300, based on 22x our revised FY24E P/E, which reflects 10% AH premium on our BYD-H TP. We are of the view that such valuation is justified, given Tesla’s (TSLA US, NR) current 40x FY24E P/E and Li Auto’s 20x FY24E P/E. Key risks to our rating and target price include lower NEV sales volume and margins, as well as sector de-rating.