比亚迪:Upside remains as bottom-line revised up

BYD announced that total auto sales volume achieved 42K units in Sep, an increase of 3.6% YoY. Among these, NEPV achieved 20K units, an increase of 42.5% YoY/ 32.8% MoM. The Company raised its 3Q20E earnings guidance with a new bottom-line range of RMB 3.4-3.6bn in the first three quarters of 2020E. We have confidence in BYD’s sales volume in the 4Q20E and remain optimistic about its performance in 2021E given its new product cycle. We raise our bottom-line forecast by 7% to RMB 4.2bn in 2020E. Reiterate BUY rating and raise TP to RMB155.7.

Benefited from the recovery of China's overall NEV market, BYD achieved rapid growth in its NEV segment in Sep. BYD sold 42K units (ICE+NEV) of auto in Sep, an increase of 3.6%YoY. Its NEV business has rebounded back to a high growth path with a total sales volume of 20K units, an increase of 45.3% YoY. Among these, NEPV achieved 19K units (+42.5%YoY) whereas NECV achieved 1.3K units (+32.8%YoY). We believe that the total delivery of model Han is in line with our expectations, with a total volume of 5,612 units in Sep. We expect that the sales volume of Han will continue to rise in 4Q20E as the production of the blade battery is ramping up. In terms of ICE, sales reached 22K units in Sep, down 17.6%YoY.

Sales volume of NEPV in 4Q20E is expected to be doubled YoY. Given the cut-off day of NEV subsidy, 4Q is the traditional sales peak season for commercial-used NEVs. Affected by COVID-19, NEV demand from the to-B side was postponed to 2H20E. As a result, we expect to-B side demand may exceed market expectations in 4Q20E. On the to-C end, BYD has launched its new model Tang DM and Song Plus since Aug. It is expected that the blade battery version of Tang EV, e2, e3, together with Yuan EV (facelift version), will be launched in the 4Q20E. We believe that a series of new models, underpinned by production ramp-up of blade battery, will bring BYD’s NEV sales back to the high growth path in 4Q20E. We expect BYD will achieve total NEPV sales of 67K units in 4Q20E, an increase of 102%YoY.

BYDE (285 HK) is expected to beat market expectations. For Apple business, the iPad/Watch assembly components are on track. We believe that BYDE has obtained a 20-30% share of the latest 2H20E iPad models, and it will reach 30-40% of all iPad products by 2021E. As Apple will accelerate the diversification of suppliers, we expect BYDE will expand to iPad metal casing and gain share in iPhone/watch ceramic products in 2021E. In terms of headset EMS, Xiaomi will offset the negative impact of Huawei in 2021E. In order to mitigate the downside risks brought about by the Huawei ban, we expect BYDE to expand EMS capacity for Xiaomi with share allocation to 40% in FY21E (vs. 10-20% in FY20E). In addition, backed by Samsung/Xiaomi’s promising outlook in 2021, we expect strong demand for glass/ceramic casing given rapid 5G adoption.

The Company revised up its 3Q20E earnings guidance. BYD revised its performance guidance for the first three quarters from the previous RMB2.8- 3.0bn to RMB3.4-3.6bn, representing an increase of 116-129% YoY. It implies the net profit will achieve RMB1.4-1.9bn in 3Q20E, an increase of 1352% to 1519% YoY. We believe it was mainly due to the recovery of the auto industry and the introduction of new business in BYDE. We slightly lowered our full-year revenue forecast by 3% to RMB 157bn to reflect the revenue adjustment of BYDE. In the meanwhile, we raised our bottom-line forecast by 7% to RMB 4.2bn in 2020E to reflect the rise in profitability of the auto and BYDE business. The Company plans to release 3Q quarterly reports on 29 Oct.

Continuous valuation boost from NEV segment; raise TP by 37.6% to RMB155.7. BYD’s share price has surged more than 37% since our previous update (8 Sep). We think BYD’s strong share price momentum reflects re-rating on the NEV segment, as we expect current valuation indicates ~2.5x FY21E P/S on forward-looking NEV sales. Based on the rapid sales growth of BYD’s flagship Han EV comparing with major NEV rivals, we think the NEV segment’s re-rating is not yet done. We lift our NEV P/S multiple from 2.0x to 4.0x (vs. 7.0x from emerging NEV names) and boost our NEV segment valuation by 89.1%. Our SOTP TP is raised by 37.6% to RMB155.7. Maintain BUY.