BYD Company Limited (HKG:1211) has slowly been chipping away at the electric vehicle industry, and now, we’re starting to see some positive results. In fact, analysts say that BYD’s electric vehicles are no longer only a dream and even that they see doom ahead for the company’s traditional vehicle segment.
Bullish on BYD’s electric cars
Analysts at both JPMorgan and Nomura are excited about the Chinese company’s neighborhood electric vehicles segment. In a report dated Aug. 26, 2014, Nomura analysts Leping Huang and David Hao said BYD’s electric vehicle business has become a reality. The business grew 12 times year over year and made up 11% of the company’s sales in the first half of this year.
In a separate report also dated Aug. 26, 2014, JPMorgan analyst Alvin Kwock and his team said they also like BYD’s electric vehicle prospects. They say BYD’s first half results suggest that the margin on the company’s electric vehicles was better than expected. As a result, they see the possibility of earnings upside after the segment contributes more sales than the company’s traditional gas vehicles.
Trouble for BYD’s gas engine vehicles
For the second quarter, BYD’s revenue was Rmb25 billion, which missed the JPMorgan estimate by 8%. They say weakness in the company’s gas engine vehicle segment dragged down the result. In fact, the JPMorgan team sees zero value in BYD’s gas engine segment because they don’t think it will ever turn around.
As a result, they bumped their price target for the company down a bit from HK$69 to HK$68 per share although they reiterated their Overweight rating on the company. They believe there’s a buying opportunity in the recent weakness. They see potential catalysts from a positive electric taxi procurement policy in China, a subsidy policy and a strong fourth quarter.
The Nomura team is also bearish on BYD’s gas engine vehicles. They noted some volatility in the company’s third quarter guidance, which is for just above breakeven results. They say the reason for this is because of the weakness in the company’s gas cars. The JPMorgan team thinks the weak third quarter guidance was due to a timing problem caused by a delivery delay rather than a shortage of orders.
Other notes from BYD’s results
Analysts also noted a positive in BYD’s electronics segment, which recorded a 21% year over year growth rate because of handset manufacturing contract wins. The Nomura team said the main driver was rising metal casing adoption at Chinese handset manufacturers.