RMB 15 billion of private placement goes to power battery and New Energy Vehicle

BYD released a bulletin that the company plans to make a non-public offering to a maximum of 10 specific investors of not more than 240 million shares at or above RMB 57.4 per share to raise a total of RMB 15 billion. The net amount raised after deducting issuing cost is intended to go to three major directions: the expansion of Li-ion battery production capacity and NEV R&D, as well as supplement to working capital and bank loan payback.

Significant profit growth in 15Q1

According to BYD's latest financial report, the company recorded revenues of RMB 15.283 billion in Q1, up 30.35% yoy; net profit up 910.75% yoy to RMB 121 million; earnings per share of RMB 0.05, up 400% yoy from RMB 0.01 last year. The drivers for the large increase in the results lie in the strong growth in mobile phone parts and the explosion of NEV sales. Over the first four months in 2015, BYD Qin's sales up 172% yoy, E6 up 126% yoy and electric bus K9 up 67% yoy. The company is expected to have a net profit of RMB 400 - 480 million over H1 2015, up 10.90%—33.08% yoy from RMB 361 million last year.

A new round of NEV models to start positive turnaround of the results

Following the growing popularity of BYD Qin, BYD is going to launch multiple models of NEVs in 2015, including BYD Tang, Song, Yuan and Shang, corresponding respectively to mid-sized SUV, compact SUV, mini-sized SUV and MPV. Along with the unleashed capacity, the Company will produce more NEVs which will contribute more to its business results. Given that NEVs capacity utilization remains high with obvious gross margin increase, as well as the growing varieties, 2015 is quite likely to see the company have a positive turnaround of the results.

Announce its first employee stock ownership plan

To boost the employees` enthusiasm, BYD announced its first employee stock ownership plan which covers 97 employees, including 6 supervisors and senior managers and 91 other staff members, who are estimated to hold 32.66 million shares of the company, accounting for 1.32% of the current capital stock. The plan helps establish a long-term incentive mechanism and highlights its strong confidence in itself in the long run.

Investment Thesis

As analyzed above, we revised EPS expectation of the Company to RMB0.79/1.07 of 2015/2016. Although we have positive views on the Company's future development, we remind investors to concern about the possible frustrations the Company may encounter in the cultivation of the individual new energy vehicle market. We maintain the rating to Cautiously Accumulate, with the target price of HK$55, equivalent to 55/40x P/E and 3.8/3.3x P/B for 2015/2016 respectively. (Closing price as at 22 June 2015)

RMB 15 billion of private placement goes to power battery and New Energy Vehicle

BYD released a bulletin that the company plans to make a non-public offering to a maximum of 10 specific investors of not more than 240 million shares at or above RMB 57.4 per share to raise a total of RMB 15 billion. The net amount raised after deducting issuing cost is intended to go to three major directions: the expansion of Li-ion battery production capacity and NEV R&D, as well as supplement to working capital and bank loan payback.

Thereinto, RMB 6 billion of the amount will be invested in the auto battery capacity expansion in a period of 18 months. When the project is completed, the capacity will increase by 6GWh. The company is among the leading group in the commercialization of NEV in China. In 2014, the company sold about 15,000 BYD Qin cars, representing 50% of the total PHEV passenger cars across the country. Suppressed by the inadequate capacity of auto batteries, the company has some unfilled orders for NEVs. Before, BYD raised HK$4.2 billion through placement in Hong Kong stock market in order to increase its battery production capacity. According to the schedule, new capacity was already put into operation in Q1 this year and by the end of March, its capacity rose to 3GWh, with 4.6GWh to be achieved by the end of this year and 10GWh in 2017. By then, the capacity bottleneck will have been resolved.

RMB 5 billion will be earmarked for NEV R&D. BYD announced to launch “7+4” NEV Project soon, which aims to cover seven major target markets (private car, city bus, taxi, sanitation truck, inter-city bus, light truck and construction truck ) and four markets of special vehicles (used in warehouses, airports, mines and harbors). Once the project is implemented, BYD NEV will be found in every field of land transportation means.

The remaining RMB 4 billion will be used to supplement working capital and pay back bank loans, easing the high liability due to the previous huge investment.

Significant profit growth in 15Q1

According to BYD's latest financial report, the company recorded revenues of RMB 15.283 billion in Q1, up 30.35% yoy; net profit up 910.75% yoy to RMB 121 million; earnings per share of RMB 0.05, up 400% yoy from RMB 0.01 last year. The drivers for the large increase in the results lie in the strong growth in mobile phone parts and the explosion of NEV sales. Over the first four months in 2015, BYD Qin's sales up 172% yoy, E6 up 126% yoy and electric bus K9 up 67% yoy. The company is expected to have a net profit of RMB 400 - 480 million over H1 2015, up 10.90%—33.08% yoy from RMB 361 million last year.

A new round of NEV models to start positive turnaround of the results

Following the growing popularity of BYD Qin, BYD is going to launch multiple models of NEVs in 2015, including BYD Tang, Song, Yuan and Shang, corresponding respectively to mid-sized SUV, compact SUV, mini-sized SUV and MPV. Along with the unleashed capacity, the Company will produce more NEVs which will contribute more to its business results. Given that NEVs capacity utilization remains high with obvious gross margin increase, as well as the growing varieties, 2015 is quite likely to see the company have a positive turnaround of the results.

Announce its first employee stock ownership plan

To boost the employees` enthusiasm, BYD announced its first employee stock ownership plan which covers 97 employees, including 6 supervisors and senior managers and 91 other staff members, who are estimated to hold 32.66 million shares of the company, accounting for 1.32% of the current capital stock. The plan helps establish a long-term incentive mechanism and highlights its strong confidence in itself in the long run.

Investment Thesis

As analyzed above, we revised EPS expectation of the Company to RMB0.79/1.07 of 2015/2016. Although we have positive views on the Company's future development, we remind investors to concern about the possible frustrations the Company may encounter in the cultivation of the individual new energy vehicle market. We maintain the rating to Cautiously Accumulate, with the target price of HK$55, equivalent to 55/40x P/E and 3.8/3.3x P/B for 2015/2016 respectively. (Closing price as at 22 June 2015)

Financials

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