BYD Earnings: Vehicle Margin Beat; but Competition Dents Pricing and Raises Expenses

BYD’s first-quarter revenue and net profit rose 4% and 11% year over year, respectively. Thanks to higher export contribution and lower battery costs, the firm's gross margin increased 4 percentage points versus a year ago, while industrywide price competition during the period led to higher dealer rebates and selling expenses. We reduce our 2024-26 net profits forecast to factor in lower vehicle prices and higher operating expense ratios. We cut our fair value estimate to HKD 290 per H-share (CNY 259 per A-share) from HKD 300 (CNY 267), which implies a 2024 price/sales ratio of 1.3 times and price/earnings ratio of 24 times. Trading in 4-star territory, we view BYD's H-shares as undervalued.