The brokerage has a 12-month target price of HK$20 for the electric carmaker backed by Warren Buffett’s Berkshire Hathaway Inc., or 20 percent below yesterday’s close of HK$25.05. The average estimate by 17 analysts tracked by Bloomberg is HK$46.09. The shares rebounded 14 percent to HK$28.60 today after BYD said it’s not aware of any reason for the tumble, which traders and strategists struggled to explain.
The plunge “affirms our negative view,” even though a drop of that size is “very odd,” said Janet Lewis, an analyst at Macquarie in Hong Kong. “Other target prices imply ‘Tesla-like’ valuations, which we do not believe make sense.”
Even after yesterday’s retreat, BYD trades at 31 times
projected 12-month earnings, three times the 9.4 multiple of the Bloomberg World Auto Manufacturers Index. Tesla (TSLA) Motors Inc., led by billionaire Elon Musk, is valued at 77 times.
“Our view is driven by the fact that they still don’t make money from their auto business once you strip out government grants and the proportion from new energy vehicles remains low,” said Lewis, who has an underperform rating on the stock.
The BYD Co. e6 electric vehicle, left, and other vehicles stand on display in a... Read More
Demand for alternative-energy vehicles in China has been slow despite government subsidies that can reduce the cost of the cars by about 60,000 yuan. As of September, the nation had achieved only 12 percent of its target for such vehicles to be introduced by 2015, government figures show.
Build Your Dreams
BYD has lost 22 percent in the past year, compared with a 5.8 percent gain by the Hang Seng China Enterprises Index of Chinese shares traded in Hong Kong. Tesla has risen 55 percent.The decline still leaves profits on the table for MidAmerican Energy Holdings Co., the unit of Buffett’s Berkshire Hathaway that agreed to buy 225 million Hong Kong-listed shares of BYD for HK$8 back in 2008. The Berkshire unit is the biggest strategic partner in BYD, whose name stands for Build Your Dreams, by owning 24.6 percent of the Hong Kong-listed stock.
BYD said it confirmed with Berkshire Hathaway that the U.S. company has no present intention to reduce its stake. BYD also reiterated comments made in a conference call that its operations are normal and it has no substantial foreign exchange losses tied to its Russia business, according to a filing to the Hong Kong stock exchange.
Analyst Ranking
Among analysts tracked by Bloomberg, 10 have buy recommendations on BYD, six have holds and eight rate it a sell, giving it a score of 3.08 out of a maximum 5. That’s the second-lowest among the 29 members of the Bloomberg World Auto Manufacturers Index, after Volvo AB.UOB-Kay Hian Holdings Ltd. cut its target price today to HK$19 from HK$25.50. Credit Suisse Group AG has one of the highest target prices for BYD at HK$71.
The Chinese carmaker’s Shenzhen-traded shares rose 5.2 percent today after falling yesterday by the daily limit of 10 percent.
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