BYD(002594)：RECOVER GRADUALLY

Maintain BUY. BYD’s 3Q25 earnings recovered QoQ, although the pace wasbelow our prior expectation. We believe its industry-leading technologies,previous high earnings quality, lessons learnt from pricing strategy andinventory management in FY25 could support its earnings resilience ahead.


　　3Q25 earnings miss on GPM, forex loss. BYD’s 3Q25 revenue fell 3%YoY amid a 2% sales volume decline YoY. GPM in 3Q25 widened 0.7pptsQoQ but narrowed 2.5ppts YoY to 17.6%, lower than our forecast. Itsbusiness tax, SG&A and R&D ratios combined fell 0.4ppts QoQ to 14.4%in 3Q25. Net profit rose 23% QoQ but fell 33% YoY to RMB7.8bn in 3Q25,implying a net profit per vehicle of about RMB7,000. We view suchsequential earnings recovery as slower than our prior expectation.


　　4Q25 outlook. BYD continued to cut its inventories at dealers in 3Q25,which could pave the way for 4Q25 sales volume. We cut our FY25E salesvolume forecast from 4.9mn units to 4.61mn units, or 1.34mn units for4Q25E. We also expect GPM in 4Q25 to recover gradually QoQ to 18.0%despite year-end bonus and rebates. Accordingly, we project net profit pervehicle to rise to about RMB7,700 in 4Q25.


　　Previous high earnings quality, industry-leading technologies key toearnings in FY26-27E. We believe the declining profitability for BYD since2Q25 reflects the heightened competition in China, as other automakershave been launching competitive PHEVs with similar architecture as itsDM-i and EREVs. In fact, BYD rolled out in-house ADAS technologies,1,000kw supercharge, 2nd-generation blade batteries etc. in 2025. Weexpect more industry-leading technologies to come in 2026, which couldbe key to its sales volume and earnings, as BYD has almost laid out itscomprehensive model line-ups. We also project higher overseas salesvolume to lift margins. Therefore, we project BYD’s sales volumes to be5.25mn/5.8mn units in FY26-27E, with GPMs to be 18.1%/18.1%,respectively. We also expect BYD to be more prudent on SG&A and R&D.


　　Accordingly, we project its net profits to rise 30%/20% YoY toRMB43.8bn/52.5bn in FY26-27E, respectively.


　　Valuation/Key risks. We maintain our BUY rating but trim our H-sharetarget price from HK$140 to HK$125, still based on 20x our FY27E P/E.


　　Our A-share target price of RMB125 is based on its A/H premium of 8%.


　　Key risks to our rating and TP include lower sales volume or margins thanwe expect, and a sector de-rating.

□.J.i. .S.H.I./.W.e.n.j.i.n.g. .D.o.u./.A.u.s.t.i.n. .L.i.a.n.g    .招.银.国.际.证.券.有.限.公.司