[ET Net News Agency, 23 August 2019] J.P. Morgan downgraded its rating for BYD Company
(01211) to "neutral" from "overweight", with a new target price of HK$44.
The research house said BYD's 3Q earnings guidance is a major miss versus JPM's
estimate. The knee-jerk reaction is that the stock should correct at least in the near
term, given the miss; JPM does not disagree but believes the read-through is more
important to investors.
It said BYD's 3Q earnings weakness reflects not only a slow NEV market but also the
difficulty for OEMs to lift prices to offset subsidy shortfall. OEMs with high exposure to
NEV business could witness a similar challenge such as NIO.
While the government may be short-handed on policy options, given fiscal constraint, JPM
does not rule out potential stimulus such as electrification of taxi fleet that doesn't
require much capital injection from the government.
At the end of the day, BYD is still a leader in NEV and battery business in China - its
recent partnership with Toyota to jointly develop NEV business is a great example of
supporting evidence of this, JPM noted. Net net, JPM slashed its 2019/20 net earnings
estimates by 49%/42%. (KL)