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Financial Snapshot of BYD Auto

January 27, 2011 | About:

Josh Zachariah

38 followers
Being one of the more interesting Chinese firms I decided to calculate some financial ratios for BYD, which can’t be found on any of the financial websites (1211.hk on Yahoo Finance). Berkshire Hathaway holds just under 10% of the firm and both Warren Buffet and Charlie Munger have shown particular interest in the firm. Munger specifically pointed out that the company employs over 40,000 engineers and its technologies appear exceptional. BYD (Build Your Dreams) largely produces automobiles in the Chinese market, but it also develops its own batteries and has a line of electric cars.

BYD is planning on entering the U.S. market within the year and is contracting with the city of Los Angeles on building electric buses for the city. The company has seen exceptional growth in China as China recently passed the U.S. in automobile sales, but future growth is expected to diminish significantly. This news has clearly evidenced itself in the share of BYD (1211.hk on Yahoo Finance) as the stock has slowly fallen from a peak of $85 in October of 2009 to $39 today.

Warren Buffett was quoted early last year in saying any future share purchases would be contingent on the price. The stock is still trading at a lofty p/e of 19.55, but is down significantly since the time of Buffett’s comments.

Unfortunately the financials for 2010 are yet to be released so I was forced to go off the 2009 annual report published by the company. The figures were also quoted in the Chinese Renminbi so I converted them back to dollars at 1 Renminbi = $.152 USD.

I also had difficulty determining the market capitalization of the firm. It is quoted at 30.16 billion on Yahoo Finance, but it isn’t specified if that’s in USD of HKD. Berkshire Hathaway’s 9.89% stake was quoted at around $2 billion at the end of 2009 so I went off that figure to calculate a $11.2 billion market cap given the falloff over the year. Given the growth in earnings, the 2010 values should show a larger discount to these values.

Figures from the 2009 Annual Report. Numbers are in ‘000 USD

Assets = $6,191,811

Liabilities = 3,299,687

Equity = $2,892,123

Debt/Equity = 1.14

Return On Equity = 21.43%

Times Interest Earned = 18.655

Free Cash Flow Yield = 8%

Price To Book = 6.91

Cash Flow From Operations = $1,826,463

Free Cash Flow = $945,362

Revenues = $5,999,357

Cost Of Revenues = $4,697,518

Interest Expense = $38,819

Net Earnings = $619,923

The financials for 2009 can be found here

Disclosure: No holdings in BYD

Josh Zachariah



About the author:

Josh Zachariah
I credit my father and Warren Buffett for molding me into the investor I am today.

Rating: 3.3/5 (11 votes)

Comments

Dan Dellegrotti
Dan Dellegrotti premium member - 3 years ago
"It is quoted at 30.16 billion on Yahoo Finance, but it isn’t specified if that’s in USD of HKD."

Quotes delayed, except where indicated otherwise. Currency in HKD
Josh Zachariah
Josh Zachariah - 3 years ago
Thanks for pointing that out Dan. But even if that was the case it would give it a value of about $3.8 billion USD. That would still be inconsistent with its $600 million in earnings so the Hong Kong listing is probably just a fraction of its total shares outstanding.
the_new_z
The_new_z - 3 years ago
BYD is dual listed, as many Chinese companies, on the Hong Kong and Shanghai exchanges - 793,100,000 and 1,482,000,000 shares, respectively. The numbers are from BYD's IR site, where you can also find the annual reports.

You should be very careful with the 2009 numbers, because it was the company's strongest year. As you probably know, last year it had a handful of problems:

  • profits dropped 99% in Q3;
  • the company cut auto sales target for the year 25% to 600,000 units despite the Chinese passenger car market growing 19% and still came short of the target, selling 519,806 units which is a 16% increase from 2009 when they were aiming for a near 100% increase;
  • this slap brought the executives back to earth and they projected a modest 10% increase in car sales in 2011, which more or less equals the growth rate of the Chinese economy - definitely not the rate of an overhyped (its cheerleaders being non other than Buffett and Munger), growth company selling at around 30 times average earnings over the past 4 years;
  • the company was generating negative free cash flow until 2009;
  • BYD lost land and factories under construction after a dispute over land use with the local government;


The stock fell 55% off its high of $11.25 in October 2009 and is still selling at 30x its average earning over the past 4 years and 20x its best year earnings. Auto sales, which seem to be growing at the rate of the overall economy, and which is not such a great prospect, are becoming an ever larger portion of revenues. Their part grew from 10% in 2005 to 53% in 2009. This doesn't bode well for the future at the current rate of growth of BYD's auto sales.

At $5, I still think people are paying for blue skies and the price has to come down further. Buffett said his further buying depends on the price, as always. In September 2008, his MidAmerican paid $230m for a 10% stake (225m H shares). This is about $1 per share for $0.12 of earnings (2007) and $0.85 tangible book. You do the math on the multiples. I bet everyone would like to get in at that price. It has been only 2 years since his investment and there is no way 5x the price he paid is justified. Not that people didn't love it at the peak, too. For example, in October 2009, right at the very top, Barclays bought about 5.5% at $10 per share.

O value, where art thou?

Но

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Josh Zachariah
Josh Zachariah - 3 years ago
I agree the price is still quite high. Though car sales did grow some 15% this past year and are expected to grow this year so I don't know that 2009 will be their best year. However, there was this bad news about the company yesterday:

http://blogs.wsj.com/chinarealtime/2011/01/27/byd-founder-offers-details-on-dealer-friendly-plans/
the_new_z
The_new_z - 3 years ago
Yes, their dealership network is overextended and overstocked. Thank you for pointing out this issue.

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