BYD 1211

[winston]

Not vested. From UOBKH, Jan 5, 2010

BYD
Vulnerable to a policy change

We downgrade BYD from HOLD to SELL as the reduction in purchase tax discount for small cars would affect it the most, given its heavy reliance on this vehicle category. Fair price of HK$40 is based on 23x 2010F PE.

Corporate Event
We downgrade BYD from HOLD to SELL as the reduction in purchase tax discount for small cars would affect the company the most, given its heavy reliance on this vehicle category.

Most vulnerable to policy change. The Chinese government recently announced it will reduce the purchase tax discount for small sedans (displacement of 1.6L or below) from 50% to 25%. The purchase tax on small cars will increase from 5% in 2009 to 7.5% in 2010. BYD is heavily reliant on the sales of a few small car models - sedans with displacement of 1.6L or below accounted for 88% of its total sales volume in 10M09.

In particular, BYD’s best-selling model F3 accounted for two-thirds of its total sales volume. s such, BYD is more vulnerable to the policy change compared with Geely,
which can launch many models of the competitive medium-sized sedans next
year.

Overhang of hybrid/electric cars. BYD launched a plug-in hybrid car (F3DM) in late-08 and an electrical vehicle (e6) in late-09. However, their sales are still behind target due to their high prices and lack of car batteries.

Sales are limited to fleet customers. The company plans to launch the e6 in the US by end-10 at a selling price of US$40,000. We are sceptical on sales given the immaturity of the technology.

Stock Impact
Slash sales volume growth assumption. To factor in the change, we slash our assumption of BYD’s sales volume growth for 2010-11 from 40% to 25%. Cut 2010-11F earnings forecasts by 15-21%. We cut our net profit forecasts for 2010 and 2011 by 15% and 21% respectively to reflect lower sales volume growth.

Earnings Risk
They include the slowdown in sales of its F3 model and disposal of shares by certain institutional investors.

Valuation/Recommendation
With an expected EPS growth of 22% in 2010-11, BYD is trading at an expensive 40x 2010F PE and 8.6x PB. Our fair price of HK$40.00 is based on 1.1x 2010F PEG and 23x 2010F PE. Downgrade to SELL.

[lithium]

$40? I surely hope so......... maybe when Warren Buffett taking profit :mrgreen

[winston]

From my postings yesterday, you probably can conclude that I was researching this company..

It was up 5% yesterday and I was thinking of buying some puts. However, the Greece problem may be sorted out and I was expecting the US markets to go up.

Well, the US market did go up but this counter has corrected. So much for worrying about stuff like Market Direction ..

[lithium]

Let's see if we can get it at $40

[winston]

Let's see if we can get it at $40

I prefer to play this one on the short side

[lithium]

i dont dare to short warren's stock. Good luck.

[lithium]

Opportunity to short is here $61.25...... still thinking of shorting?

[winston]

Dont know. Maybe people are covering after short-selling it at HK$70s ..

[lithium]

What kind of condition you are looking for to short? What kind of pattern?

[winston]

I like to short when there's a spurt of >6%, which is beyond expectation and on no news.

I just looked at the chart. There's also a resistance at around HK$65.

Let's see how far this one can go.

BTW, I also dont like to short when there's very low volume in the market as in the case now.