Goldman Sachs lowers BYD's target price to 130 yuan, reducing sales and profit forecasts

Goldman Sachs released a report indicating that BYD (01211.HK) had second-quarter revenue and gross margin that were 6% and 1.8 percentage points lower than the bank's expectations, respectively. The revenue fell short of expectations due to lower-than-expected income from mobile phone components and assembly business, which was attributed to an increase in the offset amount of internal transactions between BYD and BYD Electronics (00285.HK). The decline in gross margin was mainly affected by higher-than-expected costs from the 618 promotional event and the issuance of red envelopes to dealers.

The bank expects BYD's second-quarter profit per vehicle (excluding BYD Electronics) to be RMB 523, compared to RMB 58 million in the first quarter of this year. The quarterly decline in unit profit is primarily due to: 1) an increase in costs of RMB 4,400 for the autonomous driving model; 2) a reduction in profit of RMB 2,900 due to the month-long "618" promotion in June; 3) an expenditure of RMB 666 for red envelopes issued to dealers. Among these factors, (1) is a recurring cost, while (2) and (3) are one-time expenses. With the mainland government's "anti-involution" policy stabilizing prices and considering the higher costs, the bank expects the domestic market's unit profit to recover to RMB 4,400 in the third quarter of 2025 and reach RMB 5,000 in the fourth quarter.

The bank has lowered its sales forecast for BYD from 5.5 million to 6.8 million vehicles for 2025 to 5 million to 6 million vehicles and has reduced its gross margin forecast by 0.4 to 0.9 percentage points, resulting in a downward revision of net profit forecasts by 12% to 21%. The latest target price for H shares has been reduced from HKD 139 to HKD 130, and the target price for A shares (002594.SZ) has been lowered from RMB 141.33 to RMB 133, based on discounted cash flow valuation, with a rating of "Buy."