[Click eStock] "BYD Price Cut Inevitable... Sufficient Margin Capacity"

Korea Investment & Securities analyzed on the 28th that BYD will continue its growth trend despite price reductions.

Last year's Q4 revenue and net profit missed consensus by 7% and 14%, respectively. Q4 revenue reached a record high of 180 billion won, but net profit decreased to 8.67 billion won compared to the previous quarter due to increased incentives from year-end price competition. In November and December of last year, BYD offered discount promotions on major models, with some models sold at prices discounted by up to 20,000 won.

Net profit per vehicle was 9,181 won, down 14% year-on-year. The Q4 gross profit margin rose by 21.2% due to economies of scale. Electric vehicle sales in Q4 grew to 945,000 units, continuing the growth trend.

Although new car effects are expected from March, an average selling price (ASP) decline is inevitable. February electric vehicle sales were 122,000 units, down 37% year-on-year. This was due to reduced operating days during the Lunar New Year and cautious purchasing ahead of the facelift model launched in March. Volume growth is expected to become visible with the new car cycle starting in March. In terms of ASP, as of January, BYD models are sold at an average of 1% lower than the previous month and 11% lower than the previous year. Considering inventory adjustments due to new model launches, ASP is expected to decline by about 6% year-on-year in 2024.

It was analyzed that margin capacity is sufficient due to economies of scale. As price competition intensifies within the electric vehicle sector, concerns about profitability pressure are expanding. Volume growth is expected to be defended through low-priced models and price discounts, but ASP is projected to weaken. However, BYD is expected to offset the ASP decline through an increased sales proportion of premium brands Denza and Yangwang, a rise in overseas sales proportion, and stabilization of battery prices at lower levels. The policy to strengthen shareholder returns is also positive. The 2023 dividend is planned to be paid at 3.1 yuan per share, with the dividend payout ratio expanded to 30%.

Lee Jisoo, a researcher at Korea Investment & Securities, said, "We maintain BYD, which has sufficient margin capacity despite price reductions, as our top pick in the Chinese electric vehicle sector."