BYD posts first quarterly profit rise in over a year, but misses estimates

Chinese electric vehicle maker BYD (1211) on Friday posted its first quarterly profit rise in more than a year, helped by a surge in exports that offset weak domestic sales.

Even so, the rebound was weaker than expected, lagging forecasts from Morgan Stanley, UBS, Citi, Deutsche Bank and CMBI, whose estimates implied an average 48 percent increase in second-quarter profit against the 30 percent growth delivered year-on-year.

The world's largest EV maker by shipments has been at the forefront of Chinese automakers' overseas push, gaining market share across Europe and Southeast Asia, as it looks to reduce its reliance on an increasingly crowded home market.

RISE FOLLOWS FOUR QUARTERS OF DECLINES

Net profit rose to 8.2 billion yuan in the second quarter, ending four straight quarters of declines and reversing a 55 percent drop in the preceding quarter. 

Revenue slipped 3.2 percent to 194.6 billion yuan, easing from a 12 percent fall in the first quarter and extending a run of quarterly declines for a fourth quarter.

The contrast between profit growth and declining revenue reflected an improving sales mix, led by overseas markets. 

BYD said its gross profit margin rose to 18.85 percent in the first half from 18.01 percent a year earlier, attributing the increase mainly to growth in its overseas vehicle business.

Exports remained a key growth driver, with overseas shipments jumping 71 percent in the first half to more than 790,000 vehicles, accounting for 44 percent of total sales, according to Reuters calculations based on BYD's monthly sales reports.

COMPETITION STILL STIFF IN CHINESE MARKET

BYD has stepped up its global expansion in recent years. Alongside broadening its footprint in Europe, the company launched a low-cost EV in Japan last month, marking its entry into the country's popular mini-car segment.

At home, however, BYD continues to contend with cut-throat competition. 

While its sales decline in the domestic market has started easing in recent months, overall vehicle demand remains weak amid reduced trade-in subsidies, a prolonged property downturn and lingering concerns over income and job prospects. 

"The domestic market is still a negative for BYD because vehicle sales are declining and price competition remains fierce," said Yale Zhang, managing director at Shanghai-based research firm Automotive Foresight.

"Overseas markets are providing growth, but higher tariffs in some countries, together with rising marketing and R&D costs, are potentially limiting the profit upside," Zhang said.

EXPORTS SUPPORTING EARNINGS GROWTH

Gross profit margin from BYD's overseas business, which accounted for 53 percent of total revenue, rose by 1.9 percentage points to 22 percent in the first half, as operating revenue grew by 34 percent year-on-year versus a 31 percent increase in operating costs.

"Exports are really where the carmaker is finding some relief," Zavier Wong, an analyst at trading platform eToro, said before the results release, though he said it is still too early for BYD's export margins to fully offset weak profitability at home.

"What Toyota and Volkswagen achieved was no easy feat, and they were built over decades of brand equity across dozens of countries. BYD is attempting the same, but compressing it into a much shorter time frame," Wong said. 

BYD's results reflect a broader trend across China's auto industry, where robust exports have increasingly supported earnings growth.

Among BYD's closest domestic rivals, Geely Auto (0175) reported a 46 percent increase in first-half core profit to 9.68 billion yuan, while Leapmotor (9863) netted 210 million yuan in first-half profit, seven times the level a year ago. 

SAIC Motor's core attributable net profit also rose 72 percent year-on-year to 7.87 billion yuan in the first half. 

Reuters

𝗗𝗼𝘄𝗻𝗹𝗼𝗮𝗱 𝗧𝗵𝗲 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗔𝗽𝗽 ↓