Prompted by government policy and technological innovation, China's NEV market is expected to enter into a rapid growth period with CARG of 43% in 2020-25E. As the pioneer in the NEV field in China, BYD was ranked No.1 in NEPV/No.4 in NECV in 2019. We believe that the Company will maintain its excellent performance thanks to its technological advantages and brand recognition in the future. The Company is experiencing a re-rating process as supply chain open up activities help release value from power battery and IGBT. We believe the re-rating is yet to finish. We initiate BUY with SOTP-derived TP of RMB112.12 per share.
- China NEV industry to usher rapid growth from 2021E. We forecast that NEV sales volume will achieve 1.7mn units in 2021E, an increase of 66% YoY, supported by favorable policies such as the extension of subsidies/the implementation of the double credit policy. BYD, as the undoubted leader in China's NEV field, launched its blade battery early this year and will subsequently launch its DM4.0 platform in 4Q20E, supporting NEV sales growth. We expect its total vehicle sales (ICE and NEV) to increase by 34% YoY in 2021E. The corresponding revenue from the auto segment will achieve an increase of 47% YoY to RMB83.3bn in 2021E.
- Blade Battery: a potential game-changer. BYD recently launched blade battery and the first model (Han) equipped with blade batteries. While ensuring safety, the blade battery extends the mile range, broadening the application scenarios of traditional LFP. BYD is now actively developing the 2nd generation of blade batteries with improving costs and energy density. We believe that the external shipment of the power battery will have a brilliant potential since 2021E. We think incremental income from battery external shipment will significantly lift BYD's overall valuation. We expect NP from power battery business will achieve a CAGR of 161% through 2021E to 2025E.
- Semiconductor: a new shining point from BYD’s supply chain. BYD introduced 30 strategic investors into IGBT semiconductor business in Jun 2020 with a post investment valuation of RMB10.2bn. By far, BYD holds 72.3% equity of IGBT business. We are optimistic about its IGBT business given its import substitution potential in China’s NEV supply chain. We expect NP from IGBT business will achieve a CAGR of 68% through 2021E to 2025E.
- We are optimistic about the future growth potential of BYD and initiate BUY rating with TP of RMB112.12 (26.0% upside potential).
