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BYD Company Limited
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== Valuation == === DCF === BYD Company is valued using a DCF (Discounted Cash Flow) model followed by relative valuation. DCF model is used to value the company intrinsically by projecting its future cash flows. Different line items from the financial statements including revenue, taxes, EBIT, D&A, capex and changes in net working capital are forecasted using available values from the previous 5 years. {| class="wikitable" !HKD millions !2018 !2019 !2020 !2021 !2022 !''2023E'' !''2024E'' !''2025E'' !''2026E'' !''2027E'' |- |'''Revenue''' |151,502 |143,075 |173,547 |256,840 |479,772 |642,980 |815,310 |970,590 |1,155,444 |1,375,504 |- |'''''% growth''''' |''0.00%'' |''-5.56%'' |''21.30%'' |''47.99%'' |''86.80%'' |''34.02%'' |''26.80%'' |''19.05%'' |''19.05%'' |''19.05%'' |- | | | | | | | | | | | |- |'''EBIT''' |14,671 |5,099 |11,123 |5,073 |22,435 |31,053 |42,574 |57,351 |61,471 |64,741 |- |'''''% margin''''' | |''3.56%'' |''6.41%'' |''1.98%'' |''4.68%'' |''4.83%'' |''5.22%'' |''5.91%'' |''5.32%'' |''5.32%'' |- | | | | | | | | | | | |- |'''Taxes''' |982 |354 |976 |664 |3,915 |4,330 |4,788 |5,295 |5,856 |6,476 |- |'''''% of EBIT''''' |''6.69%'' |''6.94%'' |''8.77%'' |''13.09%'' |''17.45%'' |''10.59%'' |''10.59%'' |''10.59%'' |''10.59%'' |''10.59%'' |- | | | | | | | | | | | |- |'''EBIAT''' |13,689 |4,745 |10,147 |4,409 |18,520 |26,723 |37,786 |52,056 |55,615 |58,265 |- | | | | | | | | | | | |- |'''D&A''' |11,165 |11,158 |14,067 |17,004 | - |19,641 |21,108 |22,686 |24,381 |26,204 |- |'''''% of sales''''' |''7.37%'' |''7.80%'' |''8.11%'' |''6.62%'' |''-'' |''7.47%'' |''7.47%'' |''7.47%'' |''7.47%'' |''7.47%'' |- | | | | | | | | | | | |- |'''Capex''' | -113,330 | -45,007 | -13,230 | -23,389 | -21,133 |(15,748) |(11,736) |(8,746) |(6,517) |(4,857) |- |'''''% of slaes''''' |''-74.80%'' |''-31.46%'' |''-7.62%'' |''-9.11%'' |''-4.40%'' |''-25.48%'' |''-25.48%'' |''-25.48%'' |''-25.48%'' |''-25.48%'' |- | | | | | | | | | | | |- |'''Changes in NWC''' |114,906 |53,277 |24,093 | -1,849 | -5,741 | -6,447 | -7,240 | -8,131 | -9,131 | -10,254 |- |'''''% of sales''''' |''75.84%'' |''37.24%'' |''13.88%'' |''-0.72%'' |''-1.20%'' |''12.30%'' |''12.30%'' |''12.30%'' |''12.30%'' |''12.30%'' |- | | | | | | | | | | | |- |'''Unlevered FCF''' | -203,382 | -82,381 | -13,109 | -127 |3,128 |37,063 |54,399 |74,127 |82,610 |89,866 |} These parameters are used to calculate the cost of equity (9.51%) using the CAPM (Capital Asset Pricing Model). The cost of debt (5.4%) is also estimated using analysts' expectations. The resulting WACC (Weighted Average Cost of Capital) calculated internally is 9.51%. WACC is used as the discounting factor in order to project the calculated free cash flows and the terminal value to its respective present value. The terminal growth rate is estimated to be 1.0% in order to obtain the terminal value. The enterprise value is obtained by summing the present value of free cash flow forecasts and the terminal value. Net debt is deducted from the enterprise value to obtain the equity value. {| class="wikitable" !Assumptions !Value !Explaination |- |'''Risk free rate (5 year US Bond)''' |4.7% |US 5 Year Treasury Note rate <ref name=":1">https://valueinvesting.io/BYD/valuation/wacc</ref> |- |'''Market risk premium''' |5.2% |Analysts' expectations <ref name=":1" /> |- |'''Levered beta''' |0.88 |Analysts' expectations <ref name=":1" /> |- | | | |- |'''Cost of equity''' |9.8% |CAPM (Capital Asset Pricing Model) |- |'''Cost of debt''' |5.4% |Analysts' expectations <ref name=":1" /> |- | | | |- |'''Shares outstanding (latest reported)''' |2.9 B |BYD 2022 interim report <ref>https://www.bydglobal.com/sitesresources/common/tools/generic/web/viewer.html?file=%2Fsites%2FSatellite%2FBYD%20PDF%20Viewer%3Fblobcol%3Durldata%26blobheader%3Dapplication%252Fpdf%26blobkey%3Did%26blobtable%3DMungoBlobs%26blobwhere%3D1600575229843%26ssbinary%3Dtrue</ref> |- |'''Market capitalization''' |789,501 <ref>https://finance.yahoo.com/quote/1211.HK/key-statistics/</ref> | |- |'''Total debt''' |39,956 | |- |'''Total capital''' |829,458 | |- |'''% debt capital''' |4.82% | |- |'''% equity capital''' |95.18% | |- |'''Terminal growth rate''' |1% |Analysts' expectations <ref name=":1" /> |- |'''Tax rate''' |22.50% <ref name=":1" /> | |- | | | |- |'''Internally calculated WACC''' |9.51% | |} All financial figures for the DCF are reported in HKD (Hong Kong Dollar). As per the currency exchange rate on 28/07/23, 1 HKD is equivalent to 0.13 US Dollars. <ref>https://www.xe.com/currencyconverter/convert/?Amount=1&From=HKD&To=USD</ref> The implied share price for BYD Company is $44.13 (HK$ 344.24), while the closing share price on 28/07/23 was $34.77 (HK$ 271.20). {| class="wikitable" |'''Present vale of FCF''' |262,479 |- |'''Present value of TV''' |710,899 |- | | |- |'''Enterprise value''' |973,378 |- |'''Net debt''' | -28,746 |- | | |- |'''Equity value''' |100,2124 |- |'''Shares''' |2.9 B |- | | |- |'''Current share price (HKD)''' |271.20 |- |'''Current share price ($)''' |34.77 |- |'''Implied share price (HKD)''' |344.24 |- |'''Implied share price ($)''' |44.13 |} Sensitivity analysis is conducted to investigate the impact of WACC ranging from 6.5% and 10.0% and terminal growth rate between 0% and 2.5%. {| class="wikitable" ! rowspan="8" |Terminal Growth Rate ! colspan="10" |WACC |- | |'''6.50%''' |'''7.00%''' |'''7.50%''' |'''8.00%''' |'''9.51%''' |'''8.50%''' |'''9.00%''' |'''9.50%''' |'''10.00%''' |- |'''0.0%''' |$465.53 |$431.79 |$402.57 |$377.02 |$316.39 |$354.50 |$334.49 |$316.61 |$300.53 |- |'''0.5%''' |$497.33 |$458.61 |$425.44 |$396.72 |$329.54 |$371.60 |$349.45 |$329.79 |$312.20 |- |'''1.0%''' |$534.92 |$489.90 |$451.83 |$419.22 |'''$344.24''' |$390.98 |$366.28 |$344.51 |$325.17 |- |'''1.5%''' |$580.03 |$526.88 |$482.62 |$445.19 |$360.77 |$413.13 |$385.36 |$361.08 |$339.66 |- |'''2.0%''' |$635.16 |$571.26 |$519.01 |$475.49 |$379.51 |$438.69 |$407.16 |$379.85 |$355.97 |- |'''2.5%''' |$704.07 |$625.50 |$562.68 |$511.30 |$400.92 |$468.50 |$432.31 |$401.30 |$374.45 |} === Relative Valuation === Trading comparable analysis was used to compare BYD to its competitors in the market. A range of different multiples are used to evaluate if the current share price of BYD is fairly priced or under/overvalued . <ref>https://www.alphaspread.com/security/hkex/1211/relative-valuation</ref> {| class="wikitable" !Company !P/S !P/E !EV/EBITDA !EV/EBIT !PEG !Growth adjusted EV/EBITDA |- |'''BYD Co''' |'''1.6''' |'''38.0''' |'''29.5''' |'''29.5''' |'''21.8''' |'''8.7''' |- |Tesla |8.9 |68.2 |48.8 |64.7 |128.7 |55.5 |- |Toyota |0.8 |12.8 |9.2 |16.1 |58.2 | -460.0 |- |Porsche |1.8 |13.3 |6.8 |9.4 |443.3 |170.0 |- |Mercedes Benz |0.5 |5.2 |4.5 |6.1 | -130.0 |64.3 |- |Audi AG |1.4 |11.4 |10.4 |10.4 | - | - |- |Volkswagen |0.2 |5.7 |2.6 |6.3 |95.0 | -37.1 |- |Ferrari |13.4 |72.2 |38.7 |56.0 |141.6 |82.3 |- |BMW |0.5 |6.3 |4.0 |6.3 | -14.7 |30.8 |- |Daimler |0.4 |3.7 |4.0 |5.4 |2.5 | - |- |Stellantis |0.3 |3.7 |1.1 |1.5 |0.1 |26% |- | | | | | | | |- |'''Median''' |'''0.7''' |'''8.9''' |'''5.7''' |'''7.9''' |'''58.2''' |'''43.1''' |- |Mean |2.8 |20.3 |13.0 |18.2 |80.5 | -11.8 |- |Lower Quartile |0.4 |5.3 |4.0 |6.2 |0.1 | -9.1 |- |Upper Quartile |1.7 |13.2 |10.1 |14.7 |128.7 |68.8 |- |Min |0.2 |3.7 |1.1 |1.5 | -130.0 | -460.0 |- |Max |13.4 |72.2 |38.7 |56.0 |443.3 |170.0 |} The valuation multiples are expressed in the bar charts with the industry median and the value of the respective multiple for BYD, highlighted using a dotted line. '''EV/EBIT''' [[File:28 - 1.png|none|thumb|1115x1115px]] EV/EBIT – The ratio evaluates the enterprise value of the company (considering all debts and liabilities) with respect to the operating earnings of the company. The average EV/EBITDA ratio in the industry is 7.9 while the EV/EBITDA ratio of BYD is 29.5. A high EV/EBITDA ratio implies an overvaluation. <ref>https://www.investopedia.com/terms/e/ebit-ev-multiple.asp</ref> '''P/S''' [[File:28-2.png|none|thumb|1077x1077px]] <big>P/S – Price to Sales ratio evaluates how much an investor values each dollar of sale generated by the company. The average P/S ratio in the industry is 0.7 while the P/S ratio of BYD is 1.6. A high P/S ratio suggests that the investors are willing to pay a higher price per dollar of sale generated implying an overvaluation.</big> <ref>https://www.investopedia.com/terms/p/price-to-salesratio.asp</ref> '''EV/EBITDA''' [[File:28-3.png|none|thumb|1081x1081px]] EV/EBITDA – The ratio evaluates the enterprise value of the company (considering all debts and liabilities) with respect to the operating performance of the company. The average EV/EBITDA ratio in the industry is 5.7 while the EV/EBITDA ratio of BYD is 29.5. A high EV/EBITDA ratio suggests an overvaluation. <ref>https://www.investopedia.com/terms/e/ev-ebitda.asp</ref> '''P/E''' [[File:28-5.png|none|thumb|1164x1164px]] P/E – Price to Earnings ratio shows how much an investor is willing to pay per dollar of earnings generated. It portrays an investor’s expectation of the future earnings of the company. The average P/E ratio in the industry is 8.9 while the P/S ratio of BYD is 38.0. A high P/E ratio suggests that the investors are willing to pay a higher price per dollar of EPS generated implying an overvaluation. <ref>https://www.investopedia.com/terms/p/price-earningsratio.asp</ref> '''PEG''' [[File:28-4.png|none|thumb|1226x1226px]] PEG is the ratio of P/E to the growth rate of earnings. A PEG ratio greater than 1 indicates that the stock is overvalued while a PEG ratio smaller than 1 indicates the stock is undervalued. As a result of high earnings forecasts for BYD, the PEG ratio for BYD (21.8) is noticeably lower than the industry median (58.2). <ref>https://www.investopedia.com/terms/p/pegratio.asp</ref> '''Growth Adjusted EV/EBITDA''' [[File:28-6.png|none|thumb|1235x1235px]] The growth adjusted EV/EBITDA is the ratio of EV/EBITDA to the growth in EBITDA. The growth adjusted EV/EBITDA for BYD (8.7) is noticeably smaller than the industry median (43.1).
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