Editing BYD Company Limited
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=== Historical & Forward financials <ref name=":0">https://stockanalysis.com/stocks/byddf/forecast/</ref> === | === Historical & Forward financials <ref name=":0">https://stockanalysis.com/stocks/byddf/forecast/</ref> === | ||
The revenue has grown rapidly since 2018 with the exception of 2019 where negative revenue (CNY -127.74B) and growth | The revenue has grown rapidly since 2018 with the exception of 2019 where negative revenue (CNY -127.74B) and growth rates were observed (-1.78%). Analysts expect the revenue on average to be CNY 645.5B (2023), CNY 814.6B (2024) and CNY 938.0B (2025). This translates to average revenue growth of 52.2%, 26.2% and 15.2% respectively. | ||
[[File:26 -1.png|none|thumb|1187x1187px]] | [[File:26 -1.png|none|thumb|1187x1187px]] | ||
Analysts predict that the revenue can optimistically grow up to 1.4T in 2024 and 2025. However, more pessimistic forecasts suggest that 2024 and 2025 may witness a negative growth of -10.6% and -23.7% respectively for the first time since 2019. On average, the revenue is expected to grow for the next three years but at a slower rate compared to the | Analysts predict that the revenue can optimistically grow up to 1.4T in 2024 and 2025. However, more pessimistic forecasts suggest that 2024 and 2025 may witness a negative growth of -10.6% and -23.7% respectively for the first time since 2019. On average, the revenue is expected to grow for the next three years but at a slower rate compared to the recent three years. | ||
[[File:26 -2.png|none|thumb|1116x1116px]] | [[File:26 -2.png|none|thumb|1116x1116px]] | ||
The earnings per share and the respective growth rate has been very volatile since 2018. Analyst expect a more controlled constant growth over the next three years. Analysts expect the EPS, on average, to be CNY 8.77 (2023), CNY 12.07 (2024) and CNY 15.68 (2025). This translates to an average revenue growth of 53.7%, 37.5% and 30.0% respectively. | The earnings per share and the respective growth rate has been very volatile since 2018. Analyst expect a more controlled constant growth over the next three years. Analysts expect the EPS, on average, to be CNY 8.77 (2023), CNY 12.07 (2024) and CNY 15.68 (2025). This translates to an average revenue growth of 53.7%, 37.5% and 30.0% respectively. | ||
[[File:26-3.png|none|thumb|1154x1154px]] | [[File:26-3.png|none|thumb|1154x1154px]] | ||
For 2025, high EPS growth forecasts can be as steep as 90.9% whereas | For 2025, high EPS growth forecasts can be as steep as 90.9% whereas low EPS growth forecasts can be as low as -46.0%. The spread in analysts' expectations remains high for all the forecasted years just as with the revenue. | ||
[[File:26 -4.png|none|thumb|1212x1212px]] | [[File:26 -4.png|none|thumb|1212x1212px]] | ||
=== Financial Ratios === | === Financial Ratios === | ||
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Between 2021 and 2022, some of the financial ratios have changed drastically. The Debt/EBITDA ratio has decreased by 70% from 1.63 to to 0.49 as the company's earnings has increased significantly in relation to its debt, putting the business in a better position to pay off the incurred debt. <ref>[https://www.investopedia.com/terms/d/debt_edbitda.asp#:~:text=Debt%2FEBITDA%E2%80%94earnings%20before%20interest,pay%20off%20its%20incurred%20debt. https://www.investopedia.com/terms/d/debt_edbitda.asp#:~:text=Debt%2FEBITDA%E2%80%94earnings%20before%20interest,pay%20off%20its%20incurred%20debt.]</ref> | |||
Between 2021 and 2022, some of the financial ratios have changed drastically. The Debt/EBITDA ratio has decreased by 70% from 1.63 to 0.49 as the company's earnings has increased significantly in relation to its debt, putting the business in a better position to pay off the incurred debt. <ref>[https://www.investopedia.com/terms/d/debt_edbitda.asp#:~:text=Debt%2FEBITDA%E2%80%94earnings%20before%20interest,pay%20off%20its%20incurred%20debt. https://www.investopedia.com/terms/d/debt_edbitda.asp#:~:text=Debt%2FEBITDA%E2%80%94earnings%20before%20interest,pay%20off%20its%20incurred%20debt.]</ref> | |||
The Debt/FCF ratio has also plummeted from 1.26 to 0.5 by 60%. This is another coverage ratios which reinforces that the cash generated by the company puts it in a healthy position to cover all its debt. <ref>https://www.investopedia.com/terms/c/cash-flowtodebt-ratio.asp</ref> | The Debt/FCF ratio has also plummeted from 1.26 to 0.5 by 60%. This is another coverage ratios which reinforces that the cash generated by the company puts it in a healthy position to cover all its debt. <ref>https://www.investopedia.com/terms/c/cash-flowtodebt-ratio.asp</ref> | ||
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The return on equity has increased by 11.77% in 2022. Return on equity is the ratio of net income to shareholder's equity. Higher net income stems from the growth in revenue which ultimately increases the return on equity. <ref>https://www.investopedia.com/terms/r/returnonequity.asp</ref> | The return on equity has increased by 11.77% in 2022. Return on equity is the ratio of net income to shareholder's equity. Higher net income stems from the growth in revenue which ultimately increases the return on equity. <ref>https://www.investopedia.com/terms/r/returnonequity.asp</ref> | ||
The significant growth in revenue over last year fuels the optimistic forecasts (for revenue and EPS) and the substantial changes observed in the financial ratios. The new product range offered by BYD | The significant growth in revenue over last year fuels the optimistic forecasts (for revenue and EPS) and the substantial changes observed in the financial ratios. The new product range offered by BYD for customers looking for an affordable transition to electric vehicles, entry into the European market and government policies promoting the transition to sustainable transportation have been the fundamental driving factors in revenue growth observed in since 2021. | ||
== Valuation == | == Valuation == | ||
=== DCF === | === DCF === | ||
BYD Company is valued using a DCF (Discounted Cash Flow) model | BYD Company is valued using a DCF (Discounted Cash Flow) model and 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. | 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. | ||
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|89,866 | |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 | 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 analyst’s 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 resulting WACC (Weighted Average Cost of Capital) calculated internally is 9.51%. This is in line with the analyst’s expectations. 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 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 terminal value. Net debt is deducted from the enterprise value to reach the equity value. | ||
{| class="wikitable" | {| class="wikitable" | ||
!Assumptions | !Assumptions | ||
| Line 865: | Line 864: | ||
|'''Risk free rate (5 year US Bond)''' | |'''Risk free rate (5 year US Bond)''' | ||
|4.7% | |4.7% | ||
|US 5 Year Treasury Note | |US 5 Year Treasury Note <ref name=":1">https://valueinvesting.io/BYD/valuation/wacc</ref> | ||
|- | |- | ||
|'''Market risk premium''' | |'''Market risk premium''' | ||
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|'''Cost of equity''' | |'''Cost of equity''' | ||
|9.8% | |9.8% | ||
| | | | ||
|- | |- | ||
|'''Cost of debt''' | |'''Cost of debt''' | ||
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|- | |- | ||
|'''Shares outstanding (latest reported)''' | |'''Shares outstanding (latest reported)''' | ||
|2 | |2,911,142,855 | ||
|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> | |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''' | |'''Market capitalization''' | ||
| | |789501 <ref>https://finance.yahoo.com/quote/1211.HK/key-statistics/</ref> | ||
| | | | ||
|- | |- | ||
|'''Total debt''' | |'''Total debt''' | ||
| | |39956 | ||
| | | | ||
|- | |- | ||
|'''Total capital''' | |'''Total capital''' | ||
| | |829458 | ||
| | | | ||
|- | |- | ||
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|'''Internally calculated WACC''' | |'''Internally calculated WACC''' | ||
|9.51% | |9.51% | ||
| | |CAPM (Capital Asset Pricing Model) | ||
|} | |} | ||
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 | 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 was equivalent to 0.13 US Dollars. <ref>https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=CNY</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). | 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" | {| class="wikitable" | ||
|'''Present vale of FCF''' | |'''Present vale of FCF''' | ||
| | |262479 | ||
|- | |- | ||
|'''Present value of TV''' | |'''Present value of TV''' | ||
| | |710899 | ||
|- | |- | ||
| | | | ||
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|- | |- | ||
|'''Net debt''' | |'''Net debt''' | ||
| - | | -28746 | ||
|- | |- | ||
| | | | ||
| Line 954: | Line 953: | ||
|- | |- | ||
|'''Equity value''' | |'''Equity value''' | ||
| | |1002124 | ||
|- | |- | ||
|'''Shares''' | |'''Shares''' | ||
| | |2911 | ||
|- | |- | ||
| | | | ||
| Line 975: | Line 974: | ||
|} | |} | ||
Sensitivity analysis is conducted to investigate the impact of WACC | Sensitivity analysis is conducted to investigate the impact of WACC fluctuating between 6.5% and 10.0% and terminal growth rate between 0% and 2.5%. | ||
{| class="wikitable" | {| class="wikitable" | ||
! rowspan="8" |Terminal | ! rowspan="8" |Terminal | ||
Growth Rate | Growth | ||
Rate | |||
! colspan="10" |WACC | ! colspan="10" |WACC | ||
|- | |- | ||
| Line 1,061: | Line 1,061: | ||
=== Relative Valuation === | === 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 | Trading comparable analysis was used to compare BYD company to its competitors in the market. A range of different multiples are used to evaluate the current share price of BYD company. <ref>https://www.alphaspread.com/security/hkex/1211/relative-valuation</ref> | ||
{| class="wikitable" | {| class="wikitable" | ||
!Company | !Company | ||
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|- | |- | ||
|'''Median''' | |'''Median''' | ||
| | |0.7 | ||
| | |8.9 | ||
| | |5.7 | ||
| | |7.9 | ||
| | |58.2 | ||
| | |43.1 | ||
|- | |- | ||
|Mean | |Mean | ||
| Line 1,216: | Line 1,216: | ||
|} | |} | ||
The valuation multiples are expressed in the bar charts with the industry median and the value | The valuation multiples are expressed in the bar charts with the industry median and the respective value for BYD. | ||
'''EV/EBIT''' | '''EV/EBIT''' | ||
[[File:28 - 1.png|none|thumb|1115x1115px]] | [[File:28 - 1.png|none|thumb|1115x1115px]] | ||
EV/EBIT – The ratio | EV/EBIT – The ratio evaluated 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 suggests an overvaluation. | ||
'''P/S''' | '''P/S''' | ||
[[File:28-2.png|none|thumb|1077x1077px]] | [[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> | <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> | ||
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[[File:28-3.png|none|thumb|1081x1081px]] | [[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. | 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. | ||
'''P/E''' | '''P/E''' | ||
[[File:28-5.png|none|thumb|1164x1164px]] | [[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. | 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. | ||
'''PEG''' | '''PEG''' | ||
[[File:28-4.png|none|thumb|1226x1226px]] | [[File:28-4.png|none|thumb|1226x1226px]] | ||
PEG is the ratio of P/E to | PEG is the ratio of P/E to earnings growth rate. 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). | ||
'''Growth Adjusted EV/EBITDA''' | '''Growth Adjusted EV/EBITDA''' | ||