Buffett-Backed BYD Shares Drop After Second Quarter Net Misses Estimates

BYD Co., the Chinese automaker backed by Warren Buffett, fell as much as 3.9 percent in Hong Kong trading today, the lowest level in almost a year, after second-quarter profit was below analysts’ expectations.

BYD posted a second-quarter profit of 717 million yuan ($106 million), less than the 962 million-yuan average estimate of four analysts surveyed by Bloomberg. It’s the first time BYD, whose F3 car was the best-selling model in China in the first half, reported second-quarter results, and no year-earlier comparison was available.

The carmaker, 10 percent owned by Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc., cut its full-year vehicle sales target by 25 percent on Aug. 4 after China’s auto demand began slowing amid faster inflation and easing economic growth. BYD still plans to list shares in Shenzhen, China when the right market conditions are in place, Chairman Wang Chuanfu said in Hong Kong today.

“The company hopes to be able to list on the A-share market by the end of the year,” he said, adding that the timing of the listing will also depend on BYD’s liquidity requirements.

Shareholders will vote on the proposal to trade BYD in Shenzhen, where the company is based, at an Aug. 30 meeting.

BYD shares are down 35 percent this year, compared with a 4.6 percent drop in the in benchmark Hang Seng Index. The shares fell 3.6 percent to $44.70 in Hong Kong as of 2:35 p.m.

First Half

Net income for the first half more than doubled to 2.42 billion yuan, or 1.06 yuan a share, from 1.18 billion yuan, or 0.57 yuan, a year earlier, the company said in a statement to the Hong Kong stock exchange yesterday.

Sales rose 50 percent to 24.2 billion yuan for the six- month period, BYD said yesterday. The analysts’ second-quarter estimates were derived by subtracting first-quarter figures from the first-half earnings announced yesterday.

“The second quarter was a disappointment compared with our forecast because of slow F3 sales in June and automobiles like the G3 and L3 are not making up the loss in market share,,” said Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific Markets.

‘Replacing the F3’

The carmaker’s performance this year will depend on the introduction of new cars and replacing the F3, said Laprise, who cut stock to an “underperform” on July 19.

BYD plans to roll out new models, such as the S6 sport- utility vehicle and L3 and I6 sedans, to improve sales during the remainder of this year, Wang said today.

“With them, we hope to gain a bigger market share and improve profitability,” he said.

Even with the new models, BYD now aims to sell 600,000 vehicles in 2010, down from its earlier goal of 800,000 vehicles. The company, which has announced plans to sell electric vehicles in the U.S. this year, met 36 percent of its original full-year sales target in the first six months of 2010.

The carmaker, founded by Wang, boosted deliveries to dealers 3.3 percent from a year earlier to 35,400 vehicles in June, lagging behind a 23 percent industrywide increase.

BYD may maintain promotions on its vehicles, depending on market demand, Wang said.

Domestic cars are losing in attractiveness to joint venture automakers as consumers become wealthier, said Jack Yeung, an analyst at BNP Paribas Securities Asia Ltd. before the earnings announcement. BYD is also cutting car prices to dealers, which will affect its margins, he said.

Second Half

“Profit will still see a significant increase in the first half year on year. What I worry about is the second half,” said Hong Kong-based Yeung, who forecast first-half profit of 2.715 billion yuan. People are switching from domestic carmakers including BYD to cars from foreign brands “because of the wealth effect. It’s a social status upgrade for them,” he said.

China’s car sales, which have risen every month since February 2009, started to grow at a slower pace in April. Passenger-car sales to dealerships increased 13.6 percent from a year earlier in July, the slowest pace since March 2009.

While BYD is considering entering the electrical home- appliance market, it hasn’t yet reached a decision, Wang said.

The company, which also makes batteries and assembles mobile phones, will enter the electrical appliances market starting with the production of television sets, China’s National Business Daily reported on its website on Aug. 11, citing an unidentified person.

--Liza Lin. With assistance from Nipa Piboontanasawat and Li Yanping. Editors: Kae Inoue, Ian Rowley.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at +86-21-6104-7010 or llin15@bloomberg.net

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