Buffett-Backed BYD Extends Slide After Hong Kong Tumble

BYD Co., the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., extended a slide sparked by CLSA Asia Pacific Markets cutting its price target by 94 percent, tumbling the most since March in the U.S.

BYD’s American depositary receipts fell 7.3 percent in over-the-counter trading to $3.41 in New York, bringing its drop over the past five days to 16 percent. In Hong Kong, the stock slumped 9.8 percent to close at HK$13.26, the biggest decline since March 6. CLSA lowered its 12-month price forecast for the Hong Kong-traded shares to HK$0.41 yesterday, from a previous estimate of HK$7.40.

The electric carmaker, based in Shenzhen in southern China, reported on Aug. 27 first-half profit plunged 94 percent as sales of handset components and batteries shrank. Net income for the first nine months is expected to fall by as much as 95 percent, BYD said.

“The company will likely deteriorate further due to declining business in mobile-phone components, rechargeable batteries and new energy,” Scott Laprise, a Beijing-based analyst at CLSA, wrote in a research note yesterday. “We see few positive catalysts going forward and maintain our conviction” to sell the stock, Laprise wrote.

The CLSA report was “filled with irresponsible speculation and errors,” Micheal Austin, a BYD U.S. vice president, said by e-mail today. “BYD has always faced extreme pressure in the markets we’ve participated in and responded with excellent products and value,” he wrote.

Falling Apart

The automaker’s first-half revenue from handset components and assembly fell 11 percent from a year earlier to 8.46 billion yuan ($1.3 billion), while rechargeable battery sales dropped 8.7 percent to 2.2 billion yuan, it said in a statement to Hong Kong’s stock exchange last month. Automobile sales increased 12 percent to 10.7 billion yuan.

BYD’s restructuring has been slow and the company is going through a downside in all businesses, CLSA said. Executives leaving the company is also a sign the company is “falling apart,” the report said, referring to speculation that Yang Longzhong, vice president, might quit after selling 8.43 million BYD shares in August.

“The company has no clear identity or focus,” Laprise wrote. “Given the current economy, the tough competition from low-end sedan segment, market share falling from Nokia and the overcapacity risk in the solar power business, we think the company may be in a worse condition than we thought.”

BYD’s business outlook is “excellent” and it won’t take 10 years for market conditions to change in the company’s favor, BYD’s Austin said.

BYD spokeswoman Veronica Jiang said last week that she has no information indicating that Yang is leaving the company.

Buffett Connection

MidAmerican Energy Holdings Co., a unit of Buffett’s Berkshire Hathaway, in September 2008 announced it agreed to buy 9.9 percent of BYD to tap rising demand for clean technology. MidAmerican Energy held 9.6 percent of BYD’s outstanding shares by the end of June, or 28 percent of the company’s Hong Kong-traded H shares, according to BYD’s first-half report.

The shares have risen 58 percent in Hong Kong trading since Buffett agreed to pay HK$1.8 billion for a minority stake in BYD. They have fallen 21 percent this year after slumping 59 percent in 2011 and dropping 40 percent in 2010. BYD’s ADRs are down 19 percent in 2012, data compiled by Bloomberg show.

Today’s tumble in BYD’s Hong Kong shares narrowed their premium over the ADRs to 0.3 percent, from as much as 3 percent yesterday, the widest in four weeks.

Buffett didn’t immediately respond to an e-mailed request for comment sent to an assistant yesterday.

(Updates with closing ADR prices in second paragraph.)
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