Warren Buffett

BYD shares rise 46pc on debut

PUBLISHED : Friday, 01 July, 2011, 12:00am
UPDATED : Friday, 01 July, 2011, 12:00am

A-shares in Warren Buffett-backed carmaker BYD Auto rose as much as 46 per cent on their trading debut in Shenzhen yesterday, despite the company announcing bleak first-quarter results the previous day.

BYD's A-shares finished up 41.4 per cent on its 18 yuan (HK$21.60) per share offer price, closing at 25.45 yuan apiece at the end of their first day of trading on Shenzhen's small and medium enterprises board.

The gains far exceeded movements in the Shenzhen-based auto and battery maker's Hong Kong traded H-shares since the A-share deal was priced.

BYD priced its sale of 79 million A-shares at 18 yuan apiece on June 19. Since then, the company's H-shares have risen only 17.5 per cent, adding 5.7 per cent yesterday to close at HK$25.15 per share.

Mainland stocks are permitted to trade freely only during their debut session, after which they are only allowed to rise or fall by 10 per cent per day.

BYD's Shenzhen offering raised 1.42 billion yuan, about 35 per cent less than the maximum 2.19 billion yuan it initially sought.

The cash injection comes as BYD struggled with slumping car sales and a heavier reliance on borrowings to bolster its cash flows. This has in turn burdened the carmaker with higher interest payments.

BYD's car sales declined for the tenth month in a row in May as sales of its compact F3 car - the mainland's best-selling passenger car in 2009 - continued to lose ground to newer models sold by competitors.

BYD's sales in the first five months declined 21 per cent from a year ago to 199,904, according to data from consultancy J.D. Power and Associates.

After its A-share sale had closed but before trading began, the carmaker on Wednesday said net profit in the first three months of the year fell to 266.74 million yuan - a 84.35 per cent drop from 1.7 billion yuan a year earlier.

Operating revenue declined 11.6 per cent to 11.71 billion yuan during the quarter, based on mainland accounting principles.

BYD said it planned to apply the proceeds from the Shenzhen listing towards projects representing a total investment of 5.38 billion yuan, according to its May listing document.

That includes a 4.33 billion yuan outlay for research, development and production in Shenzhen, 652 million yuan for expanding the product line-up and component output, and a 400 million yuan investment in a lithium-ion battery plant.

However, analysts said the company may have more pressing uses for the cash. BYD reported a net increase in cash of 1.9 billion yuan in the first quarter, but this was driven wholly by newly borrowed funds. BYD reported cash inflows from borrowings of 4.58 billion yuan in the first quarter, up 43 times from 106.1 million yuan a year ago.

The company had current liabilities of 30.46 billion yuan at the end of March, exceeding its current assets by a sum of 11.58 billion yuan based on mainland accounting standards.

BYD, which is 9.9 per cent owned by Buffett's Berkshire Hathaway