Market Calls

PUBLISHED : Monday, 29 August, 2011, 12:00am
UPDATED : Monday, 29 August, 2011, 12:00am

Car and battery maker BYD (1211) has had a tough year. Last week alone, its share price fell 20 per cent last week after the firm announced an 88.63 per cent drop in first-half profit, year on year. Warren Buffett's Berkshire Hathaway owns 9.56 per cent of the firm.

Robert Wang (Kim Eng) says BYD's vehicle sales have suffered owing to an aggressive strategy implemented in 2009. The firm used rebates and expanded its distribution network. As sales per dealership have declined, dealers have defected, Wang says.

Meanwhile, BYD is focusing its growth strategy on new energy, such as solar cells, and on making electric vehicles, particularly electric buses.

'The chairman of BYD [Wang Chuanfu] has a good relationship with the government and the top leaders in China, so he can always sense the best opportunities for industry,' Wang says. 'Autos are slowing down, but he sold a lot of cars in 2009. And he thinks, enough. The car sector is going down. Time to focus on something else.'

Olive Xia (Core Pacific-Yamaichi) says the poor performance of BYD's car division is fully to blame for the firm's recent share price drops.

'The car market is expected to moderate in the second half. Competition will remain intense,' Xia says. 'BYD's share price may experience short-term pressure because of weak results.'

Xia sees a lot of potential for BYD in its electric vehicle business, a market that is getting direct government support. She says that Buffett's continued support of BYD may be due to his faith in this segment.

Johnny Wong (Yuanta) says dealers have been defecting from BYD.

'During the results announcement, the chairman said he did not do a good job managing the dealer network,' Wong says.

A direct outcome of that was a 20 per cent decrease in the size of BYD's dealer network, he says.

The firm's focus on electric vehicles is promising but will lose money in the near term, he says. It will also be cash-intensive. Wong notes that BYD announced a plan last week to raise six billion yuan (HK$7.32 billion) via a bond issue, which follows a plan to sell 79 million new A shares.

The views stated here are those of the analysts and are not stock calls by the South China Morning Post