Buffett-backed BYD boosts price ceiling by 33 per cent for stock buy-back plan in vote of confidence on market outlook

·3-min read

BYD, the Chinese new-energy vehicle (NEV) maker backed by Warren Buffett, will repurchase its shares at a higher price ceiling under a 1.85 billion yuan (US$277 million) buy-back plan, signalling more upside room after a six-fold jump over the past two years as industry sales recover.

The Shenzhen-based carmaker will pay as much as 400 yuan each from the open market under a proposal approved by the board this week, the firm said in an exchange filing on Thursday. The company had indicated a top side of 300 yuan each at a shareholder meeting last month.

The decision came as BYD overtook Volkswagen this week as a rally in Chinese stocks boosted its market capitalisation to the equivalent of US$142 billion, helping the Chinese firm overtake its German rival as the third most valuable carmaker after Tesla and Toyota Motor.

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“Boosting buy-back price has reflected the company’s confidence in its future development,” said Gao Deng, an analyst at Changjiang Securities. “BYD will probably exceed the market expectations given the robust sales, orders and launches of new car models.”

BYD chairman Wang Chuanfu seen during a media briefing in Hong Kong in 2018. Photo: Edmond So
BYD chairman Wang Chuanfu seen during a media briefing in Hong Kong in 2018. Photo: Edmond So

BYD fell 1.5 per cent to 322.41 yuan in Shenzhen trading on Thursday, in line with a weaker broader market. The stock has rallied 45 per cent over the past three months, and 570 per cent from as low as 48.15 yuan in 2020. The stock lost 0.7 per cent to HK$300 in Hong Kong.

Investors have been flocking back to Chinese car stocks as analysts from JPMorgan Chase to Jefferies backed the sector because of better sales prospects and tax incentives to spur the economy after recent lockdowns. The central and local governments have rolled out incentives, including 60 billion yuan worth of tax breaks on car purchases and subsidies for rural buyers.

Why JPMorgan and Jefferies are bullish on Chinese carmakers as lockdowns end

China’s car sales are recovering as the government eased Covid-19 curbs in 40-odd cities, including reopening the Shanghai economy on June 1 from two months of citywide lockdown. Sales of passenger cars rose 30 per cent in May from a month earlier, an industry association said.

BYD, which counts Buffett’s Berkshire Hathaway among its shareholders, recorded a 148 per cent jump in NEV sales to 114, 943 units in May from a year earlier, having already stopped producing oil-fuelled vehicles over the past few months. Rivals Nio, Xpeng and Li Auto posted a 12 to 100 per cent jump in deliveries as logistics improved.

Changjiang Securities expects BYD’s net income to surge 130 per cent in 2022, saying the company will ramp up production to meet demand for NEVs. Domestic sales of NEVs totalled 3.75 million units in the January to April period, accounting for 57 per cent of global sales, according to a dealers’ group.

Green energy stocks including BYD and EV battery maker Contemporary Amperex Technology have prospered over the past two years as Beijing’s goal of achieving net-zero emissions by 2060 fuelled consumer demand for environment-friendly products.

BYD has repurchased 2.17 million shares for 648.5 million yuan, or less than 0.1 per cent of its 12-month buy-back programme, at prices between 293.37 yuan and 300 yuan, according to its recent filings. Raising the price ceiling will not hurt its operations, finances or research ability and liabilities, BYD said.

“BYD’s sales growth is expected to accelerate with the easing of the capacity bottlenecks,” said He Zhaohui, an analyst at Guolian Securities. “Furthermore, the company is becoming more efficient in launching new products that will win recognition among consumers.”

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