Overseas sales could be a positive surprise in FY26

BYD (1211 HK/002594 CH) Overseassalescould be a positive surprise inFY26 Maintain BUY.Despite its 4Q25 earnings miss, we are of the view that thecash dent from shortening payable days could be over now and BYD could beone of the biggest beneficiariesfrom rising oil price in its overseas markets.Webelieve BYD’s previous high earnings quality and industry-leadingtechnologies could also lay foundation for its net profit growth in FY26-27E. China Auto 4Q25 earnings miss on GPM, finance cost.BYD’s 4Q25 revenue waslargely in line with our forecast while GPM narrowed by 0.2ppts QoQ, or0.6ppts lower than our projection.Such miss was offset by its stringentR&D expenses.On the other hand, BYD’s finance cost (incl. forex loss)and government grants in 4Q25 were both below our prior expectation,leading to a net profit miss of 18% in 4Q25. Net profit per vehicle was aboutRMB6,900 in 4Q25, about RMB100 lower than that in 3Q25. Cash flow dent from shortening payable days may be over.BYD’soperating cash flow of RMB59bn in FY25 hit its lowest level since FY21due toshortenedpayable days.Its net cash at the end of FY25 wasnarrowed by about RMB62bn YoY.We estimate that BYD’s interestexpense and receivable discounts rose by almost RMB1.3bn YoYin FY25,dragging down its net profit by about 4%.We are of the view that such dentisshort-lived, should BYD be able to keep its current payable days. Overseasmarkets, energy storage to lift profit.We maintain our FY26Esales volume forecast of 5mnunits, with overseasmarketscontributing1.5mn units (implying 1% YoY decline for domestic sales volume). Webelieve BYD could be one of the biggest beneficiariesfromrising oil priceamid the current geopolitical tension, not only for its overseas NEV sales,but also photovoltaic and energy storage battery sales.Wethus project itsrevenue to rise 9%/8%YoY andGPM tobe largely flat at 17.8%in FY26-27E. Earnings/Valuation.It appears to us that BYD has beenmoreprudent onR&D expenseswithonly 9% YoY growth and8.6% capitalization ratio inFY25 (vs. 1.8% in FY24). We expect R&D expenses to rise 3%/2% YoY inFY26-27E. We also expect government grants in FY26-27E to be at asimilar level as FY25, given the continuously rising deferred incomebalance.Accordingly, weproject BYD’s net profit to rise 11%/21% YoY toRMB36.3bn/43.8bn in FY26-27E. We maintain our BUY rating and A/Hshare target price of HK$125/RMB125, based on 23x (prior 20x) ourFY27E P/E, to reflect its brighter overseas outlook. Key risks include lowersales volume or margins than we expect, and a sector de-rating. Source: FactSet Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in thisreport: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock withpotential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad marketbenchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmarkover next 12 months CMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMBInternational Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial positionor special requirements. Past performance has no indication of future pe