BYDDF - BYD Company Limited

[jeffmori7]

Interesting article :

 

http://www.autos.ca/general-news/byd-electric-taxis-mark-one-year-of-testing

 

I think electric transportation will make its way sooner than later in public transportation and that is good news for everyone, not just BYD.

[enoch01]

Anybody getting interested besides me?

[Hawk4value]

I have started buying at $3.40 and will average down.

 

[RRJ]

Handset business alone makes about $300 million U.S. in profit, and is growing at 20% plus (much higher last year actually).  That alone comes close to justifying the market cap of $7 billion.  But then, what they are trying to do could eat up all that profit from the handset and conventional car business too.  So, it's like getting the electric car and solar and utility sized battery storage and appliance businesses for free, but those could eat up capital without much to show. 

 

I am seriously long, but I do see the risks in this one.  Not a typical value investment.  A bet on the entrepreneur and the technology. 

 

They do have a low cost provider status, and cell phone components is a decent business if cyclical, and they are among the market leaders, so there is perhaps more downside protection than with a typical technology growth story. 

[meiroy]

 

"New battery design could give electric vehicles a jolt"

http://web.mit.edu/newsoffice/2011/flow-batteries-0606.html

 

That interview with WEB somewhat confused me when he talked about BYD, what I could get from it was that Charlie was the one who was mainly behind this idea -- not that WEB passively agreed -- and he, Charlie, has the notion that the breakthrough would come from BYD. Mostly due to the person who heads the BYD operation.

 

 

[merkhet]

This is definitely a Charlie investment rather than a Warren investment.  I believe in a recent interview, Warren said as much, and added that he'd never gone wrong following into a Charlie investment before.

 

I agree with RRJ -- at these prices, I'd guess we're getting a 40% discount to IV off what I believe to be depressed margins in the auto division.

[yudeng2004]

what I like about BYD is that its main service and product - battery and related tech - is so applicable in many areas.  but this is also where the company is tripping, because they spread their attention to thin. 

car manufacturing is a low margin, recall-risk-prone business that takes decades to get stable.  if byd is using their current engineering quality and expecting to break into the international market, then they are taking on a ton of risk, that they hope the cash flow from their other divisions will help mitigate.

while the battery and related tech is a plus, I am not sure if the car division is really a plus in the long term.  it's such a competitive field, and errors are costly.  their current copy-and-makeshift methods will not work in the long run, they have to start besting the current manufacturers in quality at some point, and that maybe many recalls away (which will eat the cash generated from their more profitable areas).

BYD thesis only works if you are certain the car division is not a NET-MINUS in the LONG run, which I still do not find any evidence to be certain.

Basically, I think BYD is a decent battery company with this car division that could be anywhere from plus to minus.  I have no idea how to form a mental picture of the potential upside or downside of the car division.  All i know is most car companies eventually fail. History has not been kind to car companies.

[enoch01]

Stock is dropping like a rock, and I can't figure out why.  Wonder if it has anything to do with general climate of fear with respect to anything Chinese.  Getting enticing at these levels...

[JAllen]

They're trying to sell stock in Shenzhen.  My guess that has something to do with it......

[enoch01]

They're trying to sell stock in Shenzhen.  My guess that's has something to do with it......

 

Ah, right.  Thanks.

[20ppy]

I bought byddy stock today. I wanted to buy byddf but IB doesn't have it yet, so I bought byddy (= 2 shares of byddf). I will average down from here. There are problems with byd of course, mostly mentioned on this board. But I'd like to bet my money on byd more than I would many other companies. I've always wanted to get in with byd, didn't get in at $1 (like WEB did), but $2.85 at this stage is decent. Byd is listing their shares on the Mainland exchanges, not good timing, but I guess they needed the capital to expand and better equip. byd is solid. Also, this acts for me as some kind of protection against dollar downside.

[Liberty]

http://www.bloomberg.com/news/2011-07-12/byd-co-s-first-half-net-income-may-drop-as-much-as-95-on-year.html

 

Ouch.

[RRJ]

Yeah, I've been trimming my position at a loss.  This could take a while and I've lost some confidence.  I'll probably hold on to some but my guess is it will take a while for them to readjust to the new market realities on the ground in the car market in China. To quote Einhorn's, "we did not sign up for this ". 

 

Welcome to china.  Trying to admit I probably made a mistake and get out while preserving 80% of my capital. 

[value-is-what-you-get]

http://www.bloomberg.com/news/2011-07-12/byd-co-s-first-half-net-income-may-drop-as-much-as-95-on-year.html

 

Ouch.

 

Certainly falls into the "lumpy earnings" category.  It is also counter to the notion that a lot of Chinese listed companies are frauds (no earnings smoothing or sales to intermediaries here)  Probably not this one anyway.  They seem to be telling it like it is. 

 

As the BYD model relies heavily on human power, we're not looking at huge amounts of capital sitting idle relative to automotive peers whose business models would provide much larger problems with similar sales declines.  They took advantage of a tax incentive tailwind, the stock was bid up by Mr Market projecting similar growth going forward, and now when we come back to reality Mr Market kills it (overshoot still to come imo). 

 

I see a company whose first car came off the line in April 2005 selling 32,000 + units a month now.  Also see pessimism building nicely and intend to build my position accordingly.  Also think it's dumb to bet against Charlie Munger.

 

Disclosure:  bought BYDDF from 2.30 to 4.50, sold out from 6.65 to 8.33, dipped toe in again at 3.40

[rmitz]

Certainly falls into the "lumpy earnings" category.  It is also counter to the notion that a lot of Chinese listed companies are frauds (no earnings smoothing or sales to intermediaries here)  Probably not this one anyway.  They seem to be telling it like it is.  

 

They are also listed in China.  Companies which are listed in China as well as the US (via any mechanism) seem MUCH more reliable.

[MrB]

I posted the following in the general section, but did not get a response. So I was hoping someone on this thread might respond.

 

Does this pass the smell test?

http://www.hkexnews.hk/listedco/listconews/sehk/20110909/LTN20110909546.pdf

 

The jist

BYD (1211 HK) owns 65.76% of BYDe (Byd Electronics 285 HK).

BYD has been selling shares and debt to raise cash in order to fund growth; selling on forward PE of 11 and EV/NI of 14

BYDe on forward PE of 5.5 and EV/NI 2.2

On 9 Sep BYD announces borrowing RMB 1Bn from BYDe at 6.65% (3yr term loan rate for China)

Guaranteed by 25% BYDe shares (RMB 1Bn value/last 5 trading days)

 

Good: Independent shareholders have to vote (HKEX rule, not management initiative)

 

Bad: Credible logic to lend money out at 6.65% if earning less than 1% at the bank. However, that would imply it is excess cash and since ALL the shareholders of BYDe is/should be the priority why not dividend it up?

 

The 25% "reverse convertible" is a bit odd. A cynic would argue that you are sucking out the juice of the orange and giving the leftovers as collateral. a) Why not give BYD shares as collateral, making it a regular convertible bond or b) use fair market value? Using the current depressed market value of BYDe does not strike me as equitable.

 

Also, Hang Seng current depressed PE is 9 (historical multi decade average closer to 14) and current “sector” valuation is depressed. Even on that basis BYD trades way out of line. Using EV/Rev (not necessarily the best method, but gets around temporary lumpy earnings) BYD 0.10 v averages for Casings 2.87 (Catcher, HIP and Tongda 7.6, 0.33, 0.69), Keypads 0.61 (Ichai) and Handset ODM 0.30 (Flextronics, Jabil and Foxconn 0.16, 0.28 and 0.46)

 

I also note that in the press release BYD seems to indicate that the non-independent shareholders make up 65.76%, but Dragonfly owns another 7.47% and the beneficial owners are BYDe employees. However, I question the independence of these employees. Can they really choose to vote against their majority owner/employer?

 

Any thoughts?

[king888]

It doesn't seem smelly.In Asian corporate culture,I saw a lot of transaction like this one or even worse. The subsidaries make loan to holding company,etc. The management view thier corparations as a "whole" not just one entity. For example ,why lending money from the bank while you can lend from your own subsiadary?And the interest payment will be eventually company-owned asset.

 

a) Can BYD give their share as a collateral? They can't if they don't have Treasury shares in balance sheet.Do they have it? Besides, the cross-holding structure will make the FS look complex and sometimes misleading.

b) The low share is good for BYDe because BYDe will get more shares as a collateral.

 

Just my 2 cent.

[MrB]

Good points. Thanks.

[rogermunibond]

 

Twitter feed from the DJCO annual meeting. Munger refersv question on BYD to Li Lu.

[MrB]

Shareholder question on BYD

Munger: BYD, Li Lu is in the back standing up. Li Lu, come up here. This is the man

who got me into the BYD.

p.18

Li Lu: What do you want me to say?

Munger: Like it is. Why did you buy BYD when you did?

Li Lu: It really is a quite unusually talented group of people who were able to manage,

to solve a problem like no other group of people I've ever seen. Like all other talented

people, they have their ups and downs. But in the first 15 years since BYD was founded,

he has 15 years uninterrupted period of time of compounding at about 75 percent

annually. It's nearly doubled every year for the 15 years in a row, for the first 15 years,

with very, very little capital. They originally maybe $300,000 US, and these money

twice, and altogether a few hundred million by the time they reached multiple billions in

revenue.

Of course, that growth was accumulated with all sorts of different problems. Some of you

who follow the stock, you have seen that in the last few years. And just like they have

always done, they have dealt with it just the way it is.

They have put their heads in the sand and solve the problem, one-by-one, and slowly but

surely, after three years, they solved most of your problem. They're now back on their

feet and strong.

And the speed of which, they really mastered the technology. It's just unprecedented. I've

never seen anybody like it. For example, they got into the auto business in 2003, and

produced their first car in 2005. That's only seven years ago.

Munger: And they did this with almost no capital.

Li Lu: Little capital.

Munger: And over our objection. [laughter]

Li Lu: They competed with everybody. The Chinese auto market is about as open a

market as any market in the world, better than US. Every auto maker on the whole planet

is really competing there. They all have much richer capital base, longer history, well

recognized brand name and superior technology. Yet this little company was able to

really stand on its feet, and now they're probably selling 500,000 cars a year. But more

importantly, they have a mastery of the state of the art technology from the traditional

auto while really pioneering all the technology know how’s of the new cars and electric

cars.

In a few years, all of the BYD cars are likely to be either hybrid, or platinum hybrid or

electric, and also equipped with the state of the art technology from the traditional

combustion engine, and also promising efficiency.

It is not a normal feat. I cannot find it in any other group in this field.

Munger: The Korean's did the same thing.

p.19

Li Lu: The Korean's did it primarily on the traditional auto, and in a term, in a way to

catch up with the traditional auto, but they have not, in a sense, pioneered a new

technology pointing in a new direction. They just basically matched everybody else, that

surpass in a certain area, but it's no kind of making a new path. They also have a whole

bunch of other driven areas that have creditable promises. That was really the reason

we're all quite enthused about it.

Munger: These are very unusual people. This is the son of pheasant who got through

engineering school, what with the aid of a brother, and got a PhD in engineering at a

young age, and so is a very talented human being. Of course, they are hiring young

talented Chinese engineers. They are hiring them by the thousands. How many

employees does BYD have now?

Li Lu: About 180,000 people.

Man 4: They are young Chinese. I don't want to compete with 180,000 young Chinese.

I'd rather bet with them. Anyway, you ask a question, I think? You'll have it direct from

the horse's mouth.

Shareholder Question: I was wondering when the electric car might make it to the

United States. Can you expand on that?

Li Lu: Well, they have basically, I think correctly, chosen to focus, and going to treat the

car effort into public transportation. Transportation rather than probably the largest

contribution across the emission of pollution, and also they really would utilize the data

on the battery, because they are on the road all the time. As far as I can tell, their battery

probably has the longest hours on the road as we are speaking. There are probably tens of

millions of hours accumulated on the road. Therefore the longer they run, if their batteries

are good enough to run for a long time and of course after 30 million miles on the road,

they have proved that point.

The longer you ride, the better and superior economics of the electric car has really

become. At least in China, the differences of the electricity and the gasoline is about 80

percent off. That actually is here too, and in Europe, the economics are even more

superior because of the surplus taxes on gasoline.

Who is the 80 percent of the savings operation? The longer you're on the road, the more

savings you have. In fact, if you use for public transportation, for taxis or electric buses,

just the saving itself within the several years could've produced multiple cars, given the

expectancy of the battery life.

At least the company believes that the battery would last longer than the car itself. If that

were the case, they would be able to make multiple...the savings itself would pay for

multiple cars within the life. So much so that the Chinese Development Bank recently

have committed about 30 billion Chinese dollars in loan to finance a package that people

can really pay to zero down. No down payment, to purchase cars and use only the

equivalents of gas free cost to pay for the entire mortgage.

p.20

They calculate, in the end, they will still make a profit, a large profit. If that becomes

successful, it would really lay out a new business model for electrifying public

transportation.

Given the air quality of Beijing and all the other cities in China, China has 7 of the 10

worst polluted cities on the whole planet. Public transportation contributes roughly a third

of the emission. Electrifying the public transportation with BYD has proved A) doable,

B) profitable, and C) actually good and providing enormous social benefit.

This is a line they're correctly pushing in that direction, not only in the US, but not only

in China, but all over Europe and all over South and North America. They have several

dozen trials going on all over the major capitals of the world, as we're speaking.

Munger: Yes, but tell them about Beijing, because this is very interesting. Beijing

probably has the worst air pollution in the world. People are dying from pollution. Of

course, it's a huge metropolitan area. And the net purchases of BYD electric taxis and

buses in Beijing is zero.

But we like that, because that leaves a lot to be done. Of course, what happens is the

Chinese local governments have enormous autonomy. They favor the people that are

providing jobs in Beijing, making standard automobiles.

Yet if more and more people are dying, is that going to last forever?

Our bet would be that one way or another, China will get a lot more electric

transportation and public vehicles in its heavily polluted cities. BYD is better at that than

other people, and they may have quite the market. There are quite a few Chinese in some

big polluted city.

It's a lot like the Daily Journal. It's an upside that you're really not paying for. We bought

those little public notice rags, we got an upside that we weren't paying for. That's what

we're doing. But that's more than you probably anticipated when you asked the question

of BYD, and you had the man in America, who probably knows more about BYD than

anybody else, to tell you what you want to know.

[compoundinglife]

Down around %10 today on news of up to %20 share offering:

 

http://www.businessweek.com/news/2013-03-15/buffett-s-byd-said-to-plan-sale-of-up-to-20-percent-of-hong-kong-stock

 

But spokesperson denies:

 

http://economictimes.indiatimes.com/news/international-business/buffett-backed-byd-denies-report-to-sell-shares/articleshow/18987043.cms

 

 

I have checked and we don't have such a plan,

Veronica Jiang, a spokeswoman for BYD based in Shenzhen, told Reuters.

[MrB]

+100% in 3 months ;D

[Guest ajc]

This is from 6 weeks ago, but it's pretty fascinating.

 

http://www.businesswire.com/news/home/20130611006366/en/Aruba-Partners-BYD-Zero-Emissions-Initiative-Energy-Independence

 

The just is that BYD has signed a memorandum of understanding with the government of Aruba to make the island country completely emission-free and energy independent by 2020.

 

Clearly, it helps that the climate there is blazing hot all year round but essentially it seems like BYD is pooling all its technologies from PV, to lighting, to vehicles, to storage and so on in an attempt to reinvent the entire energy infrastructure we've been using and living off since the days of the Standard Oil Co and John D Rockefeller.

 

Not saying they'll pull it off, but to a large extent it looks as if that's what they're trying to achieve.

 

It seems though, that the first few companies that can get this right and do it cheaply, properly and at scale will potentially be able to do alot of business in countries throughout Africa, the Middle East, Australasia as well as Southern, Central and North America where a number of areas could quite possibly get energy access for the first time and others could pay far less than they already do off of their current grid.

[rogermunibond]

If you're an island nation near the equator, this seems like a no brainer if someone else finances it and shares the energy savings with you.

[MYDemaray]

Wonder what happens to those PV installations in a hurricane...as a native Floridian, I bet I can guess