Saturday, April 18, 2009 2 comments ++[ CLICK TO COMMENT ]++

Quick look at BYD (HK: 1211)

BYD (HK: 1211) is one of Buffett's most interesting picks in several years (for those that never saw my prior post, you might want to read this Fortune article that was brought to my attention by Infectious Greed.) Interesting doesn't mean "best" but it does mean something "different". What follows is a quick look of BYD...



Stock Price Chart

You can access BYD's English investor relations page here.



The chart above plots the share price on the Hong Kong exchange of BYD (the H shares), along with volume, P/E ratio and dividend yield. These numbers are not always reliable but I like to quickly look at them, if available.

Needless to say, it has been a wild ride for BYD shareholders in the last two years. I haven't looked into the reasons for the severe sell-off. Buffett is thought to have offered HK$8 for 10% stake in the company (roughly 50% of the Hong Kong float.) Government approval seems to be taking a while and it's not clear if the Chinese government will block Buffett's investment.

As is usually the case with Buffett's investments, shares have rallied a lot since then. So anyone interested in this should probably wait for a better price.


Basic Financials

Yahoo Finance (English translation using Google Translate) lists the following information (note that Yahoo Finance can be wrong and one should really check against official documents if they are interested in this company):

Market value: HK$ 10.42B (approx US$ 1.4B)
P/E (ttm): 21.84
Price/book value: 2.72
Long-term debt/equity: 42.46%

Net profit margin in the last few years: 8% to 9% (not sure if this is a cyclical peak)
ROE in the last few years: 7% to 9%

The stock has rallied 125% since Buffett's annoucement so the valuation does not appear cheap. But it comes down to whether one values this as a growth company or a cyclical. If you considered this as a cyclical, nothing really stands out. But I am sure that Buffett's investment, which seems to have been influenced by Charlie Munger, is more of a bet on growth, particularly the electric battery potential. Growth potential is very large but one needs to dig into the company and see the details.


I personally don't have much interest in this company. But if the founder, Wang Chuan-Fu, is indeed a cross between Thomas Edison and Jack Welch--hopefully more of the former ;)--then BYD is worth considering. Charlie Munger, as Buffett says in the Fortune article, is rarely ever bullish on anything or anyone. Yet, Munger seems impressed with Wang Chuan-Fu.

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2 Response to Quick look at BYD (HK: 1211)

MrParkerBohn
April 22, 2009 at 2:59 AM

The article mentions BYD having over 10,000 engineers.
I was wondering if this is unusual and came across a reference to Boeing's engineers union having 20,000 members.
 
I must confess I'd have no idea how to keep 10 or 20 thousand engineers busy.

Sivaram
April 22, 2009 at 9:41 AM

Ten thousand is a lot but I imagine that large R&D-focused organizations would have that many. I haven't checked but it wouldn't surprise me if Microsoft, or IBM, or Cisco had 10,000 engineers. Of course, these are larger companies.
 
This situation goes to show how it's extremely difficult for companies in developed countries to compete against developing and poor countries. For every engineer you can hire in America, you can probably hire 3 or 4 for the same cost in those countries.
 
I don't know about BYD specifically but it wouldn't surprise me if China became the invention and engineering capital of the world in 30 years. More so than Japan, or America in the past, China has historically had an invention-oriented culture. I don't know how much of that was lost through the upheavals over the decades but there does seem to be an emphasis on manufacturing, and soon engineering. Right now, they tend to copy products but as the BYD example with biodegradable battery shows, they are starting to develop some innovative stuff.
 
 
The problem with investing in BYD, or any emerging market company, is political risk. I personally am concerned enough to stay away but others may be tolerant of the risk, at a price.

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