Nomura Maintains Buy Rating on BYD: Strong Overseas Sales Offset Domestic Weakness, Expects Turnaround in 2H26

Overview

This report reviews BYD's first quarter 2026 results. Despite weak demand due to a frozen domestic auto market, BYD achieved better-than-expected revenue and shipments thanks to strong overseas export performance, especially for high-priced models. While FX fluctuations led to financial expenses that eroded net profit, the QoQ improvement in gross margin validates the profitability of overseas markets. The institution believes that with the launch of Blade Battery 2.0 technology and the intensive release of new models, BYD's domestic order situation will improve substantially in the second half of 2026, marking a meaningful inflection point in performance.

Core views

In terms of performance, BYD recorded 1Q26 revenue of RMB 150.2 billion, down 12% YoY (down 37% QoQ), but given overall industry challenges, this result exceeded expectations. Passenger vehicle (PV) shipments were 689,000 units, down 30% YoY and 48% QoQ. The key highlight was the overseas market, with sales reaching 320,000 units, up 50.1% YoY, and due to higher average selling prices (ASP) for overseas models, it effectively boosted overall gross margin to 18.8%, up 1.4 percentage points from the previous quarter, demonstrating a clear seasonal counter-cyclical improvement capability. Profit pressure mainly came from non-operating factors. 1Q26 operating profit margin (OPM) was 2.7%, down 0.5pp YoY and 1.4pp QoQ. Net profit was RMB 4.1 billion, down sharply by 55% YoY and 56% QoQ, with net profit margin (NPM) falling to 2.7%. The main reason was a one-time inclusion of approximately RMB 2.1 billion in financial expenses, primarily due to foreign exchange losses. Future outlook focuses on technology iteration and supply-demand reversal. Facing a highly competitive domestic environment, management has formulated a comprehensive plan. The charging infrastructure development plan released in March and the launch of Blade Battery 2.0 are turning point signals. The Song Ultra EV equipped with this technology received over 60,000 orders within one month of launch, showing strong market acceptance. Subsequent new models such as Han EV, Tai 7, and Tang SUV will also be equipped with this technology. Given the need to clear 2025 inventories and wait for new capacity ramp-up, the institution expects more meaningful demand improvement to appear in the second half of 2026.

Analysis framework

The report employs a three-layer analysis logic of 'macro environment - micro data - driving factors.' First, by comparing the industry-wide context of 'frozen demand' with BYD's actual shipment data, it identifies the core contradiction of 'beating expectations' – namely that strong overseas performance offset domestic weakness. Second, it delves into the income statement, attributing the gross margin improvement to the overseas high-ASP structure and isolating the significant decline in net profit from operating factors, attributing it to one-time FX losses, thus restoring the health of the core business. Finally, based on product lifecycle theory, it shifts focus from the current financial report to the upcoming mass production of 'Blade Battery 2.0' and its order elasticity, thereby deriving the expectation of an inflection point in performance in the second half of the year.

Methodology notes

• Industry/Sector Analysis FrameworkVolume and Price Decomposition

  Explains revenue changes and structural opportunities by analyzing changes in sales volume and average selling price (ASP).

  The report does not merely look at total revenue but points out that overseas sales grew 50.1% with higher ASP, thus explaining why gross margin could still improve QoQ despite a decline in total sales volume. This helps readers understand the quality source of the company's growth.

• Valuation MethodSOTP Sum-of-the-Parts

  Sum-of-the-Parts, breaking down the company's business into different segments, applying suitable valuation multiples to each, and summing them to arrive at a target price.

  The report divides BYD into 'Auto and Related Products' and 'BYD Electronics.' The former receives a 25x PE (considering historical discount and PEG), while the latter receives a 17x PE (above historical median), summing to a target price of HKD 127. This breakdown allows for a more accurate reflection of the value of diversified businesses.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD (1211.HK / 002594.SS)

  Beneficiary asset. Overseas expansion offsets domestic competition; new technology drives demand rebound.

  Strengths

  High overseas sales growth (+50% yoy); QoQ gross margin improvement; advanced Blade Battery 2.0 technology; strong orders for new models (e.g., Song Ultra).

  Weaknesses

  Frozen domestic market demand and intense competition; one-time FX losses causing significant net profit decline; time needed to clear old inventory and ramp up new capacity.

  Comparison

  Compared to peers, BYD has stronger overseas market penetration and brand premium capability, coupled with vertical integration technological advantages (batteries, vehicles).

  Risks

  Intensified market competition further impacting margins; overseas expansion speed below expectations; limited demand pull effect from technology upgrade.

Key data

• 1Q26 RevenueRMB 150.2 billion-12% YoY, -37% QoQ, beat expectations
• 1Q26 PV Shipments689k units-30% YoY, -48% QoQ
• 1Q26 Overseas Sales320k units+50.1% YoY, main growth engine
• 1Q26 Gross Profit Margin (GPM)18.8%-1.3pp YoY, +1.4pp QoQ, continuously improving
• 1Q26 Net ProfitRMB 4.1 billion-55% YoY, -56% QoQ, dragged by FX losses
• Financial ExpensesRMB 2.1 billionMainly from foreign exchange losses
• Song Ultra EV First-Month Orders>60k unitsEquipped with Blade Battery 2.0, strong demand
• Target PriceHKD 127Based on SOTP valuation, implying 19.2x 2026 PE

Impact & implications

For investors, the short-term profit disruption from FX losses should be overlooked, focusing instead on the sustainability of overseas sales and the order conversion efficiency of new domestic models (especially those equipped with new technology). The report suggests that the current stock price decline may have overreacted to pessimistic domestic market sentiment while overlooking the structural optimization brought by high overseas margins. With new capacity release and inventory clearance in 2H26, BYD is expected to see an inflection point of 'increasing volume and price,' and current valuations are attractive.

Risks

• Further intensification of market competition dynamics, potentially negatively impacting margins and market share
• Slower than expected pace of overseas business expansion
• Less than expected positive impact of technology platform upgrades on demand

What to watch

• Launch progress and order performance of new models equipped with Blade Battery 2.0 (e.g., Han EV, Tai 7, Tang SUV)
• Substantial improvement in domestic demand in the second half of 2026
• Sustained growth momentum of overseas sales