Morgan Stanley maintains Overweight on BYD, with H-share target price unchanged at HK$126.00

Overview

This report is Morgan Stanley's risk-reward update on BYD Company Limited (1211.HK). The report maintains the H-share target price of HK$126.00 and an Overweight rating, while updating bull, base, and bear case valuations and revising 2026-27 gross margin, expense, and earnings forecasts.

Core views

Morgan Stanley believes BYD remains a global leader in new energy vehicles, with potential in intelligent driving and global expansion. Although intense mass-market competition, pricing pressure, and rising costs weigh on earnings forecasts, the company's vertically integrated supply chain, scale advantages, improving overseas and premium model mix, and the suitability of PHEVs in markets with insufficient charging infrastructure should help partially offset these pressures.

Analysis framework

The report uses a blended valuation framework, with 25% bull, 50% base, and 25% bear case weighting to derive the target price. The base case uses DCF valuation, the bull case uses SOTP with reference to CATL, EV start-ups, and BYDE valuation, and the bear case uses a 2026E P/E multiple while assuming more severe domestic and overseas volume and pricing pressure.

Methodology notes

• Valuation methodsDCF

  Base-case valuation

  The base-case value is HK$117, assuming a 14.3% WACC and a 3.0% terminal growth rate, and incorporating more than 10% sales CAGR and more than 20% earnings CAGR in 2025-27.

• Valuation methodsSOTP

  Bull-case valuation

  The bull-case value is HK$220, mainly benchmarked against leading EV start-ups, CATL, and BYDE's recent market value, reflecting faster overseas expansion, domestic recovery, and energy storage demand.

• Valuation methodsP/E

  Bear-case valuation

  The bear-case value is HK$51, corresponding to a 12x 2026E bear-case P/E, assuming weaker-than-expected domestic and overseas auto sales, intensified competition, and more severe price cuts.

• Scenario analysisProbability-weighted bull/base/bear scenarios

  Target price formation

  The report applies 25% bull, 50% base, and 25% bear case weighting to derive the H-share target price of HK$126.00.

Asset mapping & comparison

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

• 1211.HK

  Covered subject of the report

  Strengths

  NEV leader, vertically integrated supply chain, scale advantages, intelligent driving and ultra-fast charging technology penetration, and a rising mix of overseas and premium models.

  Weaknesses

  Gross margin is affected by raw material costs, BoM upgrade costs, and mass-market pricing pressure, while R&D and overseas SG&A expenses are rising.

  Comparison

  In the bull case, the vehicle business is benchmarked against leading EV start-ups, the battery business against CATL, with reference also to BYDE's market value.

  Risks

  Domestic and overseas auto sales weaker than expected, intensified price wars, overseas expansion dragged by protectionism, global NEV demand below expectations, and gross margin underperforming expectations.

Key data

• Stock ratingOverweightMorgan Stanley rating.
• Industry viewIn-LineThe industry view is broadly in line with the benchmark market performance.
• Target priceHK$126.00The probability-weighted H-share target price is maintained unchanged.
• Current share priceHK$110.00Closing price on April 20, 2026.
• 2026/27 sales forecast5.2mn/5.7mn unitsForecasts are largely unchanged; a new 2028 forecast of 6.2mn units has been added.
• 2026/27 gross margin forecast18.3%/18.7%Lowered by 0.3ppt and 0.2ppt, respectively.
• Net profit forecast revision2026-27 cut by 13%EPS forecasts are cut by 12%.
• 2026E EPSRmb4.55Previous forecast was Rmb5.16.
• 2027E EPSRmb5.80Previous forecast was Rmb6.57.
• Bull/base/bear case valueHK$220/HK$117/HK$51Versus previous estimates, these were revised to +10%, -6%, and -7%, respectively.

Impact & implications

The main implication of the report is that the market needs to rebalance short-term earnings downgrades against medium- to long-term advantages in technology, supply chain, and globalization. Maintaining the target price indicates that the earnings cuts have been partly offset by stronger overseas growth and energy storage demand, but the risk-reward distribution remains affected by price competition, cost inflation, and overseas protectionism.

Risks

• Global new energy vehicle demand is weaker than expected.
• Auto sales in domestic and overseas markets fall short of expectations.
• More intense new energy vehicle competition leads to steeper price cuts.
• Raw material cost inflation and intelligent driving/ultra-fast charging configuration upgrades raise BoM costs.
• Insufficient progress in overseas expansion, especially amid rising protectionism.
• Gross margin performance is weaker than expected.
• Morgan Stanley has or may seek investment banking and other business relationships with BYD Company Limited, so research independence should be viewed prudently in conjunction with disclosures.

What to watch

• Execution of 2026-28 sales, especially overseas volume and the mix of premium models.
• Whether ADAS adoption and ultra-fast charging technology penetration can enhance product competitiveness.
• The impact of raw material and BoM cost changes on gross margin.
• Changes in trade barriers, tariffs, and protectionist policies in overseas markets.
• Whether energy storage demand and external battery sales exceed expectations.
• The intensity of mass-market price competition and changes in the company's per-unit profit.