BYD (01211) Report Interpretation

Overview

Nomura reviews BYD's 1H26 and 2Q26 results and argues that strong overseas deliveries, higher overseas margins and lower R&D expense are beginning to improve profitability despite weak China demand and a large foreign-exchange loss. It maintains Buy and a HKD127 target price.

Core views

BYD reported 1H26 revenue of CNY345bn, down 7% year-on-year and 20% half-on-half, as NEV passenger-vehicle shipments fell 16% year-on-year and 27% half-on-half to 1.8mn units. Nomura nevertheless identifies a marked improvement in operating performance: gross margin rose to 18.8%, up 0.8 percentage points year-on-year and 1.3 percentage points half-on-half, while operating profit reached a record CNY14.5bn for a first half, up 71% year-on-year. Operating margin increased to 4.2%, supported by a 21% year-on-year and 18% half-on-half decline in R&D expense, which the report interprets as better R&D efficiency. The report attributes the margin improvement chiefly to overseas expansion. Overseas sales reached 792k units in 1H26, up 70.6% year-on-year; overseas operations generated 53% of total revenue for the first time and delivered higher gross margins than China operations. In the segment data, overseas gross margin was 22% in 1H26 versus 16% in China. Nomura views this as an important transition: BYD is becoming a meaningful global passenger-vehicle player rather than solely a China EV leader. The benefit was partly obscured in reported earnings by a CNY4.7bn foreign-exchange loss in 1H26, compared with a CNY3.2bn gain in 1H25. Reported earnings therefore fell 21% year-on-year to CNY12.3bn, but Nomura estimates profit before tax excluding the forex effect would have been CNY19.3bn, up 23% year-on-year. The second quarter showed a sharper sequential recovery. 2Q26 revenue was CNY195bn, down 3% year-on-year but up 30% quarter-on-quarter, on 1.1mn passenger-vehicle shipments, down 3% year-on-year and up 58% quarter-on-quarter. Gross margin was 18.9%, up 2.6 percentage points year-on-year, and operating margin reached 5.4%, up 3.9 percentage points year-on-year and 2.6 percentage points quarter-on-quarter. Earnings rose to CNY8.2bn, up 30% year-on-year and 102% quarter-on-quarter. Nomura estimates vehicle profit at about CNY6.8k per shipment, with improvement both year-on-year and quarter-on-quarter, again linking the result to the overseas sales mix. China demand remains muted and competition remains intense. Nomura expects BYD to introduce more models using Blade Battery 2.0 as capacity becomes available, which it believes could help restore market momentum and share while supporting EV penetration in China. September and October, the traditional auto peak season, could provide a domestic catalyst, although the report does not hold high short-term expectations for the overall China auto market. Combining the overseas contribution, margin recovery and approaching peak season, Nomura believes BYD remains on track for further business and financial improvement. Nomura maintains its Buy rating and HKD127 target price. The target is based on a sum-of-the-parts valuation: the auto and related-products segment is valued at CNY959bn using 25x FY26F P/E, representing a 12% discount to BYD's historical median and also reflecting 1x PEG over FY25-28F; BYD Electronics is valued at CNY57.2bn using 17x FY26E P/E, based on Bloomberg consensus estimates and 0.5 standard deviations above its historical median. The stock traded at 16.6x 2026F P/E, based on EPS of CNY4.77.

Analysis framework

Nomura reviews reported 1H26 and 2Q26 revenue, shipments, margins, operating expenses and earnings, then separates the foreign-exchange effect from underlying profitability. It compares China and overseas revenue mix and gross margins to explain the recovery, assesses domestic demand and product-launch catalysts, and values BYD using a sum-of-the-parts P/E framework for its main businesses.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation using separate P/E multiples for auto and related products and BYD Electronics.

  Nomura values the auto segment at 25x FY26F P/E and BYD Electronics at 17x FY26E P/E, then combines the segment values to derive its HKD127 target price.

• Industry AnalysisVolume-price decomposition

  Analysis of shipment volumes, revenue, gross margins and profit per vehicle across China and overseas markets.

  The report uses delivery growth and regional margin differences to show how the higher-margin overseas mix supports profitability even as total domestic demand is weak.

Asset mapping & comparison

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

• BYD (01211.HK)

  Primary covered company; overseas expansion and improved operating efficiency are presented as drivers of earnings recovery.

  Strengths

  Overseas sales growth, higher overseas gross margins, record 1H26 operating profit, and improving R&D efficiency.

  Weaknesses

  Muted China demand, lower 1H26 shipments and a material forex loss reduced reported earnings.

  Comparison

  Overseas gross margin was 22% in 1H26 versus 16% in China.

  Risks

  Intensifying competition, slower-than-expected overseas expansion, and weaker-than-expected demand benefits from technology-platform upgrades.

Key data

• 1H26 revenueCNY345bn-7% year-on-year and -20% half-on-half
• 1H26 overseas sales792k units+70.6% year-on-year; overseas revenue share reached 53%
• 1H26 operating profitCNY14.5bn+71% year-on-year; highest first-half operating profit in BYD's history
• 1H26 forex lossCNY4.7bnVersus a CNY3.2bn forex gain in 1H25
• 2Q26 earningsCNY8.2bn+30% year-on-year and +102% quarter-on-quarter
• 2Q26 operating margin5.4%+3.9 percentage points year-on-year and +2.6 percentage points quarter-on-quarter
• Estimated 2Q26 vehicle profit per shipmentAround CNY6.8k per carNomura estimate; improved both year-on-year and quarter-on-quarter
• 2026F P/E16.6xBased on 2026F EPS of CNY4.77

Impact & implications

The report argues that overseas growth is changing BYD's earnings mix by adding higher-margin revenue and helping offset weak China demand. Improved R&D efficiency and the planned rollout of Blade Battery 2.0 models could support further profitability and market-share recovery, although Nomura remains cautious on near-term China auto demand.

Risks

• More intense market competition could pressure BYD's margins and/or market share.
• Overseas business expansion could be slower than expected.
• Technology-platform upgrades may have a smaller-than-expected positive effect on demand.

What to watch

• China auto demand during the traditional September and October peak season.
• The pace of further overseas expansion and its contribution to revenue mix and margins.
• The rollout of additional Blade Battery 2.0 models as battery capacity becomes available.
• Whether R&D efficiency and vehicle profit per shipment continue to improve.