Morgan Stanley: Expects BYD COMPANY (01211) to have a strong recovery in the second quarter, with net profit rebounding to 9 billion RMB.

Morgan Stanley's research report states that after a year of adjustment, BYD COMPANY (01211) is expected to have a strong recovery in the second quarter, which will help rebuild market confidence and provide support for the revaluation of valuation in the second half of the year and in 2027. The rating is maintained as "overweight" with a target price of HK$121 per share. The bank estimates that the net profit of BYD Company Limited in the second quarter will rebound from the low base of the first quarter to 9 billion yuan, corresponding to sales of 1.1 million vehicles, an increase of 58% from the previous quarter, driven by a 68% increase in domestic sales and a 47% increase in overseas sales. Second quarter revenue is expected to reach 217 billion yuan, a 45% increase from the previous quarter, with the proportion of overseas sales temporarily decreasing due to the faster growth in domestic sales, and the average selling price decreasing by about 2% per quarter. Gross margin is expected to remain stable at 19% per quarter. It is expected that the operating expense ratio can still be controlled under the adjustment of R&D capitalization. This will result in a per-vehicle profit of 7,600 yuan in the second quarter, an increase from 5,700 yuan in the first quarter. The report points out that the exchange rate is a major variable, and the appreciation of the renminbi may mask the better-than-expected performance of pure profits on the operational side. The second half of the year is well-positioned, with the market focus shifting to 2027. In addition to favorable year-on-year effects, the intensive release of new vehicles and the easing of battery production bottlenecks should drive vehicle sales to return to normal growth. The bank predicts that the total annual vehicle sales in 2026 will reach 4.6 million units, including 2.8 million units domestically and 1.8 million units overseas, with sales in the second half of the year reaching 2.8 million units, a year-on-year increase of 12%.