With the arrival of the cloud track, the market cake of transportation has to be redistributed.

We know that the development of a city is inseparable from transportation, including urban buses, subways, taxis, buses and electric wheels. the old mode of travel can no longer meet the needs of huge population flow, and the mode of travel is constantly innovating. For example, with the hot shared bikes in 2016, the number of companies in the industry has soared from several to dozens. Now there is a new travel innovation, that is, cloud rail transit.

BYD (01211) is the forerunner of cloud rail transit. In October 2016, BYD's first "cloud rail" project was officially opened in Pingshan New area of Shenzhen, with a speed of up to 80km and an open mileage of 4.4km. BYD and Shantou signed a strategic cooperation agreement for a five-year 250km rail transit project. Two months later, the construction of the 20.3 km "cloud track" project of BYD in Shantou City began, and the 5.65 km test line is expected to be completed and opened to traffic in July 2017.

Source: Futu Securities

However, BYD's share price did not reflect the signal in real time. On the contrary, it fell first and then sorted out. From 2016.10 to September 2017, the company's Hong Kong stock price as a whole fell 6%, but after more than a month, the share price soared 77%, up 66.4%.

In fact, on August 28, 2017, BYD released its interim results report, with revenue of 43.817 billion yuan, an increase of only 0.16% over the same period last year, and net profit of 1.723 billion yuan, down 23.75% from the same period last year. BYD said that the cloud rail project had received orders from several cities, and the construction of Shantou, Guang'an, Yinchuan and other cloud rail projects had begun, and it said that some lines had been opened to traffic this year and entered commercial operation.

Although BYD's apparent performance is not very good, investors still choose to invest in the company, most likely because of the expectations of the company's cloud track project. But the question now is, what are the cloud track projects that BYD is likely to open this year, how much contribution these projects will make to the company's performance, and whether the company's share price will continue to rise?

Three major cloud rail projects may be opened to traffic this year.

As mentioned above, the Shantou pilot line project is expected to be put into operation in July 2017, but the project has been delayed, but the project is very likely to be opened this year. Zitong Financial APP learned that YD launched the construction of Sichuan's first straddle monorail in Guang'an in February 2017, which is expected to be opened in August 2017, and the project has also been delayed. On September 1, 2017, the 5.67 km tourist line of Yinchuan Cloud Rail Project and Huabo Garden officially carried passengers.

So far, BYD has orders for cloud tracks in at least eight cities, and for recent projects, such as September 26, 2017, BYD signed an investment agreement with Hengyang City to build the first cloud track in the area. BYD's Yinchuan Cloud Rail has been opened to traffic, and Guang'an and Shantou Cloud Rail projects are most likely to be opened this year.

BYD's recent actions show that it may need to step up the construction of projects such as Shantou. On September 28, 2017, the company launched an investment fund of 4.6501 billion yuan to invest in cloud track project construction and operation companies set up in Shenzhen, Guangdong, Shandong, Yunnan and Hunan. Then, on October 13, 2017, BYD's 10 billion bond targeted issuance project was approved by the CSRC.

Photo Source: Byd Company Limited announcement

BYD is good at making use of leveraged investment, and its later returns are likely to be magnified. for example, among the more than 4.6 billion yuan investment funds set up, BYD has a total investment of about 20%, with a leverage multiple of 5 times. if you start from the cloud track project that is most likely to be commercialized, BYD will most likely increase the fund's investment in Shantou and Guang'an Cloud Rail. If the above two projects are opened this year, the income distribution in 2018 will benefit from five times the leverage.

And Zhitong Financial APP learned that in addition to the cloud track project of the pilot line in Shantou, BYD has extended the project plan, such as the planned implementation of the full line of Line 1, from Shantou University to Jinwan, which is scheduled to start by the end of 2017; the first phase of Line 2, which is scheduled to start by the end of 2019 from Lianxia to Times Square; and the first phase of Line 3, which will start construction from Xinjin to Laiwu by the end of 2018, and the first of the three lines will be put into operation by the end of 2020.

There will continue to be a lot of financing in the future.

BYD has basically no competitors in the cloud track project, and the market space is very huge, and the company has stepped up its efforts to raise funds, whether equity financing or debt financing, which are planned to be used for "horse racing enclosure" and layout of various provinces and cities. The company is expected to do more financing in the future.And if the project is put into commercial operation, it will be white silver.

There is no market data for the domestic cloud rail project, but brokers have predicted the size of the market, such as Ping an Securities, believing that the cloud rail business will bring about 50 to 6 billion yuan in revenue for BYD in 2017, and is expected to reach 30 billion yuan in 18 years. Shen Wanhongyuan believes that BYD will achieve cloud rail business revenue of 5 billion yuan in 17 years and 10 billion yuan in 18 years. Even if there is a gap in the predicted data, the overall revenue of tens of billions of yuan has contributed a lot to BYD's performance.

But now it may be a question to consider, BYD uses leveraged financing to invest in cloud rail projects, so can its financial support? Zhitong Financial APP learned that BYD's interim results in 2017 were not good, with net profit of shareholders falling 23.75 per cent from a year earlier, but cash at the end of the period was 8.32 billion yuan, up 68 per cent from a year earlier, of which net cash flow from financing increased by 83.8 per cent.

Photo source: Byd Company Limited 2017 China News

It is worth pointing out,Although the financing scale of BYD grew rapidly in the first half of 2017, its asset-liability ratio was 62.8%, which was only 1 point higher than that of 2016 and 5.3 percentage points lower than the same period last year.In terms of current ratio, it was 1.07 times in the first half of 2017. Zhitong Financial APP observed that BYD's listed investment in available-for-sale assets reached 3.54 billion yuan, which could inject liquidity into the company to meet its short-term debt needs.

Moreover, in the first half of 2017, the amount of depreciation and amortization of BYD reached 3.147 billion yuan, of which depreciation and amortization of cars and related products was 1.768 billion yuan, accounting for 56.2%. The depreciation and amortization items of BYD Cloud Rail project are not listed separately, and if this item is shown separately in the future, it may depreciate net profit, but can save a lot of cash flow, while other depreciation and amortization items can be used by accounting methods such as accelerated depreciation, and generate more cash flow to meet the needs of continued investment.

Photo source: Byd Company Limited 2017 China News

Contribution level of possible income performance of Cloud Rail Project

Let's take a look at the revenue composition of BYD. In terms of mid-term results in 2017, revenue from secondary charging and photovoltaic business accounted for 8%, down 1% from the same period last year, while revenue from mobile phone components and assembly services accounted for 41%, up 4% from the same period last year. The auto business accounted for 51% of the revenue, down 3% from the same period last year, of which only mobile phone components and assembly services increased by 10.25%.

Photo source: Byd Company Limited 2017 China News

According to the forecast of the revenue of Ping an Securities and Shenwan Hongyuan comparing YD Cloud Rail project, in 2017, we take the median value of 7.5 billion yuan. If the revenue of each business in the second half of the year is the same as that in the first half of the year, the revenue share of cloud rail project will be 7.9%, making it into the top three. The revenue share of secondary charging and photovoltaic projects will be 7.2%, ranking fourth.

In fact, the share of revenue from these businesses may be lower, but the position will remain the same, as BYD still launched new plug-in hybrids in the second half of 2017, which has a certain growth impact on its core main business revenue. The company has said that it will continue to receive orders from leading brands of smartphones during the period, driving significant revenue growth in the metal parts business, which is expected to maintain high growth in the second half of the year. In short, in the second half of 2017, together with the possible revenue from the cloud rail project, BYD's performance will show a bright spot of growth.

However, there are still risks. The cloud track project that BYD will run is still a pilot project, the mileage is not very long, the order amount and traffic revenue may not reach the target revenue scale, and the projects that will be opened in 2017 are uncertain. Shantou and Guang'an projects may continue to be delayed.