Incident: BYD announced the May production and sales report. In May, it sold a total of 332,000 cars, +38% over the same period last year.

Cumulative sales in January-May 2024 were 1.271 million vehicles, +26.8% year-on-year.

With high sales growth and improved export+high-end volume structure, profitability is expected to improve. 1) In May 2024, BYD achieved sales volume of 332,000 units, +38.1% YoY/+5.9% month-on-month; of these, 3030,000 passenger cars were sold and 1,329 commercial vehicles were sold. In May, sales of pure electric passenger cars were 146,000 units, +22% year-on-year; sales of plug-in passenger cars were 184,000 units, +54% year-on-year. In January-May, sales of 1.271 million vehicles were cumulative, +26.8% year-on-year, of which 1.267 million passenger cars were sold. 2) In May, the high-end series Tense+ Yangming+ Equation Bao sold 15,000 units, accounting for 4.62% of total passenger car sales, +0.07pct compared to the previous month. Among them, Tension sold 12,000 vehicles, +11% YoY /month-on-month +10%; Looking forward to selling 608 units, and Equation Bao sold 2,430 units.

3) In May, the company exported 37,500 passenger cars, +267.5% year-on-year. From January to May, 176,000 passenger cars were exported, +176.7% year-on-year.

The fuel consumption of the fifth-generation DMi is only one-third of that of a fuel vehicle. The cost performance advantage is obvious, and the company's share is expected to increase further. The fifth-generation DMi achieved a leap forward in fuel consumption and battery life. On May 28, BYD released the fifth-generation DMi, which has the highest engine thermal efficiency of 46.06%, the lowest energy loss in the world of 2.9 L per 100 kilometers, and the longest comprehensive battery life of 2,100 km in the world. The Qin L and Navy Seal 06, which were the first to be equipped with this technology, went on sale at an evening price of 99,800 when they were released. We think the price-performance advantages of the two cars are obvious:

① The starting price of the company's mid-size car fell below 100,000 for the first time, and the competitiveness of the product spectrum was once again strengthened. The Dolphin and Yuan UP are small cars, and the Qin PLUS is a compact car, while the Qin L and SEAL 06 have a wheelbase of 4830mm and are positioned as mid-size cars. ② Low acquisition cost+low cost of use, which is expected to accelerate the market share of joint venture vehicles in the same class.

Compared to major mid-size fuel vehicles such as the Accord/Magotan (with average monthly sales of 12/ 16,000 units in the past year), the Qin L and SEAL 06 are cheaper, and the cost of refueling is lower during use due to low fuel consumption. Subsequent fifth-generation DMi technology will be added to more models one after another, boosting overall sales.

Overseas market expansion+product introduction is accelerated, and exports are expected to double in 2024, achieving strong profit support.

The company has completed the layout of overseas production bases in Southeast Asia, Thailand in Central Asia, Uzbekistan in South America, and Hungary in Eastern Europe; production has now officially started; according to the company's plan, two overseas passenger car factories in Thailand and Brazil will also be completed and put into operation this year; in addition, at the end of January this year, BYD and the Szeged city government in Hungary formally signed a land pre-purchase agreement. If there are no surprises, the plant is expected to be built and put into use within three years, covering the entire European market. We expect to export 400,000 to 500,000 vehicles throughout the year, doubling the growth.

High-end models continue to grow, and profit margins are expected to increase. The high-end brand Tensei Z9GT/N9 is expected to be launched within the year, and the brand's annual sales target is 180,000 units; Equation Leopard 8 is expected to be launched in 2024Q3; it is hoped that it will continue to impact the million-level luxury market.

Investment advice: We expect the company's net profit to be 381.3/474.2/55.79 billion yuan in 2024-2026 (the previous forecast was to achieve net profit of 43.5 billion yuan and 512 billion yuan in 24 and 25, respectively. Considering the intensification of industry competition this year and the Honor Edition listing, the profit forecast was lowered). Corresponding to the current stock price PE is 18.2/14.6/12.4 times, respectively, maintaining a “buy” rating.

Risk warning: Sales of new models fall short of expectations, high-end models fall short of expectations, and increased market competition.