Matters:

The company released the production and sales report for September 2024:

1) NEV sales: 0.419 million units/year over year +46%, month-on-month +12%; 2) BEV sales: 0.165 million units/year over year +9%, month-on-month +11%; 3) PHEV sales: 0.253 million units/year on year +86%, month-on-month +14%; 4) Lithium battery shipments: 19.8 Gwh/year on year +38%, +5% month-on-month; 5) Export sales: 0.031 million/ +9% YoY, flat month-on-month.

Commentary:

In September, wholesale reached a record high of 0.4 million vehicles, and DM 5.0 production climbed faster. The company sold 0.419 million vehicles in September, a record high of +46% YoY and +12% month-on-month. It is estimated that it is mainly due to the acceleration of production climbing on the DM5.0 platform, which accumulated orders in the early stages increased delivery. Sales volume by brand: Dynasty + Ocean sales 0.402 million vehicles, +47% YoY, Equation Leopard 0.005 million vehicles, Tension 0.01 million vehicles, looking up to 310 units. Overseas sales of passenger cars were 0.033 million/ +18%, of which 0.031 million were exported and 0.002 million were produced overseas. Short-term overseas tariffs are still under pressure.

The stimulating effect of trade-in is remarkable, and models with lower prices and falling markets benefit even more. In April, 7 departments including the Ministry of Commerce and the Ministry of Finance issued the “Implementation Rules on Vehicle Trade-In Subsidies”. In July, the Party Central Committee and the State Council decided to increase support for the trade-in of consumer goods with ultra-long-term special treasury bonds. As of 00:00 on September 25, the National Auto Trade-In Information Platform had received more than 1.13 million applications for car scrapping and renewal subsidies. The number of registered users on the platform exceeded 1.68 million, and the number of subsidy applications continued to grow rapidly. New energy vehicles enjoy a maximum subsidy of 0.02 million yuan from the trade-in policy. Combined with relevant preferential policies from local regions and car companies, demand for car terminals in the low price and sinking market showed strong performance. 1-8M24 BYD's wholesale market share is about 35% (China Federation), with a higher market share below 0.2 million yuan. The peak season order performance continues to be impressive, driving the upward trend in fundamentals.

There are still many high-end products to be launched during the year, driving the product matrix upward. In addition to the main brand's new platform model switch, the company also plans to debut new models such as the Tension N9, Equation Leopard 3 & Panther 8, and the U7 within the year, which is expected to promote technological parity in the high-price market and seize the high ground of design and performance.

Investment advice: The company has a strong will to compete, and the product cycle changes smoothly. It is expected to blossom more in terms of domestic share, overseas sales, and high-end strategy. Considering that the company's product cycle resonates with the subsidy policy, we have revised the 2024-2026 core forecast:

1) Sales volume: 4.13/5.06/5.72 million vehicles, +36%/+13%, original value 3.86/4.47/4.88 million vehicles; 2) Revenue: 751.7/977.1/1132.2 billion yuan, +25%/+30%/+16%; 3) Return to mother: 38.3/55.5/67.9 billion yuan, +28%/+23% YoY, original value 36.3/47.4/56.8 billion yuan; 4) EPS: 13.18/19.06/23.35 yuan, original value 12.48/16.28/19.54 yuan.

The company's fundamental trend is upward. Considering that the valuation switch may occur in the next 6-12 months, 20 times PE will be given in 2025, corresponding to the target market value of 1109.1 billion yuan, and the target price of A shares will be raised to 381.2 yuan. Considering the exchange rate and A/H premium, the target price of H shares was raised to HK$383.9, and the A/H premium was about 1.1 times. Maintain a “strong” rating.

Risk warning: NEV sales fall short of expectations, overseas progress falls short of expectations, high-end development falls short of expectations, etc.