BYD(1211.HK)：2Q25 EARNINGS MISSED WITH WEAKENING PROFIT QUALITY;DOWNWARD REVISION OF CONSENSUS AND DECELERATION LED TO STOCK DE-RATING

Core Viewpoint - BYD's total revenue increased by 14.0% YoY in 2Q25, but net profit fell sharply by 29.9% YoY, marking the first quarterly decline since 2022, leading to a downgrade in stock rating from HOLD to SELL with a target price of HK$80 based on 18x 2025E P/E [1][2][4]. Revenue and Profit Performance - Total revenue for 2Q25 reached RMB200.9 billion, aligning with expectations, while revenue from the rest of the business grew by 17.2% YoY, slightly exceeding vehicle sales volume growth of 16.1% YoY [3]. - Net income for 2Q25 dropped to RMB6.36 billion, a 29.9% YoY decline, ending a streak of quarterly profit growth since 2022 [4]. - Excluding BYDE, profits plummeted by 33.5% YoY to RMB56.3 billion, significantly below estimates and market consensus [4]. Margin and Operational Expenses - The gross margin for the auto business fell by 2.0/5.1 percentage points YoY/QoQ to 18.7%, primarily due to aggressive price cuts and increased operational expenses, particularly in R&D [5]. - OPEX, especially R&D costs, remained high, contributing to a more than 40% YoY/QoQ decline in earnings per vehicle to RMB4.9k in 2Q25 [2][5]. Overseas Sales and Profitability - BYD's overseas sales grew significantly, with export volumes accounting for 21% of total sales in 2Q25, up from 11% in 2Q24 [6]. - However, the rapid expansion in overseas markets has not yet resulted in substantial profit contributions, affected by delayed revenue recognition and additional costs related to inventory for immediate delivery [7]. Profit Structure and Non-Operational Contributions - In 1H25, BYD's net income increased by 13.8% YoY to RMB15.5 billion, but the quality of earnings weakened due to a rising reliance on non-operational items such as foreign exchange gains and government subsidies [8]. - FX gains accounted for approximately 20% of net income, while government subsidies made up 41% of net income in 1H25, a significant increase from 26% in 2024 [8].