UPDATE 2-BYD Q3 net down 99 pct on weak sales, shares dive

Tue Oct 26, 2010 4:22am EDT

* Q3 net down 99 percent on weak sales

* Nine-month profit up 4.02 percent

* BYD shares fall more than 10 percent after results (Adds analysts comments, stock price)

By Fang Yan and Ken Wills

BEIJING, Oct 26 (Reuters) - BYD Co Ltd (1211.HK), a Chinese carmaker backed by U.S. billionaire Warren Buffett, posted a disappointing 99 percent drop in quarterly earnings as its sales strategy backfired, sending its stock down 10 percent on Tuesday.

The worse-than-expected quarterly result came as auto sales tapered off in China, the world's biggest auto market, in response to Beijing's efforts to keep its economy from overheating.

"Investors were disappointed by its sharp drop in earnings when other automakers were posting strong results," said Francis Lun, general manager from Fulbright Securities. "It suggested that the products are having problems."

BYD's pullback marked a sharp contrast with breakneck expansion in 2009 and the first quarter of this year.

"BYD had been expanding its sales network aggressively and pressing its dealers to hike their sales targets. That strategy worked well when the market was good," said Marvin Zhu, an analyst with J.D. Power and Associates. "But it backfired when the market slowed in the summer months."

Shares of BYD fell 10.3 percent to close at HK$51.05 in their biggest single day drop in about two years. The stock has lost more than a quarter of its value this year, underperforming an 8 percent gain on the broader market .HSI.

"Selling pressure is still there as it is still expensive compared with rivals," Lun said.

POOR Q3 EARNINGS

BYD said its July-September net profit stood at 11.82 million yuan ($1.78 million) against 1.16 billion yuan a year earlier.

J.P. Morgan had forecast BYD's net profit to fall by 55 percent to 522 million yuan.

"BYD is trading at 23.3 times 2011 earnings, which is hardly a bargain for a company that has deteriorating fundamentals," Adrian Chan, an analyst at Credit Suisse said in a research report.

BYD's auto sales started to taper off in August, down 19 percent from the year-earlier period, with September sales down about 25 percent, company data showed.

That compared with an 18.7 percent and 19.3 percent rise in China's passenger car market during the two months, respectively.

While BYD's market share was slipping, others, especially some long-established foreign brands, including General Motors [GM.UL] and Volkswagen AG (VOWG.DE), were gaining ground.

Sales at GM's car venture with SAIC Motor Corp Ltd (600104.SS) rose 41 percent in September from a year earlier, with sales at Volkswagen's tie-up with SAIC up 36 percent. [ID:nTOE69B05N]

BYD, 10 percent owned by Buffett's Berkshire Hathaway Inc (BRKa.N), in August warned of a slowdown in car sales in the second half and said it would launch new models to lessen the impact. [ID:nTOE67M04S]

It had also cut its car sales target by 25 percent to 600,000 for the year and lowered prices by more than 5 percent. ($1=6.657 Yuan) (Additional reporting Donny Kwok; Editing by Dhara Ranasinghe and Chris Lewis)

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