Buffett-backed BYD makes turbocharged debut in China

SHANGHAI/BEIJING Thu Jun 30, 2011 7:54am EDT

A worker sits in front of the logo of Chinese car manufacturer BYD (Build Your Dreams) Auto, at the World Electric Vehicle Symposium and Exposition (EVS) in the southern Chinese city of Shenzhen November 4, 2010. REUTERS/Tyrone Siu

A worker sits in front of the logo of Chinese car manufacturer BYD (Build Your Dreams) Auto, at the World Electric Vehicle Symposium and Exposition (EVS) in the southern Chinese city of Shenzhen November 4, 2010.

Credit: Reuters/Tyrone Siu

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SHANGHAI/BEIJING (Reuters) - BYD Co Ltd 002594.SZ, the Chinese automaker backed by U.S. billionaire Warren Buffett surged more than 40 percent on its Shenzhen debut, as investors bet on a strong outlook for the company's fledgling electric cars business.

Thursday's jump surprised some analysts who had expected China's sixth-biggest carmaker by sales to make a weak debut after it raised 1.42 billion yuan ($219 million), a third less than it had originally sought, in the initial public offering.

The Shenzhen-based company, in which Buffett's Berkshire Hathaway Inc (BRKa.N) has a 9.9 percent stake, reported disappointing quarterly results on Wednesday. But investors focused on the outlook for the carmaker's clean tech business - now a hot investment theme on the mainland.

"People are still quite optimistic on the prospect" of BYD's battery business, said Zhang Yu, an analyst with AJ Securities in Shanghai.

The stock closed at 25.45 yuan, up 41 percent, while the benchmark Shanghai Composite Index .SSEC gained 1.2 percent and the Shenzhen index .SZSC rose 1.4 percent.

BYD shares rose to as high as 26.19 yuan versus its IPO price of 18 yuan.

"Even though there have been some negative media coverage of BYD recently, the Buffett halo, the joint EV project with Daimler and its battery technologies and EV still set it way apart from other IPO candidates especially in Shenzhen," said Yale Zhang, managing director of consultancy Automotive Foresight.

"There are hardly any companies that could have so many things going like BYD does."

BYD shares in Hong Kong (1211.HK) closed up 5.7 percent at HK$25.15. The stock has more than trebled since September 2008 when Buffett invested in the company.

The shares have however fallen more than 42 percent so far this year, hit by worries over BYD's slowing auto sales and a lack of star models. They traded as high as HK$85 in October 2009.

BYD's Shenzhen debut comes at a time when a record number of IPOs are being postponed or canceled in Asia due to volatile global market conditions and as U.S.-listed Chinese companies hogged global headlines due to accounting scandals.

In the first half of the year, only about one-tenth of companies seeking a listing had chosen to do so on the Shanghai Stock Exchange, while the rest had gone to the smaller Shenzhen bourse, which houses the ChiNext start-up board, data compiled by Thomson Reuters showed.

BYD chose to list in the Shenzhen Stock Exchange because it first started business in the southeastern city, according to BYD's Chairman Wang Chuanfu.

RICH VALUATION

The carmaker expects mass production of its electric vehicles to begin this year, Wang told an online roadshow on June 20.

"Over the next few years, the company will launch a series of electric buses and passenger cars," he said.

Wang, who started BYD in 1995 with money from a relative after leaving a government sector job, has also said he believes Buffett has no plans to dispose of his BYD stake at this point.

BYD competes with larger rivals such as SAIC Motor Corp Ltd (600104.SS), which has joint ventures with General Motors (GM.N) and Volkswagen AG (VOWG_p.DE).

The current market price in Shenzhen valued BYD at 32 times 2011 consensus earnings forecast, Thomson Reuters data showed. That appears high when compared to SAIC, the country's top carmaker, which was trading at around 10 times of 2011 consensus earnings forecast.

Outside mainland China, investor patience appears to be running thin after BYD's latest quarterly results showed an 84 percent drop in net profit.

Analysts said the profit decline was due to weak auto sales and also as the company's handset component business fell short of expectations.

On Thursday, Credit Suisse lowered its earnings forecasts for BYD over the next three years by 10-21 percent.

"We remain unconvinced about BYD's long-term growth and maintain our underperform rating, given the unattractive valuation," said Adrian Chan, a Credit Suisse analyst in Hong Kong.

($1 = 6.470 yuan)

(Additional reporting by Fang Yan in Beijing; Editing by Kazunori Takada and Matt Driskill)

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