September 01,2009

Warren Buffet's 500% Return from BYD: The Show Just Begun?

By CSC staff, Shanghai

The world's favorite investor Warren Buffett's investment in China's BYD has returned 500% in one year. For Buffett wannabes, this may be the time to load up, because he says he's going to up his own stake in the company.

 

Last September, Buffett spent HK$1.8 billion to grab 225 million shares of BYD, 10% of the total, at HK$8 per share. Yesterday, BYD closed at HK$48.6, up 8% for the day. The book profit of Buffett's shares is estimated to have reached over HK$9.1 billion, an increase of more than 500%.

 

"MidAmerican Energy has been looking to add to its BYD shares, optimistic as it is about BYD's prospects in the development of new energy, and we are now considering this issue," says Wang Chuanfu, founder and chairman of BYD. BYD's plans to enter the US market are accelerating, and it is expected that its e6 electric car will be launched there in 2010, a year earlier than originally planned. The e6 is a completely electric vehicle, capable more than 400 kilometers on a single charge, a world best.

 

Wang said that car makers at home and abroad, including Germany's Volkswagen, are negotiating with the company on supplies of BYD's car batteries.

 

As for BYD's listing on the A-share market, it may be in the next year, but there is not as yet a specific timetable.


BYD's revenue and net profit for the first half of 2009 were 16.132 billion yuan and 1.178 billion yuan, up 30% and 98%, year-on-year, respectively. Turnover for BYD Auto totaled 8.877 billion yuan, up 133% over the same period last year, accounting for 55% of total revenue, a rise from 32% at the end of last year. Pre-tax profit soared to 1.279 billion yuan, accounting for 88% of BYD's total. BYD Auto has become the major business of BYD.

 

Vehicle sales for BYD were over 180,000 during the first six months, up 1.5 times, year-on-year. Its F3 broke into the top five in sales. Total sales are expected to exceed 400,000. The F3DM electric car, 100 of which have been sold to governments and enterprises, will start to retail this month.

 

As of June 30, BYD had about 120,000 employees, down from 130,000 at the end of last year, and the staff cost accounts for 11% of turnover, down from 14%. Despite the reduced costs, operating pressure remains heavy for BYD compared with its rival Foxconn International. BYD's total staff cost is up 11.9% over the same period last year, while Foxconn's per capita staff cost dropped by 23.2%, year-on-year, because Foxconn has transferred its manufacturing from Shenzhen to Hebei Province. BYD's production base is in Shenzhen, where the minimum wage was last year increased from 750 yuan to 900 yuan, while in Hebei the minimum wage is still at 750 yuan.

 

The competition between Foxconn and BYD is becoming increasingly fierce. Last year, the OEM business of K-Touch, ranking first in the domestic mobile phone market, was transferred from BYD Electronic to Foxconn. The competition between the two companies exists not only in the struggle for international brand manufacturers, but also for domestic firms.

 

The share of China's mobile phones in the global market has reached 40%. Huawei and ZTE may rank the fifth or sixth globally and China mobile horde, dubbed the "army of ants," is eroding the share of international mobile phone giants.

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