Overseas, R-D support 1Q26 earnings resilience

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> OR http://www.cmbi.com.hk 1 MN 29 Apr 2026 CMB International Global Markets | Equity Research | Company Update BYD (1211 HK/002594 CH) Overseas, R&D support 1Q26 earnings resilience China Auto 12-mth Price Performance Source: FactSet Maintain BUY. BYD’s 1Q26 average selling price (ASP) and GPM both beat our prior forecast with overseas contribution, which echoed our previous report titled “overseas sales could be a positive surprise in FY26” (link). We expect FY26E GPM to sustain, as we estimate overseas vehicle GPM could be 6-8ppts higher than that in China. BYD also becomes more prudent on expenses, especially on R&D, which could provide earnings resilience with higher capitalization ratio. We still believe BYD is one of the biggest beneficiaries from high oil price.  1Q26 revenue, GPM beat on overseas. BYD’s 1Q26 revenue fell by 12% YoY amid a sales volume decline of 30% YoY, or 13% higher than our prior forecast, as overseas accounted for 46% of BYD’s total sales volume in 1Q26. That also lifted its GPM by 1.4ppts QoQ to 18.8%, 0.3ppts higher than our forecast. R&D expenses were more disciplined than we had projected while forex loss was higher than expected. All combined resulted in a net profit of RMB4.1bn in 1Q26, or about RMB0.7bn higher than our forecast.  BYD’s overseas potential could still be underestimated. We estimate that BYD’s overseas vehicle GPM could be 6-8ppts higher than that in China, based on 1Q26 and 4Q25 data with assumptions of minimal QoQ changes in ASPs and GPMs. We maintain our FY26E total sales volume forecast of 5mn units but revise up overseas sales volume by 0.1mn units to 1.6mn units. Accordingly, we raise our FY26E revenue forecast by 2%. We also believe higher sales volume from overseas could sustain BYD’s FY26E GPM, despite raw-material price hike and heavy capex. We project FY26 GPM to only narrow by 0.1ppt YoY to 17.6%.  R&D capitalization provides earnings resilience. We estimate that R&D capitalization ratio rose to about 17% in 1Q26 from 9% in FY25, which was one of the reasons for the net profit beat. As we noted a few times before, BYD’s low R&D capitalization ratios in the past four years have minimized its amortization burden in the future, which could provide its earnings resilience. We raise its FY26/27E R&D capitalization ratio assumptions from 7%/7% to 15%/12%. Accordingly, we revise up FY26/27E net profit forecasts by 4%/6% to RMB37.9bn/46.3bn.  Valuation/Key risks. We maintain our BUY rating and A/H share target price of HK$125/RMB125, based on 22x (prior 23x) our FY27E P/E, to reflect the recent market volatility. Key risks to our rating and target price include lower sales volume or margins than we expect, as well as a sector de-rating. Earnings Summary - 1211 HK (YE 31 Dec) FY24A FY25A FY26E FY27E FY28E Revenue (RMB mn) 777,102 803,965 888,026 966,92