As the worst-performing stock last year on Hong Kong’s 40-strong China
Enterprises Index, down a screeching 40 per cent, and the worst so far this
year, down another 19 per cent, BYD may be testing the faith of even this
legendarily long-term investor.
Friday’s disclosure from the Shenzhen-based carmaker that it was cutting
prices to revive flagging sales numbers confirms a pretty stunning reversal
of fortunes.
In 2009, amid a general fervour for all things Chinese and consumer-focused,
the purveyor of cheap sedans for second-tier cities (such as Chengdu and
Wuhan) saw its shares soar 440 per cent.
But the appearance of chairman Wang Chuanfu last April on the steps of Los
Angeles City Hall to announce BYD’s new US headquarters, flanked by Arnold
Schwarzenegger, was the high watermark.
Sluggish sales
By then, dealers had begun to quit the sales network back home because of
sluggish sales – online discussion forums were filled with accusations of
sloppy product quality – and high inventories. Among China’s top 10
carmakers by sales, BYD was the only one to sell fewer units in December
2010 (down 15 per cent) than a year earlier; the average increase among the
remainder was 23 per cent.
Warren Buffett, who bought 28 per cent of the Hong Kong stock through a
Berkshire Hathaway subsidiary at HK$8 a pop in September 2008, is still well
ahead at today’s price of HK$33.
A valuation that was once faintly ludicrous - 19 times book value in April
2010 - has fallen to 3.5 times, not far off the global average of 2.5 per
cent. But the direction is worrying, nonetheless.
In a recent nationwide Credit Suisse survey, just 3 per cent of consumers said
their next car would be a BYD. The Sage of Omaha may well be tempted to book
profits.
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