A Study On Valuation Of BYD Company Limited

The company’s valuation has always been one of the hot topics of industry scholars and financial practice experts,and understanding the value of the company is important to both corporate managers and investors in the capital markets.At present,the new energy automobile industry is booming.BYD,as a leading enterprise in the new energy automobile industry,ranks first in the world in sales for three consecutive years.However,on June 19,2018,the market value of BYD was surpassed by the CATL,which was just listed for 9 days.Many experts,scholars and the news media think that BYD’s value is underestimated.In this context,this essay selects BYD as the research object,based on the company’s business and its development,using the discounted cash flow valuation method to study and evaluate BYD’s corporate value and stock value at the end of 2017.BYD’s main business includes new energy vehicles and traditional automobiles,mobile phone components and assembly,secondary rechargeable batteries,etc.Each business has different growth characteristics.To this end,this essay focuses on the industry status of the company’s business segments,as well as the historical operating status and future development potential of BYD Company,and predicts the future business revenue growth rate of BYD for different businesses.Subsequently,based on the company’s financial performance analysis for 2011-2017,it is estimated that the EBIT/operating income,working capital/operating income,capital expenditure/operating income,depreciation and amortization/operating income are required for valuation.The financial indicators,combined with the company’s future growth rate forecast and 2017 operating income,predict the future free cash flow of BYD.In estimating the company’s weighted average cost of capital,firstly,the CAPM is used to estimate the cost of equity capital.This essay selects 9 companies in the same industry,and uses the market model to return to the equity beta of each company.Through leverage adjustment,it is estimated that the industry’s average unbiased beta coefficient is the beta coefficient of BYD’s assets.Using the capital structure of BYD Company,the asset beta coefficient is adjusted to the equity beta coefficient.Secondly,the bond’s maturity income is calculated based on the bonds issued by the company;according to the corporate bond rating,the risk-adjusted rate of return of the company’s debt is estimated.The company’s debt capital cost is determined by combining the estimates of the yield to maturity method and the risk adjustment method.Finally,the essay estimates that BYD’s enterprise value at the end of 2017 was 237.424 billion yuan,the equity value was 185.863 billion yuan,and the stock value was 68.13 yuan/share.The valuation of stocks is higher than the market price of stocks at the end of 2017 of RMB 64.83 per share.Therefore,this essay believes that the value of BYD at the end of 2017 is undervalued by the market.