CFA Institute Research Challenge Hosted in Chengdu Southwest University for Nationalities Student Research Manufacturing Sector: New Energy Industry This report is published for educational purposes only by students Hong Kong Exchange (HKEx) competing in The CFA Institute Research Challenge BYD Company Limited

Date:31-Aug-2016 Closing Price: HKD54.00 Recommendation: BUY (20.17% upside) Ticker: BYDHK: Wind Database CNY1.00: HKD1.18 Target Price: HKD64.89 (CNY54.86) Executive Summary Table 1: Market Profile BYD Company (Hong Kong) Limited (BYDHK or the Company) is a Chinese manufacturing Market Profile company, which covers three main areas: Automobile Business (AB), Handset Components and Assembly Services (HC&AS), and Rechargeable Battery and Photovoltaic Business (RB&PB). Closing Price HKD54.00 Investment Recommendation 52-Week High/Low HKD54.00/HKD30.50 We issue a Buy recommendation on BYDHK with a four-month target price of HKD64.89, that is Average Volume(1Y) 6,122,016 20.17% over its August 31, 2016 closing price of HKD54.00. Our target price is primarily based on: Diluted Shares Out 2,728,142,855 Investment Thesis and Outline Market Cap(HKD in Backed by a promising industry outlook, BYDHK continues its leading position in new energy Millions) 16,436 industry. The combination of the Sum-of-The-Parts valuation and current market view of BYDHK’s Beta 1.19 every sector suggest that the stock price of BYDHK is undervalued. This represents an opportunity EV/EBITDA 24.52 to invest in China’s new energy industry. After determining BYDHK’s exposure and mitigants to P/B 3.88 investment risks and evaluate the corresponding impacts on valuation, we arrived a Buy recommendation. P/E 44.37 • Promising Industry Outlook, with the rising concern over environmental and energy problems, Source: Wind Database and strong policy support for new energy industry, the demand of new energy market is on the rise. Table 2: Valuation • Leading Position in New Energy Vehicle (NEV) Market, BYDHK occupied the market share Valuation of around 27% of Chinese NEV market, and with its advanced battery technology and vertical integration ability, and independent research and development (R&D) technologies which will Valuation DCF Multiples soon be used in every BYDHK’s NEV, it is believed that this will enhance BYDHK’s competitive Estimated Price HKD74.60 HKD55.18 position and will at least secure BYDHK’s market share. - Weights 50% 50% BYDHK is expected to reach RMB122.8 billion in NEV market by 2020. - In HC&AS field, BYDHK will get more orders from manufactures in its filed through its new Target Price HKD64.89 material and advanced technologies. Source: Team Calculations • Highly Integrated Business Mode, BYDHK believes through integrating solar power, energy storage and electrified transportation together can achieve company’s main strategy, this will drive BYDHK: Figure 1: Monte Carlo Simulation - More competitive in energy field by reducing manufacturing costs. 30000 - Sell Hold Buy Fully integrating new energy market from electric power generation to electric storage, and 25000 4.19% 35.21% 60.6% finally to electric applying in NEVs and other fields. 20000 • Sum-of-the Parts Valuation, using the Discounted Cash Flow (DCF), and three ways of 15000 Relative Multiples Valuation to value AB, HC&AS and RB&PB separately. Frequency 10000 • Investment Risks, including regulatory, market, and operational risks that were assessed 1) for

5000 impact and likelihood and subsequently ranked in a risk matrix, and 2) modeled through a Monte Carlo simulation. 0 - The results of the Monte Carlo simulation show: 60.6% of the simulations support a buy recommendation, 35.21% support a hold recommendation, and 4.19% support a sell Sell Hold Buy recommendation. Source: Team Calculations Table 3: Key Financials and Ratios

Figure 2: Share Price Movement Key Financials and Ratios

70 4500 2014 2015 2016F 2017F 2018F 2019F 2020F

4000 60 RevenueҁCNY in Billions҂ 55.4 77.6 101.5 120.9 145.6 177.0 217.1 3500 50 3000 Net ProfitҁCNY in Billions҂ 0.7 3.1 5.2 7.3 10.0 13.4 17.8

40 2500 Net Profit Maigin 1.34% 4.04% 5.15% 6.03% 6.86% 7.57% 8.21%

2000 30 Fixed Asset Turnover 1.49 1.99 2.15 2.31 2.46 2.60 2.74

Price Per Share 1500 Hang Seng IndexHang Seng 20 Long-term Liabilities to Assets 0.12 0.10 0.06 0.05 0.03 0.02 0.02 1000 10 500 Interest Coverage 1.53 3.07 3.80 4.71 5.72 6.43 7.05

0 0 Earnings Per Share (EPS) 0.18 1.12 1.75 2.48 3.42 4.61 6.16

BYDHK HSCI.HI Return on Equity (ROE) 2.56% 8.71% 9.33% 11.47% 13.52% 15.29% 16.86% Source: Wind Database Source: Company Data,Team Calculations

1 Figure 3: Milestones of BYDHK Business Description Founded in February 1995, BYDHK was listed on Hong Kong Stock Exchange and Shenzhen Stock 1995: BYD Company founded, with capital Exchange in July 2002 and June 2011, respectively (Figure 3). BYDHK principally engaged in AB of RMB2.5 million and 20 members including traditional fuel-powered vehicles and NEV, as well as handset, computer components and assembly services, and BYDHK is also developing other new energy products such as rechargeable battery (RB), solar power station, energy storage station, LED business, etc. 2002: Listed on the Hong Kong Stock Exchange Main Board (1211.HK) Currently, BYDHK has nearly 200,000 employees and 22 industrial parks in the globe. BYDHK has reached revenue of RMB43,745 million in the first half of 2016 (1H16) (Figure 4), representing a year on year (YoY) increase of 43.74%, having made a profit of RMB2,260 million with YoY growth 2003: Purchased Xi’an Tsinchuan of 384.23%. The earnings per share was RMB0.87, implying a YoY increase of 359.90%. Automobile Company Limited Automobile Business In 2003, BYDHK purchased Xi’an Tsinchuan Auto Co.,Ltd and formed the present BYD Auto Co.,Ltd, 2007:BYD-E listed on the Hong Kong Stock which formally symbolized its entry into the vehicle manufacturing and selling. Nowadays, BYDHK Exchange Main Board(0285.HK) has established six industrial parks of auto industry. The automobile products include high, medium and low end of fuel cars, and also include auto mold, auto parts, dual model electric vehicles and 2008: Warren Buffett invested $232 pure-electric vehicles. The total sales volume of car increased to 180,000 with the YoY growth of million to take a 9.89% stake in BYDHK -14.28% in 1H16 (Figure 5). Comparing with the decline in sales volume of fuel cars, NEV has realized a rapid growth, whose sales volume has increased to 49,000 with YoY growth of 130.74% and ranks the first in the world reaching out to 190 cities in 43 countries of six continents. In public 2011 BYD (002594.SZ) was listed on the Shenzhen Stock Exchange transportation, BYDHK will continue to expand the application of pure-electronic buses and taxis in global markets. BYDHK has successively won the UN-DESA Energy Grant and Zayed Future Energy Prize since its popularization and application of the green energy. 2014: BYDHK announced the “5-4-2 Initiative” for NEV Handset Components and Assembly Services As one of the most comprehensively competitive HC&AS suppliers around the world, BYDHK provides vertically integrated one-stop services from whole product design, component 2015: BYDHK launched “7+4” Vehicle manufacturing to assembly services for both domestic and overseas markets, and also provides Electrification Strategy other electronic products’ design, component production and assembly services. According to the interim report in 2016, this business realized a revenue of approximately RMB16,293 million, of Source:Company Data which 95.03% came from its holding company-BYD Electronic (International) Company Limited (BYD-E) (Figure 7). Handset assembly mainly including EMS and ODM and metal casing are the products that contribute most to the revenue of this business. Rechargeable Battery and Photovoltaic Business Figure 4: 1H16 Revenue Breakdown BYDHK’s RB business mainly includes the lithium-ion battery and nickel battery, which are widely used on handsets, digital cameras, power tools, electric toys and all areas of portable electronic devices. And, BYDHK also actively researches on and develops power batteries, energy storage batteries and solar battery products to be applied in the NEV, storage power station and photovoltaic power station. The company focuses on the new energy chains to provide clients with the integrative solutions in power generation, storage, transmission and utilization. Several solar programs of BYDHK have already successively operated in the international markets, including the United States, German, Japan, United Kingdom, Indian and South Africa, having recorded the revenue of RMB4.06 billion in 1H16 and turned around with a profit (Figure 8). Meanwhile, BYDHK has its advanced Double-glazed Solar Photovoltaic module technology, which has a longer product life cycle and more durable than other products. Strategy • Three Green Energy Dreams. This is the final vision of BYDHK to realize the zero emission, zero pollution, green energy solutions of the whole industry chain from power generation, storage, transmission to usage (Figure 9).

Source: 2016 Interim Report • The Strategy of Vigorously Developing the NEVs - BYDHK put forward the “7+4” Vehicle Electrification Strategy (“7+4”) (Figure 6), sparing no efforts to realize the market diversification. “7+4” refers to popularizing the NEV and realizing its overall coverage in seven conventional fields (private cars, buses, taxis, sanitation vehicles, urban commodity logistics, passengers transportation and urban construction logistics) and four specialized fields (warehousing, mines, ports and airports). Figure 5: Sales Volume and YoY Growth of AB Figure 6: “7+4” 0.6 2

0.5 1.5

0.4 1 0.3

Million 0.5 0.2

0 0.1

0 -0.5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H16 sales volume of BYDHK' A&B yoy BYDHK'volume growth

Source: Company Data,Team Calculations Source: Official Website

2 Figure 7: HC&AS’s Revenue - In April 2014, BYDHK published the “5-4-2 Initiative” target for the NEV in the future and and YoY Growth redefining the standards of the NEV from three aspects: performance, security and fuel 35 50% consumption. As for the “5-4-2 Initiative”, “5” represents the 0 - 100 km/h acceleration time of 30 40% less than 5 seconds, “4” refers to electric four-wheel drive, “2” means within 2 liters of fuel 25 30% consumption per 100 km. In the future, most of BYDHK’s NEV will implement the standard of 20 20% “5-4-2 Initiative”.

billion 10% 15 Growth •Low-cost Strategy 10 0% - BYDHK makes the vertically integrated industry chain in all three businesses, adheres to self- 5 -10% owned brand, independent R&D, forges one-stop service with the core of R&D design and independently assembly manufacturing. 0 -20% 20092010201120122013201420151H16 - BYDHK enters into the market by selling and also actively plans, optimizes technological BYDHK BYD-E Growth of BYDHK process in the field of new energy҅lowering the per unit production cost through economies Source: Annual Report of scale. - In June 2016, BYDHK signed the “Cooperative Framework Agreement on the Exploitation of Figure 8: The Revenue of Lithium Resources in Salt Lake” with Qinghai Salt Lake Industry Co., Ltd(QHSL) and RB&PB Sector Breakdown Shenzhen Hongdatong Industry Co.,Ltd, in developing the lithium resource of the Salt Lake together and lower the production cost from the upstream. 700

600 500 Corporate Governance 400 Shareholder Structure 300

Thousand As of July, 2016, Wang Chuanfu is the first major shareholder, also the ultimate controlling owner, 200 owning 18.79% of the common shares directly. On the whole, three top managers (Wang Chuanfu, 100 Lv Xiangyang and Xia Zuoquan) of BYDHK own 38.08% of the outstanding shares directly or 0 indirectly (Table 4), and 16.15% of all common shares are held by corporations and institutional 2010 2011 2012 2013 2014 2015 1H16 Revenue investors. The public owns the remaining 45.77% (Figure 10) (Appendix 22).

Source: Annual Report,Team Calculations Corporate Governance The appraisal system of corporate governance mainly consists of equity structure, dividend policy and organization structure.

Figure 9: Three Green Dreams • Equity Structure: the gap of shareholding ratio among the major shareholders of BYDHK is quite small and the inside directors account for the largest proportion of shares among the top 10 major shareholders while the Board of Directors owns the high control power, which is beneficial for the company’s sustainable development but goes against the protection of minority interests (Appendix 26).

• Dividend Policy: dividend instability will be detrimental to equity financing since BYDHK’s higher research and development cost and it needs to unload the last year’s profits as the next year’s capital (Appendix 27). • Organization Structure: BYDHK owns the Board of Directors, Board of Supervisors, CEO and Source: SINA all kinds of committees. - Board of Directors, which has complete structure, meets the relevant regulation of the Table 4: Shareholding of Top corporate law and rich experienced members can provide constructive feedbacks and Management development direction for our company’s development. As the founder of the company as well as the major stockholder, the inside board has strong control power of the company, Shareholding of Top Management which is conducive to the company’s continuous and stable development but against the internal supervision (Appendix 23). Directly Indirectly - Board of Supervisors, which has complete structure, conforms with the relevant regulation Wang Chuanfu 18.79% 0.18% and the rich experienced members, whose average educational background are undergraduate course, can provide effective and scientific supervision for the company. The Lv Xiangyang 8.77% 5.96% supervision of the board of supervisors will be more powerful if the outside and inside boards

Xia Zuoquan 4.36% 0.02% of supervisors could be supplemented with each other. Besides that, the average age of the supervisors except for the chairman of the board of supervisor is 42.5, so the board of Source:Company Data supervisor performs well. - CEO has the strong control power and performs well but it will be detrimental to realizing the scientific decision and well supervision since it plays multiple roles and has the absolute Figure 10: Shareholder Structure control power in the company (Appendix 24). - Committee with complete inside control system meets the standard and manages well. Overall, the corporate governance is in accordance with its articles of association, without any obvious conflict. It is reasonable to conclude that nowadays BYDHK manages and operates well, but still exists risks. Social Responsibility BYDHK has established the CSR supreme decision-making body—CSR Management Council, defining the management method of CSR, organizing and formulating the unified CSR working plan to make CSR management identification and standardization and realize the unified organization and effective management of CSR work. BYDHK did well in social responsibility, environmental Source:Company Data protection, employee policies and it has received a number of awards and honors (Appendix 25).

3 Figure 11: Real GDP Industry Overview and Competitive Positioning 10.0 Macro Economic Analysis 8.0 • The growth of macro economy has slowed down, but progressed steadily, In 2016, 6.0 global economy has made deep changes. Developed economies are recovering slowly while 4.0 economic growth rate of emerging countries is decreasing. With the growth rate of 6.7% 1H16, 2.0 China has seen a drop in its growth. But the government moderately expanded its gross demand,

0.0 actively promoted the structural reform on supply, which makes the national economy increases 2013 2014 2015 2016F 2017F 2018F World Advanced Economies while maintaining steady (Figure 11). United States EMDE* China India • The income of urban and rural residents remains fast growth, and potential Source: IMF consuming capacity is improving, in recent years, fast growth of China’s economy has made the income of urban and rural residents remain faster growth, and per capita consumption Figure 12: Contribution Rate expenditure is increasing. In 2015, China’s ultimate consuming contributed 66.4% of economic of Combustion to GDP growth, which is 14.8 percentage point higher than in 2014 (Figure 12).

100 • Supportive Policies 90 80 - Stimulus of the Demand in NEVs 70 Measures to Manage Quota on New Energy Vehicles’ Carbon Dioxide Emission 60 • 50 (Consultation Document). 40 Development Plan for Energy Conservation and New Energy Vehicles 30 • 20 • Assessment Measures for New Energy Public Transportation Promoted Application (Trial) 10 • Notice on the 13th Five-year Plan in relation to the Incentive Policies on New Energy 0 1979 1985 1991 1997 2003 2009 2015 Vehicle Charging Infrastructure and the Promotion of Application of New Energy Vehicles. - Government Subsidies for Photovoltaic Electric Price Source: Wind Database, • Subsidies compensated by National Development and Reform Commission has given great iFinD Database impetus to the development of photovoltaic business. - Policies Overseas Table 5: Electric Price of • Energy Independence and Security Act Photovoltaic • National Policy Energy Act 2015 2016 Industry Analysis Resource Photovoltaic Photovoltaic Cities in Each Region Electric Electric Region • Automobile Industry Price Price - Ning Xia,Hai Automobile industry is growing slightly in whole. The growth of fuel cars is RMB0.90 RMB0.80 Xi(Qing Hai),Jia weakening, but the growth of NEV is strong. Traditional fuel cars still dominate market Ⅰ Region per kwh per kwh Yuguan(Gan share, but the growth of traditional vehicles field has been slowing down in recent two years. Su),Ha Mi(Xin Jiang),etc By virtue of favorable policies and technological progress, new energy market is developing aggressively. NEV’ substitution for fuel cars already has the realistic base (Figure 13). RMB0.95 RMB0.88 Beijing,Tianjin, Ⅱ Region per kwh per kwh Hei Longjiang, - Carmakers will increase input on industry segments and competition in these Sichuan,etc fields will be fiercer. Sport utility vehicle (SUV) has remained strong growth since 2013 Other cities Ⅲ Region RMB1.00 RMB0.98 except in Ⅰ, Ⅱ and HAVAL H6 tops the SUV sales; BYDHK has become the technological innovator in NEV per kwh per kwh region industry (Figure 14). Source: National Development and - Subsidy policy of new energy has been adjusted. NEV industry will become more Reform Commission standardized. China is gradually making adjustments in NEV subsidy policies. They have the intention of turning NEV industry from driving by policy to driving by market and upgrading the technology by combating subsidy frauds and regulating the development. Figure 13: YoY Industry Growth - The popularized application of Internet of vehicles has become a developing

400.00% trend. The industry will focus more on the application and progress of technology, and smart 350.00% driving will become the new growth point of this industry. 300.00% 250.00% • Handset Components and Assembly Services Industry 200.00% - The handset market is gradually saturated and will remain slight growth. Global 150.00% 100.00% shipment of smartphones raises only 0.2% to 0.678 billion handsets in 1H16, which is the 50.00% slowest YoY growth over the years. According to IDC, its growth speed will decline little by 0.00% 2010 2011 2012 2013 2014 2015 little, at an expected CAGR of 4.1% from 2016-2020. YOY Growth of Fuel Car Industry YOY Growth of NEV Industry - China will still be the largest smartphone market in the world. Smartphones YOY Growth of SUV Industry promoted by China’s brand manufacturer account for 42% of global market share. China’s Source: CAAM,Team Calculations shipment of smartphones is 235 million in 1H16, with YoY growth of 13.0%.(Figure 14) - Penetration of metallic parts is promoting rapidly. Sound mechanic performance and outstanding appearance have contributed to improving the recognition of metal casings. Figure 14: Smartphone Shipments Metallic parts are used commonly. Their market volume is expanded (Figure 15). Competition in terms of seizing the market share among FIH Mobile Limited (FIH), Catcher Technology Co.,Ltd, TongDa Group Holdings Limited (TongDa) and BYD-E is becoming fiercer and fiercer. Each supplier enlarges the production capacity of CNC, improves product yield and production efficiency, and stays competitive. - Consumer electronics undergo frequent upgrading and fast market changes. Updated needs of the consumers make this industry upgrade quickly. Although metal shell is very popular now, 3D glass casing has made first appearance. • Rechargeable Battery and Photovoltaic Industry - Needs of traditional battery are weakening. The growth of global consumer electronics is pacing down, but they still remain greater consumption; their competition is fierce, and Source: Wind Database, iFinD Database needs for lithium-ion battery and nickel battery are expected to remain in weak state in future market (Figure 16). 4 Figure 15: Utilization of Metallic Parts - Power battery and energy storage battery have increased rapidly and are 40% extremely competitive. With the aid of the rapid growth of NEV, many battery suppliers 35% are increasing their R&D investment in this field, expanding the production capacity so that 30% they can catch the opportunity of the fast growth in market (Figure 17). The future 25% competition will be expected to be very fierce. 20% - Opportunities and challenges coexist in photovoltaic. After terrible shuffle in the 15% previous years, the whole industry reentered into growing path in 2015. Installed capacity 10% has been growing rapidly, and it is expected to remain stable and orderly in its growth during 5% the period of 13th Five-Year Plan. However, market competition is still severe and downward 0% 2012 2013 2014 2015 pressure on price is larger. Source: News Competitive Positioning • Technological threshold diminishes the threat from new entrants. Fast development of Figure 16: Volume of 3C in Main NEV benefits BYDHK as a leading company in this industry. BYDHK has mastered core Manufacturing technology of cell, engine and electric control. In addition, BYDHK has established Central 250 Research Institute, Electric Power Research Institute and Auto Engineering Research Institute

200 concentrating on the R&D and application of technology (Figure 18).

150 • Fierce competition among existing rivalries. NEV is the main developing trend of future vehicles. All auto manufacturers make layouts in industrial segments. What the BYDHK faces not 100 only is the pressure of other domestic brands, but also seizes the global market share. Its new 100 Million

50 energy passenger vehicle(NEPV) sales volume outside of China is nearly zero. Suppliers’ ability to bargain is limited. Industries such as auto parts, steel, glass and rubber 0 • 2009 2010 2011 2012 2013 2014 2015 are very mature. Together with QHSL, BYDHK develops the lithium mineral in Salt Lake and integrates the upstream of industrial chain vertically. Source: Wind Database • Moderate bargaining power of customers. For HC&AS, revenue mostly depends on the large orders of brand handset manufacturers. Therefore, the customers remain some ability to Figure 17: 2015 Market Scale in bargain. Li-coin Manufacturing • BYDHK has long competitiveness. BYDHK insists on self-owned brand and self-research 90% 81% 80% and development. It has set up Intellectual Property Department and has initiated Talents Training Program. By self-researching and developing to promote automobile performance and reduce the 70% 60.30% 60% cost, adverse impacts on adjusting subsidy policies and decreasing local subsidy can be 50% counteracted. Then, cost performance can be promoted in whole; brand planning and media 40% 32.30% communication and planning department have been built to improve brand image; its business 30% 17% layout is comprehensive (Figure 19) (Appendix 21). 20% 7.40% 10% 2% Investment Summary 0% energy storage power parts 3C We issue a BUY recommendation on BYDHK with a 4-month target price of HKD64.89 by 2014 2015 combining a DCF Analysis and a Relative Multiples Valuation. This offers a 20.17% upside from its Source: CNII closing price of HKD54.00 on August 31, 2016.This valuation is supported by numerous merits, as outlined below, as well as concerns taken into consideration.

Figure 18: Porter's Five Forces MERITS • High Growth in Sales Revenue of NEV - As the environmental and energy problems have become increasingly prominent, and the government has paid more attention to the NEV industry, NEV industry will enter into a period of rapid growth. (Figure 20). - BYDHK is the leader in the field of NEV industry. In the aspects of strategy, the company has implemented the "7+4" and "5-4-2 Initiative” with a clear management idea; in the aspects of production, BYDHK is currently the only company mastered the core technology of electric cars including cell, engine and electric control in the world, owning an obvious technical advantage. • Expectations on the Outbreak of Sales Revenue of RB&PB

Source: Team Calculations Rechargeable Battery Business - With the widespread use of lithium battery in NEV and power storage station market, BYDHK RB will enter into a new period of growth. - BYDHK has the technological superiority on the RB. Owning the key technology, BYDHK’s Figure 19: SWOT Analysis lithium iron phosphate battery takes the domestic market share of more than 25%, ranking first. In the aspect of ternary batteries, company has a long-term accumulation of R&D as well as full technical reserves. The ternary batteries have been put into use in the plug-in hybrid electric vehicle (PHEV). - BYDHK has the advantages on battery production capacity. BYDHK had built the world's largest lithium iron phosphate battery production base in 2015. The company expands the capacity of lithium battery, and is expected to reach more than 13GWH in lithium battery production capacity by the end of 2016 (Figure 21). Photovoltaic Business - There are opportunities exist in the field of photovoltaic industry. In 2015, the global photovoltaic installed capacity has a rapid growth, and the newly increased installed capacity Source:Team Calculations in China hit a record high. Although the product price in photovoltaic industry still maintained long-term low (Figure 22), it may bring the explosive growth of sales revenue to BYDHK with the development of the photovoltaic industry. 5 Figure 20: Sales Volume of NEV Industry - BYDHK has the advantages of industrial chain in the photovoltaic business. In the terms of

1.8 the photovoltaic business, BYDHK is planning a complete new energy industry chain, which 1.6 provides customers an integration scheme with the power generation, transmission and 1.4 storage of electricity. It is unique in the global market. 1.2 •Sustainable Development of HC&AS 1 - The shipment of the global smartphone market slowed down, but the replacement rate of

Million 0.8 intelligent mobile phone will maintain steady growth. And, metal casing expands the scope of 0.6 application from the high-end models to low-end models with its superior quality and 0.4 performance, and is expected to have more shares in the future. 0.2 - BYDHK has the advantage of technology. In the application of key raw materials, BYDHK has 0 developed PMH technology, realizing the Nano-level fusion of metal and plastic and solving 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F signal problem. In the aspect of design, the company has SBID technology and can meet the sales volume of NEV industry sales volume of BYDHK's NEV needs of high-end mobile phone manufacturers. Source: CAAM,Team Estimates - Keeping cooperation with major manufacturers. Its assembly business gained EMS orders from the domestic leading brands of smartphones in 2015, and is expected to continue the cooperation in the future. • Cost Advantage of the Vertical Integration Mode

Figure 21: Battery Capacity AB: most of BYDHK auto parts can achieve self-sufficiency. For the NEV, BYDHK can supply three key parts of cell, engine and electric control. 14

12 Rechargeable Battery Business: BYDHK can product electrolyte diaphragm and cathode materials by itself. And in 2015, the company joined efforts in developing lithium mineral with 10 QHSL , controlling the raw materials. 8 GW Photovoltaic Business: BYDHK has a whole production chain from silicon, PV module to the 6 solar power station. By controlling the costs of raw materials, the company can minimize the 4 costs, equaling the cost of photovoltaic power with that of coal power. And coupled with the 2 layout of power storage station conducted by the company, it forms a strong synergistic effect. 0 2014 2015 2016F HC&AS: Thanks to the vertical integration platform, BYDHK has cut the product costs and significantly reduce the development cycle. Source: Wind Database Valuation Method We used a DCF, a Relative Multiples Valuation. The weight of each method is equal to 50%. Concerns(Possible Investment Risks) • Policy Risks: The demands of NEV may be in an insufficient situation, which will be incapable Figure 22: Polycrystalline’s Price of completing the target sale volume. Decelerated growth of China’s GDP, declining policy 60 subsidies, and insufficient support of the government may affect the sales of NEV. 50 • Industrial Risks: 1)The prospect of NEV industry attracts more manufacturers to research the 40 NEV, increasing competition. 2)The demands for nickel battery decreased year by year, and it will 30 affect BYDHK's revenue in a way. The prior-period investment of BYDHK was mainly in the R&D RMB 20 of the iron battery, so it does not have an absolute advantage in the production of the ternary

10 battery. If the ternary batteries become the main trend in the future, the company will not have the absolute competitiveness. 3) The product prices of photovoltaic industry may slump in the future, 0 and competition will be more intense in such an environment. 4) The saturation of global smartphone and computer markets will aggravate competitions among existing competitors. • Operational Risks: The company's brand image needs to be improved. The appearance Source: Wind Database design has been criticized for a long time; the amount of the quality complaints of fuel vehicles has ranked near the top in the last year; staffs in some sales region appears serious violations. The company's sales revenue will be negatively affected if it does not resolve the problems existing in brand image and sales management.

Figure 23: BYDHK Share Prices and News Flow 70

Subsidies to BYDHK's BYDHK popularized in New Energy bus program Financing NEV in Beijing, and China's market is 60 American Energy finished completed Shanghai crashing market

50 Orders from abroad of pure-electric bus; air 40 polution causes energy saving

30 Smart Driving has been carried out 20 BYDHK is plainning to raising RMB15 billion after trading Chinese president Xi Explosion of charge suspension in May Jinpin visited BYDHK's 10 station for taxi in factory in UK Hong Kong

0 12 13 14 15 13 14 15 16 12 13 14 15 16 12 13 14 15 13 14 15 16 12 13 14 15 13 14 15 16 13 14 15 16 13 14 15 16 12 13 14 15 13 14 15 16 13 14 15 16 ------Jul Jul Jul Jul Jan Jan Jan Jan Jun Jun Jun Jun Oct Oct Oct Oct Apr Apr Apr Apr Feb Feb Feb Feb Sep Sep Sep Sep Dec Dec Dec Dec Aug Aug Aug Aug Aug Nov Nov Nov Nov Mar Mar Mar Mar May May May May BYDHK

6 Table 6: Valuation Valuation Estimated Valuation Weights In order to estimate the share price of the BYDHK, we mainly used the following two valuation Price methods: a 5 years DCF and a Relative Multiples Valuation (Table 6). DCF(CNY) 63.06 50.00% DCF Model The DCF method is the discounted value of the free cash flow based on the predicted financial P/E(CNY) 35.12 16.67% statements, discounting to estimate the intrinsic value of BYDHK stocks. With the diversity of BYDHK business and its stock ownership, we predicted the financial situation of BYD-E (HC&AS) P/B(CNY) 79.05 16.66% and remaining parts except for the mobile phone business (AB, RB&PB) five years after. We EV/EBITDA(CNY) 25.77 16.67% calculated the free cash flow and equity value of two sections respectively, then added the stock value of Holitech held by BYDHK, finally got the stock price by dividing the fully diluted shares Target Price(CNY) 54.86 outstanding. According to the detailed analysis above, the target price is expected to be HKD74.60 (Table 7). Target Price(HKD) 64.89 The base case for this model was formulated considering about BYDHK’s historical performance, Source: Team Calculations our evaluations of industry outlook and its competitive positioning, and revenue growth among businesses. The DCF is most sensitive to the following inputs, the derivations of which are explained below: Table 7: The DCF Model • Weighted Average Cost of Capital(WACC) To better estimate the value, we calculated the WACC and cost of equity of HC&AS, and other The DCF Model businesses (AB and RB&PB) respectively to reflect the cost and risk of each business. The revenue Remaining BYD-E Holitech of HC&AS (95.03% in 2016 interim report) mostly comes from its holding company: BYD-E. We Buisinesses utilized two methods (CAPM and APT) to estimate the cost of equity (Appendix 9). For the CAPM, PV of FCF/EV 1,981 247,368 17,561 we ran the linear regression of BYDHK’s stock yield against the HSCI for two time intervals(5-year Less Net Debt 10,566 67,897 / monthly and 3-year weekly) and then averaged to calculate Beta (Appendix 8). And the Beta for the Less Minority remaining businesses was calculated through comparable companies methodology, and then / 3,989 / Interest weighted it according to the operating revenue in 2015 (Appendix 10). The risk-free rate was based Proportion of Shares 65.76% 100% 12.59% on 1-year government bonds benchmark yield. The expected market return was the average return PV of FCF of HSCI over the past ten years. We calculated the cost of debt by weighting and averaging the Belonging to (5,646) 175,482 2,211 short and long term debt data adopted from 2015 annual report (Table 8) (Appendix 11). BYDHK Revenue Growth Total EV of 172,047 • BYDHK For sales growth rate, we mainly forecast by using the sales of BYDHK's core business, that is the Financial Data(in Millions) AB, RB&PB, HC&AS. HC&AS’s revenue is represented by BYD-E’s (Figure 27) (Appendix 13). Fully Diluted AB: we added the revenue of the four parts together (fuel car excluding fuel SUV, fuel SUV, NEV Shares 2,728 Outstanding excluding pure-electric bus, pure-electric bus) to get the AB’ revenue (Appendix 14). (CNY) - Sales Volume Forecast: The sales volume of fuel vehicles shows a slow downward trend Target Price under the condition that SUV sales rise. The NEV sales volume is expected to maintain a (CNY) 63.06 rapid but stable growth, keeping an estimated annual growth rate of 35.86% of the industry; Target Price 74.60 sales volume of pure-electric bus is expected to reach 23,747 in 2020 (Figure 24). (HKD) - Price Forecast: We used data from the BYDHK’s official website to calculate the average Source: Team Calculations price of fuel car excluding fuel SUV, fuel SUV, NEV excluding pure-electric bus. Pure-electric bus price was gotten from team calculations (Appendix 15). Then according to BYDHK’s annual data of 2015 to adjust to the average price of four classifications, and we finally got each price (Table 10). Table 8: WACC Analysis Table 9: Relative Valuation

WACC Analysis Relative Valuation

HC&AS Remaining Businesses EBITDA(CNY in Millions) 11,036

EV from EBITDA(CNY in Millions) 130,330 Risk-free Rate 2.67% 2.67% Less:Debt(CNY in Millions) 78,895 Beta 1.62 1.16 Plus:Cash and Cash Equivalents(CNY in Millions) 19,323 Market Risk Premium 5.58% 5.58% Less:Minority Interst(CNY in Millions) 445 Cost of Equity from CAPM 11.73% 9.14% Market Value(CNY in Millions) 70,312

Cost of Equity from APT 9.27% / Fully Diluted Shares Outstanding (in Millions) 2,728

Pre-tax Cost of Debt 0 4.86% Price from EV/EBITDA(CNY) 25.77

Earnings(CNY in Millions) 5,380 Average Tax Rate 11.91% 16.39% Price from P/E(CNY) 35.12 Cost of Debt after Tax 0 4.06% Book Value(CNY in Millions) 60,005 Weight of Equity 100.00% 81.73% Price from P/B(CNY) 79.05 Weight of Debt 0 18.27% Average Price(CNY) 46.65

WACC 10.50% 8.21% Average Price(HKD) 55.18

Source: Team Calculations Source: Team Calculations

7 Figure 24: Sales Volume of RB&PB: RB welcomes a new round of outbreak because of the development of new energy BYDHK’s A&B industry, and we have expectations to photovoltaic industry. Based on that, we calculated the 800 cubic equation of sales of RB&PB in line with the future time trend (Figure 25).

600 HC&AS: BYDHK plans to give the whole HC&AS to BYD-E, so we replaced the revenue of HC&AS with BYD-E future sales forecast. After the regression on many variables, we have found 400 that the semi-annual revenue of BYD-E highly fits semi-annual copper production reported by

Thousand National Bureau of Statistics of China (NBS), and the R-squared of the quadratic and exponential 200 equations of copper production in six months are very high (Appendix 16). Finally, we got the forecast sales of BYD-E (Figure 26). 0 2016F 2017F 2018F 2019F 2020F Pure-electric Bus NEV exculding Pure-electric Bus • Capital Expenditure Fuel SUV Fuel Car(excluding Fuel SUV) - Due to changes in the business structure, capital expenditures will change significantly in the Source: Team Calculations next five years: capital expenditures for NEV will increase substantially in order to implement ‘5-4-2 initiative’, to develop NEV and energy storage battery, and to upgrade technology to Table 10: Price Estimate maintain its leading role; implement “7+4”, launch a variety of new models, realize industrialization and cover the market. Price Estimate - HC&AS expanded its production capacity (increased CNC equipment) in 2015; the growth of (CNY in Thousands) smartphones is becoming slow, which is not expected to have a greater capital expenditure in Fuel Car Excluding Fuel SUV 54.58 the future.

Fuel SUV 74.30 • Terminal Growth Terminal growth is based on the predicted inflation and the growth rate of new energy business. NEV Excluding Pure-electric Bus 217.31 Considering handset and fuel automobile business have entered a mature business stage, and the new energy business still has much development space, we predicted the terminal growth is 2.88%, Pure-electric Bus 1335.07 the sum of the expected inflation rate and the growth rate of new energy. Relative Valuation Source: Team Calculations Because of the diversity of BYDHK, it was not easy to find a direct comparison of the company, so we looked for comparable companies for each business. For the three major businesses of BYDHK, Figure 25: RB&PB's Sales we looked for companies with a high degree of similarity in business or having a competitive Revenue relationship in the business, covering Hong Kong, Taiwan, the Chinese Mainland and overseas 18 markets. First we calculated the average relative multiples of each business, then according to each 16 business share of predicted total revenue in 2016 to get the final P/E, P/B and EV/EBITDA, and 14 y = 18023x3 - 130526x2 + 367891x + 4E+06 then calculated them with 2016 forecasted EPS, EBITDA and BVPS to get three different share 12 R² = 0.93658 prices; finally we averaged the three to obtain the price of HKD55.18 (Table 9) (Appendix 12). 10 8 Financial Analysis Million 6

4 Financial Condition 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2

0 Profitability 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F Source: Team Estimates Net Profit Maigin 1.56% 1.34% 4.04% 5.15% 6.03% 6.86% 7.57% 8.21% Gross Margin 13.09% 13.77% 15.28% 17.79% 19.21% 20.69% 22.23% 23.83%

ROE 3.12% 2.56% 8.71% 9.33% 11.47% 13.52% 15.29% 16.86% Figure 26: HC&AS’s Sales Revenue ROA 0.99% 0.79% 2.72% 3.40% 4.26% 5.00% 5.64% 6.21% 70

60 Liquidity

50 Current Ratio 0.69 0.77 0.82 0.88 0.85 0.84 0.83 0.83

40 Quick Ratio 0.49 0.58 0.59 0.69 0.65 0.64 0.64 0.64 30

Million Cash Ratio 0.10 0.07 0.09 0.22 0.20 0.18 0.18 0.17 20

10 Activity

0 Inventory Turnover 5.37 5.07 5.09 5.16 5.43 5.44 5.44 5.42 Accounts Receivable Turnover 4.31 3.11 3.16 3.43 3.57 3.74 3.74 3.74 Source: Team Estimates Fixed Asset Turnover 1.42 1.49 1.99 2.15 2.31 2.46 2.60 2.74

Total Asset Turnover 0.64 0.59 0.67 0.66 0.71 0.73 0.75 0.76

Figure 27: Revenue Structure Financial Leverage 100% Total Liabilities to Assets 0.68 0.69 0.69 0.64 0.63 0.63 0.63 0.63 90% 33.5% 32.8% 31.7% 30.3% 28.6% 80% 42.4% Interest Coverage 1.76 1.53 3.07 3.80 4.71 5.72 6.43 7.05 70% 7.5% 6.3% 6.5% 6.8% 7.1% Total Liabilities to Equity 2.14 2.25 2.21 1.75 1.69 1.70 1.71 1.71 60% 9.4% 7.3% 7.4% 15.2% 11.9% 50% 19.2% Equity Multiplier 3.14 3.25 3.21 2.75 2.69 2.70 2.71 2.71 40% 25.7% 30% Long-term Debt to Equity 0.35 0.38 0.31 0.17 0.13 0.09 0.06 0.05 56.6% 20% 49.6% 53.2% 41.1% 45.6% Long-term Debt to Assets 0.11 0.12 0.10 0.06 0.05 0.03 0.02 0.02 10% 24.4% 0% Shareholder Ratio 2015 2016F 2017F 2018F 2019F 2020F NEV Fuel Car RB&PB HC&AS EPS (CNY) 0.23 0.18 1.12 1.75 2.48 3.42 4.61 6.16 Source: Company Data,Team Estimates Source: Company Data,Team Calculations

8 Figure 28: Gross Margin Optimization of Business Structure Contributed by NEV's Sales Growth Combined with the revenue structure in 1H16 (Figure 4) and BYDHK’s prospects, we estimate that NEV will be the main force of the company’s revenue in the future. Due to the turnaround of photovoltaic industry, RB&PB in BYDHK is expected to recover sluggishly. At the same time, the market growth of smartphones and computers tends to saturation, and the HC&AS’s contribution to total revenue is decelerating (Figure 27). The company will gradually form a new revenue model dominated by NEV to create greater margins, which will increasingly bring more benefits to shareholders than before.

Upgrading of Industrial Structure Conducive to Cost Savings In the future, the revenue of BYDHK will increasingly rely on NEV. We expected that the gross profit Source: Company Data, of BYDHK will be efficiently promoted (Figure 28), due to: 1) continuously increasing NEV sales Team Calculations revenue, as the main source of revenue, will enlarge the company’s economies of scale and reduce the unit cost (Figure 20). 2) BYDHK’s layout in NEV industry chain will decrease intermediate costs Figure 29: Liabilities Structure substantially under the new revenue model. 100% 90% Capital Structure Optimized with Solvency Promoted 80% BYDHK’s long-term debts have an obvious drop with discharging a great deal of maturing debts in 70% 60% 2015 and 2016. The company has financed RMB14.4 billion by private placement in July, 2016, and 50% to some extent, improved the structure of debt-equity. It is believed that the company will have less 40% debt burden in the long run implying long-term debts to assets decreasing with the continuous 30% increase in margin. And, the drop of debt burden significantly leads to the decline of financial cost, 20% 10% which creates a favorable impact on net profit margin (Appendix 5). In addition, current liabilities will 0% account for more portion of total liabilities due to repayment of a large number of long-term debts 2014 2015 2016F 2017F 2018F 2019F 2020F Current Liabilities Non-current Liabilites (Figure 29). Source: Company Data, The Influence of NEV Market and Operating Capacity Keeping Rising Team Calculations We estimate that BYDHK will keep the leading position in the future NEV market based on its advanced industrial layout and leading-edge technology (Figure 20). Relying on the rapid development of NEV market, the sales of BYDHK seems very optimistic. The rapid growth in sales Figure 30: Total Asset&Fixed volume will effectively promote the inventory turnover and accounts receivable turnover speed, Asset Turnover which can shorten the operating cycle (Appendix 6). It will also improve the liquidity of assets 3.00 (Figure 30)and make the utilization of assets more efficient, increasing the ROA level obviously

2.50 (Appendix 6). 2.00 Strong Operating Cash Flow Facilitating Reinvestment 1.50 The newly equity financing increased the capital strength of BYDHK and provided security 1.00 guarantee for capital expenditure and investment. We estimate BYDHK will increase investment in the future, focusing on NEV and energy battery program (Figure 31). The growth of net profit mainly 0.50 benefited from NEV program will generate more and more operating cash inflow which will be used 0.00 2014 2015 2016F 2017F 2018F 2019F 2020F into reinvestment. Under the support of strong operating cash inflow and stable financial pattern, we Total Asset Turnover Fixed Asses Turnover estimate the cash flow obtained by financial activities is stable (Appendix 3). Source: Company Data, Team Calculations DuPont Analysis For the reason of rapid growth of the NEV sales volume, BYDHK’s net profit will obviously ascend driven by uprating business structure. We forecast the ROE will increase, that of 2020 doubling Figure 31: Reinvestment Ratio more than that of 2015. Simultaneously, the rapid growth of revenue will promote asset turnover efficiently better than 2015 and have a slow rise. Besides, thanks to the recent debt repayment, equity financing and promising revenue growth, the company will maintain a stable financial pattern, which means the total debt to equity will make a minor effect on ROE (Appendix 31).

Dividend Payment and EPS Analysis We predict that BYDHK will not distribute dividend to shareholders and remain the present shares outstanding in the next five years since its rare dividend payment in the past and the large requirement of capital for investment in NEV industry. Shareholders will benefit from the continuous rise in EPS whose rapid growth relies on the net profit mainly generated by increasing revenue and gross profit (especially by NEV) (Figure 32). Source: Company Data, Team Calculations ROE Decomposition

Figure 32: EPS (in CNY) 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

ROE 3.12% 2.56% 8.71% 9.33% 11.47% 13.52% 15.29% 16.86%

Net Profit Magin 1.56% 1.34% 4.04% 5.15% 6.03% 6.86% 7.57% 8.21%

Total Asset Turnover 0.64 0.59 0.67 0.66 0.71 0.73 0.75 0.76

Equity Multiplier 3.14 3.25 3.21 2.75 2.69 2.70 2.71 2.71

Source: Company Data, Source: Company Data,Team Calculations Team Calculations

9 Figure 33: Risk Matrix Investment Risk Regulatory Risk • Reduction of Government Subsidies and Shrink of Profit Margins (R1) / (High Likelihood, High Impact) - NEV: As the government subsidies for PHEV with a range of 100 to 150 kilometers reduced from RMB31,500 to RMB25,000 per vehicle to 2020, the profitability of new energy business would be shrinking (Appendix 17). - Photovoltaic: Decline in subsidies for electricity prices due to the electricity market reform, which weakens BYDHK’s profitability and financing ability and make it more difficult for the construction and operation of photovoltaic power plants. In 2016, the electricity price of Class I, Class II resource were reduced by RMB0.1 and RMB0.07 per kwh respectively and Class III resource was decreased by RMB0.02 per kwh (Appendix 18). Source: Team Analysis Market Risk

Table 11: Mitigation • Slowdown of China's Economic Growth (M1) / (High Likelihood, Moderate Impact) Risks Mitigating Factors The slowdown of china’s economic growth leads to a serious overcapacity problem. The GDP Regulatory risk growth rate of China has continued to decline (Figure 11). Since 2011, the GDP growth rate of China has continued to decline. In 2012, the GDP growth rate has dropped below 8% while that Rising sales of NEV, subsidies Government in 2015 went down to 6.9% for the first time in nearly 30 years. The profitability and growth Subsidies(R1) barrier and technological innovation. capability of enterprises have been greatly restricted. Market risks Foreign Exchange Risk (M2) / (High Likelihood, High Impact) The new energy market is • Slowdown of China's BYDHK's foreign exchange risk mainly exists in foreign business income, international Economic during a period of Growth(M1) development; the growth of procurement and assembly service business. We expect a rising trend of the exchange rate of consumption maintains robust HKD against RMB as a result of a continuous rise of exchange rate (HKD against RMB) since Foreign Exchange Using financial tools to hedge December 2015. According to sensitivity analysis, the increase in exchange rate (HKD against Risk(M2) foreign exchange risks RMB) by 2% will result in a target price drop from HKD64.89 to HKD63.73 (Table 12). Absolute cost advantage; long- Decline in Oil term trends in new energy Prices(M3) • Decline in Oil Prices (M3) / (Moderate Likelihood, Low Impact) industry. The decline in oil prices and its long-term maintenance will dampen consumers’ enthusiasm of 1.Huge demand;2.Competition buying NEV. It will benefit traditional fuel cars and restrain the demand for new energy cars in impels improvement and the short term. Unstable Market innovation; subsidies barrier; Demand(M5) industry chain integration; 3.Structural optimum of mobile • Unstable Market Demand (M4) / (Moderate Likelihood, High Impact) business - Lack of charging pile: As of the end of 2015, China's NEV to its charging pile ratio is more Operate risks than 10:1, which severely inhibited its market demand. Higher decision making Corporate efficiency; Solidified cohesion - Consumers buy electric cars for policy incentives rather than their car needs.According to Governance and enhanced competitiveness statistic, only 5% of the people purchase NEV out of their car requirements (Appendix 19). Risk(O1) owing to the 2015 employee’s stock ownership plan. - According to statistics, there are 64% of quality complaints of pure-electric vehicle with regard to battery, and 36% of quality complaints of PHEV concerning engine. Financial Risk(O2) RMB4 billion repaid the loans, optimized the capital structure. - Market competition intensifies. 1) AB: an increasing number of potential entrants in new Low Consumer The cooperation with Center energy market. 2) HC&AS: oversupplied mobile phone casing and intensifying competition Satisfaction(O3) Art will improve vehicle design and enhance the brand image. among metal casing suppliers lead to a price fall of phone casing. The profit margin shrinks. According to sensitivity analysis, if the total sales sales volume of NEV changes from 131,300 Cost Control(O4) The industry chain integration reduced the cost. below to 122421, our recommendation will change from buy to hold while further drop to 78,559 for a sell recommendation (Table 12). Source: Team Analysis Operational Risks Table 12: Sensitivity Analysis • Corporate Governance Risk (O1) / (Moderate Likelihood, Moderate Impact) ̴ Base Case Buy Sell Both the position of chairman and the general manager are the real controllers of the company The Exchange Rate 0.8454 0.8889 1.2673 —Wang Chuanfu. The structure of centralized management will cause an opaque information of HKD to RMB problem and may endanger the company into a latent operational risk. Ratio of Cost to 81.61% 83.44% 94.06% Income • Financial Risk (O2) / (Moderate Likelihood, Moderate Impact) Sales Volume of In Debt Maturity Structure҅short-term debt is mainly considered in the debt financing. With high NEV Excluding 118000 128001 56345 Pure-electric Bus ratio of short-term debt is destabilizing the use of capital. In general, financial leverage is Sales Volume of decreasing, while still in the relatively high level. Pure-electric Bus 12000 9106 /

Total Sales Volume • Low Consumer Satisfaction (O3) / (High Likelihood, High Impact) of NEV 131300 122421 78559 BYDHK's sloppy design and excessive imitation of the appearance fail to meet consumers’ Source: Team Analysis demands and preference for original design. Besides, a bunch of after-service complaints revealed due to technical constraints and deficiency in ideology of after-service.

Table13: Rating Guide • Cost Control (O4) / (Low Likelihood, High Impact) buy hold sold The adjustment of subsidies makes BYDHK face the risks of cost increasing and profit margins declining. According to the sensitivity analysis, if the proportion of sales cost against revenue bigger than range from -15% to smaller than 15% 15% 15% rises 2%, our target price will drop from HKD64.89 to HKD62.40 (Table 12).

10 Appendices Appendix 1: Statement of Comprehensive Financial Position (BYDHK)

CNY in Million 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Assets

Cash & Cash Equivalents 4,511 3,950 6,011 19,323 19,032 21,197 24,994 30,505

Derivative Financial Instruments - - 18 25 31 37 46 58

Short-term Deposits 200 139 269 274 279 285 291 297

Accounts & Bills Receivables 13,135 22,435 26,679 32,478 35,291 42,639 52,063 64,179

Other Receivables 2,676 3,900 5,419 7,290 8,750 10,666 13,170 16,443

Inventories 8,776 10,046 15,807 16,556 19,412 23,033 27,613 33,412

Other Current Assets 668 364 317 323 329 336 343 350

Current Assets 29,966 40,834 54,519 76,270 83,124 98,193 118,520 145,245

PP&E-net 34,935 37,213 39,039 47,120 52,373 59,170 67,956 79,333

Equity Capital Investment 1,084 1,414 1,889 1,795 2,079 2,456 2,952 3,605

Available-for-sale Financial Assets 9 35 3,071 3,071 3,070 3,070 3,070 3,069

Goodwill and Intangible Assets 4,995 6,373 7,169 11,006 13,232 16,179 20,064 25,178

Prepaid Land Lease Payments 4,628 4,448 4,656 7,907 9,305 11,126 13,482 16,524

Other Non-current Assets 2,398 3,692 5,143 6,571 7,806 9,396 11,442 14,081

Non-current Assets 48,049 53,175 60,967 77,470 87,865 101,397 118,967 141,790

Total Assets 78,015 94,009 115,486 153,740 170,989 199,590 237,487 287,035 Liabilities Trade and Bills Payables 22,293 25,851 30,656 41,904 49,169 58,408 70,120 84,976

Tax Payable 166 143 289 399 475 570 692 846

Interest-bearing Bank and Other Borrowings 16,172 19,173 26,413 32,223 33,892 41,346 51,171 63,804

Other Current Liabilities 4,713 7,856 8,752 11,676 13,809 16,571 20,135 24,736

Current Liabilities 43,344 53,022 66,110 86,201 97,345 116,895 142,118 174,363

Interest-bearing Bank and Other Borrowings 8,652 10,979 11,230 9,469 7,985 6,733 5,677 4,787

Other Non-current Liabilities 1,162 1,113 2,116 2,116 2,116 2,116 2,116 2,116

Non-current Liabilities 9,814 12,092 13,346 11,586 10,101 8,849 7,794 6,903

Total Liabilities 53,158 65,114 79,457 97,787 107,446 125,745 149,912 181,266

Equity Equity Attributable to Owners of the Parent 21,710 25,366 32,294 51,964 59,281 69,293 82,713 100,575

Share Capital 2,354 2,476 2,476 2,728 2,728 2,728 2,728 2,728

Reserves 19,238 22,890 26,618 46,036 53,353 63,365 76,784 94,647

Proposed Final Dividend 118 ------

Perpetual Loans - - 3,200 3,200 3,200 3,200 3,200 3,200

Non-controlling Interests 3,147 3,529 3,735 3,989 4,261 4,552 4,862 5,194

Total Equity 24,856 28,894 36,029 55,953 63,543 73,845 87,575 105,769 Total Liabilities and Equity 78,015 94,009 115,486 153,740 170,989 199,590 237,487 287,035

Predicted Statement of Comprehensive Financial Position is summarized by Statement of Financial Position of HC&AS (Equals to BYD-E (0285.HK)) and Remaining Businesses (AB, RB&PB). 11 HC&AS (Equals to BYD-E) Remaining Businesses

CNY in Million 2016F 2017F 2018F 2019F 2020F 2016F 2017F 2018F 2019F 2020F

Assets

Cash & Cash Equivalents 1,296 2,210 2,759 3,652 4,990 18,027 16,822 18,438 21,342 25,515

Derivative Financial Instruments - - - - - 25 31 37 46 58

Short-term Deposits 274 279 285 291 297 - - - - -

Accounts & Bills Receivables 8,542 9,226 10,735 12,463 14,446 23,936 26,065 31,904 39,600 49,734

Other Receivables 628 732 851 987 1,143 6,662 8,019 9,815 12,183 15,300

Inventories 4,246 4,925 5,695 6,570 7,567 12,310 14,487 17,338 21,043 25,845

Other Current Assets 1 1 1 1 1 322 328 335 342 349

Current Assets 14,987 17,374 20,326 23,964 28,443 61,283 65,750 77,867 94,556 116,801

PP&E-net 7,043 7,916 8,912 10,052 11,361 40,077 44,457 50,258 57,904 67,972

Equity Capital Investment 400 400 400 400 400 1,395 1,679 2,056 2,552 3,205

Available-for-sale Financial Assets - - - - - 3,071 3,070 3,070 3,070 3,069

Goodwill and Intangible Assets 23 27 31 36 42 10,983 13,205 16,148 20,028 25,136

Prepaid Land Lease Payments 359 416 481 555 639 7,548 8,889 10,645 12,928 15,885

Other Non-current Assets 722 842 979 1,137 1,320 5,849 6,964 8,417 10,305 12,761

Non-current Assets 8,547 9,600 10,803 12,181 13,762 68,923 78,265 90,594 106,786 128,028

Total Assets 23,534 26,974 31,129 36,145 42,205 130,206 144,015 168,461 201,342 244,830

Liabilities Trade and Bills Payables 9,953 11,545 13,350 15,401 17,738 31,950 37,624 45,058 54,720 67,239

Tax Payable 149 174 202 235 272 250 301 368 457 574

Interest-bearing Bank and Other Borrowings - - - - - 32,223 33,892 41,346 51,171 63,804

Other Current Liabilities 1,760 2,037 2,351 2,708 3,114 9,915 11,772 14,220 17,427 21,622

Current Liabilities 11,862 13,756 15,903 18,344 21,124 74,339 83,589 100,992 123,775 153,238

Interest-bearing Bank and Other Borrowings - - - - - 9,469 7,985 6,733 5,677 4,787

Other Non-current Liabilities - - - - - 2,116 2,116 2,116 2,116 2,116

Non-current Liabilities - - - - - 11,586 10,101 8,849 7,794 6,903

Total Liabilities 11,862 13,756 15,903 18,344 21,124 85,924 93,690 109,841 131,568 160,142

Equity Equity Attributable to Owners of the 11,672 13,217 15,225 17,801 21,081 44,345 50,116 58,120 68,964 83,547 Parent Share Capital 4,052 4,052 4,052 4,052 4,052 2,728 2,728 2,728 2,728 2,728

Reserves 7,619 9,165 11,173 13,749 17,029 38,417 44,188 52,192 63,036 77,619

Proposed Final Dividend ------

Perpetual Loans - - - - - 3,200 3,200 3,200 3,200 3,200

Non-controlling Interests - - - - - 44,345 50,116 58,120 68,964 83,547

Total Equity 11,672 13,217 15,225 17,801 21,081 48,334 54,378 62,672 73,826 88,740

12 Appendix 2: Statement of Comprehensive Income (BYDHK)

CNY in Million 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Total Revenue 49,768 55,366 77,612 101,490 120,913 145,601 177,017 217,125

Cost of Sales (43,252) (47,743) (65,753) (83,432) (97,691) (115,480) (137,666) (165,395)

Gross Profit 6,516 7,623 11,859 18,057 23,222 30,121 39,351 51,730

Other Income and Gains 456 923 1,991 1,298 1,395 1,503 1,636 1,806

Government Grants and Subsidies 677 798 581 726 791 875 981 1,112

Selling and Distribution Expenses (2,012) (2,229) (2,868) (3,830) (4,603) (5,622) (6,959) (8,713)

R&D Costs (1,279) (1,865) (1,998) (2,897) (3,841) (5,187) (7,126) (9,953)

Administrative Expenses (2,074) (2,601) (3,429) (4,419) (5,299) (6,449) (7,948) (9,901)

Other Expenses (388) (257) (582) (610) (730) (885) (1,085) (1,343)

Finance Costs (1,017) (1,397) (1,517) (1,864) (1,963) (2,114) (2,466) (2,947)

Share of Result of Joint Venture and Associates (48) (122) (243) (286) (344) (421) (523) (656)

Profit Before Tax 832 874 3,795 6,175 8,627 11,822 15,862 21,134

Income Tax Expense (56) (134) (657) (953) (1,336) (1,836) (2,470) (3,298)

Net Profit 776 740 3,138 5,222 7,290 9,985 13,392 17,836

Attributable to:

Owners of the Parent 553 434 2,823 4,777 6,754 9,329 12,578 16,813

Non-controlling Interests 223 306 315 445 536 656 814 1,023

Predicted Statement of Comprehensive Income is summarized by Statement of Income of HC&AS (Equals to BYD-E (0285.HK)) and Remaining Businesses (AB, RB&PB).

HC&AS (Equals to BYD-E) Remaining Businesses

CNY in Million 2016F 2017F 2018F 2019F 2020F 2016F 2017F 2018F 2019F 2020F

Revenue 34,003 39,688 46,180 53,613 62,140 67,487 81,225 99,421 123,404 154,985

Cost of Sales (31,597) (36,651) (42,380) (48,891) (56,309) (51,835) (61,040) (73,101) (88,775) (109,086)

Gross Profit 2,406 3,037 3,801 4,722 5,831 15,651 20,185 26,320 34,629 45,899

Other Income and Gains 543 591 661 738 834 755 804 842 898 972

Government Grants and Subsidies 56 65 75 88 102 670 726 800 894 1,010

Selling and Distribution Expenses (177) (206) (240) (278) (323) (3,653) (4,397) (5,382) (6,681) (8,390)

R&D Costs (839) (979) (1,139) (1,322) (1,533) (2,059) (2,863) (4,048) (5,804) (8,420)

Administrative Expenses (527) (615) (715) (830) (962) (3,892) (4,685) (5,734) (7,117) (8,939)

Other Expenses (124) (145) (169) (196) (227) (486) (585) (716) (888) (1,116)

Finance Costs (8) (9) (10) (11) (13) (1,856) (1,955) (2,104) (2,454) (2,934)

Share of Result of Joint Venture and Associates - - - - - (286) (344) (421) (523) (656)

Profit Before Tax 1,330 1,739 2,264 2,908 3,708 4,845 6,887 9,557 12,954 17,426

Income Tax Expense (158) (207) (270) (347) (442) (794) (1,129) (1,567) (2,123) (2,856)

Net Profit 1,172 1,532 1,995 2,562 3,266 4,050 5,758 7,991 10,830 14,570

Attributable to:

Owners of the Parent 1,172 1,532 1,995 2,562 3,266 3,605 5,222 7,335 10,016 13,547

Non-controlling Interests - - - - - 445 536 656 814 1,023 13 Appendix 3: Statement of Cash Flow (BYDHK)

CNY in Million 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Net Profit 553 434 2,823 5,222 8,627 11,822 15,862 21,134

Plus: D&A 3,533 4,212 5,314 3,863 4,482 5,234 6,165 7,320

Plus: Change in Working Capital (2,913) (6,106) (5,705) 2,517 (187) (4,270) (5,476) (7,066)

Plus: Other Non-cash Adjustment 1,263 1,499 1,410 4,919 3,364 3,661 4,204 4,914

Net Operating Cash Flow 2,436 38 3,842 16,522 16,285 16,447 20,755 26,302

Cash Inflow from Disposal of PPE 272 797 1,809 1,270 1,434 1,647 1,924 2,285 Less: Capital Expenditure 5,808 4,241 (6,073) 12,807 12,175 11,465 13,306 15,864

Plus: Decrease in Investment - 414 519 624 770 949 1,171 1,444

Less: Increase in Investment 397 882 (1,621) 575 965 1,070 1,205 1,376

Plus: Other Investment Activities 82 (3,989) (5,370) (10,298) (9,802) (9,296) (11,437) (14,424)

Net Investing Cash Flow (5,851) (7,901) (10,736) (21,786) (20,740) (19,235) (22,853) (27,935)

Increase in Liabilities 19,055 26,337 29,234 31,261 31,400 36,050 42,625 51,430

Less: Decrease in Liabilities 12,823 21,022 18,761 (24,667) (24,777) (28,446) (33,635) (40,583)

Plus: Increase in Capital - - - 14,369 - - - -

Plus: Dividends Paid 124 37 - - - - -

Plus: Other Financing Activities (1,724) (1,262) (1,687) (2,361) (2,487) (2,677) (3,122) (3,731)

Net Financing Cash Flow 4,508 7,271 8,750 18,602 4,136 4,926 5,868 7,117

Change in Exchange Rate (68) 31 205 (25) 27 27 27 27

Net Increase in Cash & Cash Equivalents 1,024 (561) 2,061 13,312 (291) 2,165 3,797 5,511

Beginning Balance of Cash & Cash Equivalents 3,487 4,511 3,950 6,011 19,323 19,032 21,197 24,994

Ending Balance of Cash & Cash Equivalents 4,511 3,950 6,011 19,323 19,032 21,197 24,994 30,505

Appendix 4: Common-Size Statement of Comprehensive Financial Position (BYDHK)

2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Assets Cash & Cash Equivalents 5.78% 4.2% 5.2% 12.57% 11.13% 10.62% 10.52% 10.63%

Derivative Financial Instruments 0% 0% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%

Short-term Deposits 0.26% 0.15% 0.23% 0.18% 0.16% 0.14% 0.12% 0.1%

Accounts & Bills Receivables 16.84% 23.86% 23.1% 21.13% 20.64% 21.36% 21.92% 22.36%

Other Receivables 3.43% 4.15% 4.69% 4.74% 5.12% 5.34% 5.55% 5.73%

Inventories 11.25% 10.69% 13.69% 10.77% 11.35% 11.54% 11.63% 11.64%

Other Current Assets 0.86% 0.39% 0.27% 0.21% 0.19% 0.17% 0.14% 0.12%

Current Assets 38.41% 43.44% 47.21% 49.61% 48.61% 49.2% 49.91% 50.6%

PP&E-net 44.78% 39.58% 33.8% 30.65% 30.63% 29.65% 28.61% 27.64%

Equity Capital Investment 1.39% 1.5% 1.64% 1.17% 1.22% 1.23% 1.24% 1.26%

Available-for-sale Financial Assets 0.01% 0.04% 2.66% 2% 1.8% 1.54% 1.29% 1.07%

Goodwill and Intangible Assets 6.4% 6.78% 6.21% 7.16% 7.74% 8.11% 8.45% 8.77%

Prepaid Land Lease Payments 5.93% 4.73% 4.03% 5.14% 5.44% 5.57% 5.68% 5.76%

Other Non-current Assets 3.07% 3.93% 4.45% 4.27% 4.57% 4.71% 4.82% 4.91%

Non-current Assets 61.59% 56.56% 52.79% 50.39% 51.39% 50.8% 50.09% 49.4% Total Assets 100% 100% 100% 100% 100% 100% 100% 100% 14 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Liabilities

Trade and Bills Payables 28.57% 27.5% 26.55% 27.26% 28.76% 29.26% 29.53% 29.6%

Tax Payable 0.21% 0.15% 0.25% 0.26% 0.28% 0.29% 0.29% 0.29%

Interest-bearing Bank and Other Borrowings 20.73% 20.39% 22.87% 20.96% 19.82% 20.72% 21.55% 22.23%

Other Current Liabilities 6.04% 8.36% 7.58% 7.59% 8.08% 8.3% 8.48% 8.62%

Current Liabilities 55.56% 56.4% 57.25% 56.07% 56.93% 58.57% 59.84% 60.75%

Interest-bearing Bank and Other Borrowings 11.09% 11.68% 9.72% 6.16% 4.67% 3.37% 2.39% 1.67%

Other Non-current Liabilities 1.49% 1.18% 1.83% 1.38% 1.24% 1.06% 0.89% 0.74%

Non-current Liabilities 12.58% 12.86% 11.56% 7.54% 5.91% 4.43% 3.28% 2.41%

Total Liabilities 68.14% 69.26% 68.8% 63.61% 62.84% 63% 63.12% 63.15%

Equity Equity Attributable to Owners of the Parent 27.83% 26.98% 27.96% 33.8% 34.67% 34.72% 34.83% 35.04%

Share Capital 3.02% 2.63% 2.14% 1.77% 1.6% 1.37% 1.15% 0.95%

Reserves 24.66% 24.35% 23.05% 29.94% 31.2% 31.75% 32.33% 32.97%

Proposed Final Dividend 0.15% 0% 0% 0% 0% 0% 0% 0%

Perpetual Loans 0% 0% 2.77% 2.08% 1.87% 1.6% 1.35% 1.11%

Non-controlling Interests 4.03% 3.75% 3.23% 2.59% 2.49% 2.28% 2.05% 1.81%

Total Equity 31.86% 30.74% 31.2% 36.39% 37.16% 37% 36.88% 36.85%

Total Liabilities and Equity 100% 100% 100% 100% 100% 100% 100% 100%

Appendix 5: Common-Size Statement of Comprehensive Income (BYDHK)

2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Total Revenue 100% 100% 100% 100% 100% 100% 100% 100%

Cost of Sales -86.91% -86.23% -84.72% -82.21% -80.79% -79.31% -77.77% -76.17%

Gross Profit 13.09% 13.77% 15.28% 17.79% 19.21% 20.69% 22.23% 23.83%

Other Income and Gains 0.92% 1.67% 2.57% 1.28% 1.15% 1.03% 0.92% 0.83%

Government Grants and Subsidies 1.36% 1.44% 0.75% 0.72% 0.65% 0.6% 0.55% 0.51%

Selling and Distribution Expenses -4.04% -4.03% -3.7% -3.77% -3.81% -3.86% -3.93% -4.01%

R&D Costs -2.57% -3.37% -2.57% -2.85% -3.18% -3.56% -4.03% -4.58%

Administrative Expenses -4.17% -4.7% -4.42% -4.35% -4.38% -4.43% -4.49% -4.56%

Other Expenses -0.78% -0.46% -0.75% -0.6% -0.6% -0.61% -0.61% -0.62%

Finance Costs -2.04% -2.52% -1.95% -1.84% -1.62% -1.45% -1.39% -1.36%

Share of Result of Joint Venture and Associates -0.1% -0.22% -0.31% -0.28% -0.28% -0.29% -0.3% -0.3%

Profit Before Tax 1.67% 1.58% 4.89% 6.08% 7.13% 8.12% 8.96% 9.73%

Income Tax Expense -0.11% -0.24% -0.85% -0.94% -1.11% -1.26% -1.4% -1.52%

Net Profit 1.56% 1.34% 4.04% 5.15% 6.03% 6.86% 7.57% 8.21%

Attributable to: 0% 0% 0% 0% 0% 0% 0% 0%

Owners of the Parent 1.11% 0.78% 3.64% 4.71% 5.59% 6.41% 7.11% 7.74%

Non-controlling Interests 0.45% 0.55% 0.41% 0.44% 0.44% 0.45% 0.46% 0.47%

15 Appendix 6: Key Financial Ratios (BYDHK)

Key Financial Ratios 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Profitability

Net Profit Maigin 1.56% 1.34% 4.04% 5.15% 6.03% 6.86% 7.57% 8.21%

Gross Margin 13.09% 13.77% 15.28% 17.79% 19.21% 20.69% 22.23% 23.83%

ROE 3.12% 2.56% 8.71% 9.33% 11.47% 13.52% 15.29% 16.86%

ROA 0.99% 0.79% 2.72% 3.4% 4.26% 5% 5.64% 6.21%

Liquidity Current Ratio 0.69 0.77 0.82 0.88 0.85 0.84 0.83 0.83

Quick Ratio 0.49 0.58 0.59 0.69 0.65 0.64 0.64 0.64

Cash Ratio 0.1 0.07 0.09 0.22 0.2 0.18 0.18 0.17

Activity

Inventory Turnover 5.37 5.07 5.09 5.16 5.43 5.44 5.44 5.42

Days Sales of Inventory 68.02 71.95 71.76 70.79 67.19 67.08 67.14 67.34

Accounts Receivable Turnover 4.31 3.11 3.16 3.43 3.57 3.74 3.74 3.74

Average Collection Period 84.61 117.25 115.49 106.38 102.29 97.68 97.64 97.7

Fixed Asset Turnover 1.42 1.49 1.99 2.15 2.31 2.46 2.6 2.74

Total Asset Turnover 0.64 0.59 0.67 0.66 0.71 0.73 0.75 0.76

Operating Cycle 152.63 189.2 187.24 177.17 169.48 164.76 164.78 165.04

Financial Leverage Total Liabilities to Assets 0.68 0.69 0.69 0.64 0.63 0.63 0.63 0.63

Interest Coverage 1.76 1.53 3.07 3.8 4.71 5.72 6.43 7.05

Total Liabilities to Equity 2.14 2.25 2.21 1.75 1.69 1.7 1.71 1.71

Equity Multiplier 3.14 3.25 3.21 2.75 2.69 2.7 2.71 2.71

Interest-bearing Bank and Other Borrowings to Equity 0.35 0.38 0.31 0.17 0.13 0.09 0.06 0.05

Interest-bearing Bank and Other Borrowings to Assets 0.11 0.12 0.1 0.06 0.05 0.03 0.02 0.02

Shareholder Ratio EPS (CNY) 0.23 0.18 1.12 1.75 2.48 3.42 4.61 6.16

Appendix 7: Free Cash Flow (BYDHK)

CNY in Million 2016F 2017F 2018F 2019F 2020F

Net Profit 5,222 7,290 9,985 13,392 17,836

Plus: Depreciation 2,997 3,441 3,960 4,583 5,334

Less: The Increase in Current Assets (22,478) (6,854) (15,069) (20,327) (26,725)

Plus: The Increase in Current Liabilities 20,818 11,144 19,550 25,223 32,244

Less: The Increase in Fixed Assets at the Cost Price (9,796) (8,246) (10,165) (12,589) (15,683)

Plus: Interest of Debt after Tax 1,559 1,642 1,768 2,062 2,465

Less: Interest of Cash & Cash Equivalents after Tax (97) (117) (136) (159) (196)

Free Cash Flow (1,774) 8,300 9,894 12,184 15,275

16 BYDHK's free cash flow is summarized by HC&AC (equals to BYD-E) and Remaining Businesses (AB, RB&PB):

HC&AS (Equals to BYD-E) Remaining Businesses

CNY in Millions 2016F 2017F 2018F 2019F 2020F 2016F 2017F 2018F 2019F 2020F

Net Profit 1,172 1,532 1,995 2,562 3,266 4,050 5,758 7,991 10,830 14,570

Plus: Depreciation 1,168 1,354 1,596 1,878 2,206 1,829 2,087 2,364 2,705 3,128

Less: The Increase in Current Assets (540) (2,386) (2,952) (3,638) (4,479) (21,938) (4,468) (12,117) (16,689) (22,245)

Plus: The Increase in Current Liabilities 166 1,894 2,147 2,440 2,781 20,652 9,250 17,403 22,782 29,464

Less: The Increase in Fixed Assets at the Cost Price (1,554) (2,226) (2,592) (3,018) (3,515) (8,241) (6,020) (7,573) (9,571) (12,168)

Plus: Interest of Debt after Tax 7 8 9 10 12 1,551 1,634 1,759 2,052 2,453

Less: Interest of Cash & Cash Equivalents after Tax (67) (70) (88) (105) (132) (30) (47) (48) (54) (64)

Free Cash Flow 352 105 114 129 138 (2,126) 8,195 9,779 12,056 15,137

Sources: Team Calculations

Appendix 8: CAPM Model (HC&AS)

Beta Calculations Cost of Equity from CAPM

Beta HSCI 1.630972 1.617192 Risk-free Rate 2.67%

Time Interval 5Y Monthly 3Y Weekly Beta 1.62

R-squared 0.275151 0.270078 Market Risk Premium 5.58%

Stand Error 0.347794 0.211923 Cost of Equity 11.73%

Source: Wind Database Source: Team Calculations

Beta: We ran linear regression to the general return rate of Hang Seng Composite Index and that of BYD-E (0285.HK) to calculate the beta. In order to improve the accuracy of expected beta, we utilized monthly data of 5 years and weekly data of 3 years respectively, then took the mean as the expected beta. Risk-free Rate: The risk-free rate was based on 1-year government bonds benchmark yield. Market Risk Premium: Average return of Hang Seng Composite Index over the past ten years from Wind Database.

Appendix 9: APT Model (HC&AS)

APT Model

Related: Macroscopic Industry BYDHK HSITSI Growth Rate of Components' Revenue

HSCI Unrelated: Macroscopic Industry BYDHK

Real GDP Global Handset Shipment Capital Expenditure Per Capita Disposable Income of Urban Global Smartphone Shipment Growth Rate of Assembly Services' Residents Revenue CPI Global Tablet Shipment Growth Rate of Total Revenue Exchange Rate Global PC Shipment Sales Profit Margin Growth Rate of Terminals of Telecom Growth Rate of Urban Family Industry Equity Multiplier Rate of Hang Seng Index P/E P/B Net Profit Growth Rate

ROE Total Assets of BYDHK

Current Ratio 17 APT Coefficient T-statistics Prob

Growth Rate of Components' Revenue 0.4240 1.308237 0.1961

HSITSI 0.6771 1.599214 0.1154

HSCI 0.9754 1.824496 0.0734

Intercept -0.0373 -0.017095 0.9864

Adjusted R-squared 0.29

Cost of Equity 9.27%

Source: Team Calculations

We tested plenty of factors probably related to the stock yield of BYDHK. By selecting 25 kinds of data from macroscopic, industrial and company levels, we conducted regression analysis of APT model from the two different aspects of the data respectively before our estimation of WACC. All these data were monthly data in recent five years. The growth rate was demonstrated as general growth. In order to control the autocorrelation, we selected the data of variables that are directly related to BYDHK’s share price with one period lag.

Appendix 10: CAPM Model (Remaining Businesses)

Beta Analysis AB Photovoltaic Business RB Great Wall Motor 1.13 GCL 0.90 Sucd 0.87 Dongfeng Motor 0.78 United 1.33 EVE Energy 1.14 BAIC Motor 0.92 Singyes 1.69 Samsung SDI 1.49 Geely 1.00 Risen 0.81 LG Chem 1.94 GAC GROUP 0.62 Akcome 1.21 Average 1.36 SAIC Motor 0.90 TSL 2.18 CHANGAN 0.83 YGE 3.00 Tesla 1.31 JKS 3.90 Volkswagen 1.48 JASO 2.45 Nissan 1.08 Average 1.94 Average 1.09

Source: Wind Database

Beta Weights Cost of Equity from CAPM

AB 1.09 87.14% Risk-free Rate 2.67%

Photovoltaic Business 1.94 6.43% Beta 1.16

RB 1.36 6.43% Market Risk Premium 5.58%

Weighted Average 1.16 Cost of Equity 9.14%

Source: Team Calculations Source: Team Calculations

Beta: We ran linear regression to the general return rate of Hang Seng Composite Index and that of BYD-E (0285.HK) to calculate the beta. In order to improve the accuracy of expected beta, we utilized monthly data of 5 years and weekly data of 3 years respectively, then took the mean as the expected beta. Risk-free Rate: The risk-free rate was based on 1-year government bonds benchmark yield. Market Risk Premium: Average return of Hang Seng Composite Index over the past ten years from Wind Database.

18 Appendix 11: Cost of Debt

Cost of Debt

Long-term Debt Weight in Long-term Debt Interest Rate

Bank Loans-secured 0.1617 4.78%

0.0115 5.91%

Bank Loans-unsecured 0.1626 4.48%

0.0990 3.57%

Other Borrowings-secured 0.1659 5.64%

Corporate Bonds-unsecured 0.3993 4.68%

Cost of Long-term Debt 4.72%

Short-term Debt Weight in Short-term Debt Interest Rate

Bank Loans-secured 0.5001 4.90%

Bank Loans-unsecured 0.1844 4.98%

0.0706 2.31%

Current Portion of Long-term Bank Loans҆secured 0.0391 4.78%

Current Portion of Long-term Bank Loans҆unsecured 0.0509 4.87%

Current Portion of Other Borrowings-secured 0.0415 5.64%

Corporate Bonds-unsecured 0.1133 6.35%

Cost of Short-term Debt 4.92%

Weight of Long-term Debt 0.7017 4.79% Weight of Short-term Debt 0.2983 4.35% Cost of Debt 4.86%

Source: Company Data, Team Calculations

Appendix 12: Relative Valuation

Comparable P/E P/B EV/EBITDA Comparable P/E P/B EV/EBITDA Companies of HC&AS Companies of AB FIH 17.10 0.90 3.50 Great Wall Motor 11.36 2.78 11.86

Tong Da 7.40 1.30 5.50 Dongfeng Motor 6.80 1.10 3.90

AAC 18.82 4.99 15.54 BAIC Motor 7.70 1.10 6.10

Ju Teng 8.34 0.75 7.65 Geely 12.12 1.70 13.83

Casetek 9.10 2.00 4.20 GAC GROUP 8.60 1.00 22.40

Largan 14.90 4.20 9.90 SAIC Motor 6.80 1.10 4.80

Catcher 10.30 2.00 5.50 CHANGAN 8.50 1.90 8.60

Everwin 23.60 4.00 15.50 Tesla 119.80 30.00 47.00

Luxshare 26.50 4.90 16.30 Volkswagen 7.30 0.90 6.80

Average 15.12 2.78 9.29 Nissan 8.60 0.90 8.10

Source: Wind Database Average 19.76 4.25 13.34

Source: Wind Database

19 Comparable P/E P/B EV/EBITDA Comparable Companies of P/E P/B EV/EBITDA Companies of RB Photovoltaic Business Sucd 5.93 0.36 14.17 GCL 7.80 1.40 5.70

EVE Energy 29.20 5.00 20.20 United 17.60 0.90 3.30

Samsung SDI 14.60 0.90 9.40 Singyes 10.61 1.88 10.82

LG Chem 11.50 1.60 6.10 Risen 22.40 2.30 14.30

Average 15.31 1.97 12.47 Akcome 21.20 2.50 14.10

Source: Wind Database TSL 5.79 0.86 10.04

YGE 6.40 1.10 10.10

P/E P/B EV/EBITDA Weights JKS 6.20 0.70 6.50

AB 19.76 4.25 13.34 0.60 JASO 6.20 0.40 3.60

Photovoltaic 11.58 1.34 8.72 0.03 Average 11.58 1.34 8.72 Business RB 15.31 1.97 12.47 0.03 Source: Wind Database

HC&AS 15.12 2.78 9.29 0.34

Weighted Average 17.81 3.59 11.81

Source: Team Calculations

We used a Comparable Companies Methodology for Relative Valuation. We looked for companies with a high degree of similarity in business or having a competitive relationship in the business, covering Hong Kong, Taiwan, the Chinese Mainland and overseas markets. And each value was the median over the past five years. After we got the average multipliers for each business, we weighted them according to the predicted revenue of 2016 to get the final P/E, P/B and EV/EBITDA. (We just averaged the revenue of RB&PB to calculate the proportions because the specific revenue of Rechargeable Batteries Business and Photovoltaic Business were not given in the annual report.)

Appendix 13: Revenue Structure of BYDHK (CNY in Thousands)

2015 2016F 2017F 2018F 2019F 2020F

NEV 18975000 41662943 55089168 72148234 94142891 122790867

Fuel Car 19958859 19462262 18318463 17395493 16612185 15952179

RB&PB 5750007 6361352 7817240 9877180 12649310 16241768

HC&AS 32928119 34003094 39687997 46180381 53612501 62140336

Total Revenue 77611985 101489651 120912869 145601288 177016887 217125149

Source: Team Estimates

Appendix 14: Sales Volume of BYDHK' AB

2015 2016F 2017F 2018F 2019F 2020F

Fuel Car Excluding Fuel SUV 201109 181571 163492 139877 119673 102388

Fuel SUV 120891 128559 126444 131369 135667 139481

NEV Excluding Pure-electric Bus 52300 128000 175256 240516 330235 453232

Pure-electric Bus 5700 12000 14949 17897 20846 23747

Source: Team Estimates

20 Appendix 15: Price of Cars (BYDHK)

Price in Different Models of Fuel SUV (CNY in Thousands)

Sedans Price Distribution Average Price

Song 89.90 99.90 109.90 119.90 106.90 116.90 126.90 139.90 149.90 117.79

S7 106.90 116.90 119.90 129.90 139.90 136.90 146.90 128.19

S6 87.90 97.90 102.90 107.90 79.90 84.90 89.90 99.90 92.90 99.90 113.90 99.90 109.90 116.90 123.90 100.57

Total Average Price 115.51

Price in Different Models of Fuel Car (Excluding Fuel SUV) (CNY in Thousands)

Sedans Price Distribution Average Price

M6 103.90 113.90 125.90 135.90 135.90 145.90 143.90 153.90 132.40

G5 75.90 85.90 92.90 85.90 93.90 102.90 89.57

G6 79.80 88.80 99.80 93.80 108.80 115.80 97.80

Siri 103.90 109.90 119.90 112.90 120.90 135.90 150.90 122.04

Sirui 69.90 69.90 76.90 85.90 77.90 86.90 95.90 80.47

New F3 51.90 55.90 62.90 65.90 72.90 61.90

F3 43.90 50.90 59.90 45.90 52.90 50.70

F0 37.90 41.90 47.90 43.90 47.90 43.90

Total Average Price 84.85

Price in Different Models of NEV(Excluding Pure-electric Bus) (CNY in Thousands) Price of Pure-electric Bus (CNY in Sedans Price Distribution Average Price Thousands)

Qin 209.80 219.80 214.80 Average Price of Pure-electric Bus 1670 e6 309.80 330.00 369.80 336.53

Tang 251.30 261.30 279.80 264.13

Total Average Price 271.82

Sources: Official Website, Team Calculations

According to the official website data, along with annual report, an average price in each models of BYDHK has been calculated. Thus, the prices are:

Price of Pure-electric Bus (CNY in Thousands)

Fuel Car Excluding Fuel SUV 54.58

Fuel SUV 74.30

NEV Excluding Pure-electric 217.31 Bus Pure-electric Bus 1335.07 Source: Team Calculations

21 Appendix 16: Prediction of Copper Production

After the regression on many variables, we have found that the semi-annual revenue of BYD-E highly fits copper production in the last six months reported by NBS, and the R-squared of the quadratic and exponential equations of copper production in six months are very high. Finally, we estimated the average copper sales. Half Years of Copper Production 20000 Variable Coefficient Std. t-Statistic Prob. Error Copper 18274.28 2277.013 8.025552 0.0000 15000 C -3067114 1396218 -2.19673 0.0431

R-squared 0.801018 10000 Thousand

Source: Team Calculations 5000

0

2012-06 2013-06 2014-06 2015-06 2016-6F2017-06F2018-06F2019-06F2020-06F Source: Team Calculations

Appendix 17: Subsidy Standards for NEV in 2015 and 2016

Year (In 2015 2016 2015 2016 2015 2016 2015 2016 Thousand) Driving Range (Kilometer) Vehicle Type 80≤Rҕ150 100≤Rҕ150 150≤Rҕ250 150≤Rҕ250 R≥250 R≥250 R≥50 R≥50

NEV 31.5 25 45 45 54 55 ҈ ҈

PHEV ҈ ҈ ҈ ҈ ҈ ҈ 31.5 30

Source: Ministry of Finance

22 Appendix 18: Subsidy Standards for Solar Energy Resource in 2015 and 2016

Solar Energy Resource Yearly Equivalent Utilization Hour Electricity Price of 2015 Electricity Price of 2016

Class I Resource җ1600h RMB0.90/kwh RMB0.80/kwh

Class II Resource 1400~1600h RMB0.95/kwh RMB0.88/kwh

Class III Resource 1200~1400h RMB1.00/kwh RMB0.98/kwh

Source: National Development and Reform Commission

Appendix 19: Reasons for Purchase of NEV

1% 5% 13% Free licenses and non-limited policy Environmental activists Meet the vehicle needs others 81%

Source: China Automative Blue Book

22 Appendix 20: Porter’s Five Forces Analysis Bargaining Power of Buyers 5 LEGEND 4 3 0 No threat to BYDHK 2 Bargaining Power Existing Rivalries of Suppliers 1 Insignificant threat to BYDHK 1 2 Low threat to BYDHK 0 3 Moderate threat to BYDHK 4 Significant threat to BYDHK 5 High threat to BYDHK

Threat of New Threat of Entrants Substitutes Bargaining Power of Buyers-Moderate At present, NEV is on an upward trajectory. In spite of intense competition in it, the industry sector has not been standard or mature yet. Besides, BYDHK is in a leading position in NEV, leaving a narrow range of choice to consumers, and thus their bargaining power being low. Over the past two years, BYDHK has experienced a downward trend in fuel-powered vehicles sales, at a competitive disadvantage. Nonetheless, BYDHK priority given to NEV holds the low bargaining power of consumers. The revenue of HC&AS relies greatly on large orders of cellphone manufacturers. With ripe production technologies and a high degree of standardization, in this industry sector are a wide range of suppliers, for cellphone manufacturers, to cooperate with. However, BYDHK has been inclose cooperation with major cellphone manufacturers at home and abroad, via making the most of its rich experience, lead-edge technologies and mature manufacturing techniques in the field of metallic parts, which has effectively reduced the pressure from client prospects. Bargaining Power of Suppliers-Low Stiff competition takes place in such mature industries as steels, glasses, rubbers and components; the prime cost of NEV lies on the power battery. Initially having made its name with batteries, so BYDHK has a cost advantage in manufacturing lithium iron phosphate batteries. Meanwhile, BYDHK jointly with QHSL has developed lithium mineral near Salt Lake, and vertically integrated the upstream of industry chain, leaving very limited bargaining power to consumers. Threat of Substitutes-Moderate As a rising and prospective product, NEV is regarded as a substitute for fuel-powered vehicle, which remains the mainstream in the automobile industry. However, in the context of energy conservation and environment protection, NEV would be supported by national policies and be developed considerably. Hence, NEV will be the most popular in the future. Among all the handset components, casings take on the principal source of revenue and profit. Metal casings are gradually replacing plastic ones, becoming a common tendency in application. Glass casings would pose no threat to metal casings for a long time, for glass casing designs takes much technical costs and customer switching costs are high. Contemporarily, the market condition of rechargeable battery business is: lithium battery has or will have an explosive growth, among which ternary lithium battery is a key development direction, so ternary material battery eventually takes a higher rate in the market. BYDHK is in a leading position in rechargeable battery business and have advantages in technologies, research and development innovation. Also BYDHK has related experience in producing ternary lithium battery, faced with weak threat from would-be opponents. Threat of New Entrants-Low Capital barrier: automobile industry is capital-intensive, which requires a big deal of funding on raw materials, propaganda promotion, research and development. Scale barrier: among the top ten automobile manufacturers, the market concentration rate reaches more than 90%, so the government has adjusted the subsidy policies on NEVs to convert the policy-driven market into a market-driven one, which would help regulate the automobile industry. Access barrier: new automobile manufacturers are required a total investment of at least 2 billion RMB by the government. Technological barrier: It serves as a precondition to make breakthroughs in battery, electronic machine and electronic control technologies before starting an NEV business. As the production technology becomes mature and the degree of standardization improves, the entry threshold becomes lower into HCѿAS for an electronics manufacturer. However, currently in the polarized electronics manufacturing industry, small and medium-sized manufacturers estimate the future market inaccurately without big orders from major brands, thus being affected heavily by market fluctuations. BYDHK has been long cooperating with large enterprises like Samsung and Huawei, so it is unlikely to be impacted by would-be competitors. Existing Rivalries-Significant BYDHK grows powerfully as for its businesses and services as a whole, without a direct rival. But in terms of the AB, and HCѿAS, there is fierce competition in the markets. With a shift in automobiles preferences in domestic consumers as well as the quality improvement of automobiles, BYDHK’s low cost advantage in fuel cars has been no longer in existence. A leading role though BYDHK plays in NEV innovation and in commercial popularizing, and in the first place though it is in terms of the global market share in 2015, BYDHK is still confronted by challenges from automobile manufacturers at home and abroad, such as Tesla Model S, Nissan Leaf, Mitsubishi Outlander EV, and Renault ZOE, which represent the world’s top five selling vehicles in the first half of this year. While BYDHK Tang is just among top three selling vehicles in the Chinese market, other Chinese automobile manufacturers, Basic E series, JAC IEV, and Roewe e550, closely following. As the rate of penetration of metal casings and metallic parts rises constantly, the applied range also expands from high-end flagship models to low-end models, thus a sharp competition among suppliers for orders from handset manufacturers. The mobile phone assembly market is mainly occupied by old electronics manufacturers, namely, FIH, Catcher, BYD-E, TongDa, etc.

23 Appendix 21: SWOT Analysis

Strengths Weaknesses Total Strengths 40 • Advanced technology • Consumer’s displeasure to the outlook and logos of company’s Low cost ability 30 • automobiles • Clear strategy • Still a gap with other major 20 automobile manufactures on • Comprehensive Layout manufacturing to techniques and 10 scales Total Total Threats 0 Threats Opportunities Opportunities Slowing Chinese economy • The rising of civilian • environmental awareness • Possible threats of new entry Weakening overall fuel powered Policy support • • car Market prospects and • • An obscure trend in the market growth photovoltaic industry

Total Weaknesses

This SWOT analysis was created to establish a better understanding of BYDHK’s relative market position. It is built around a series of categories within in each section, which are ranked according to their likelihood, threat level, or strength, etc. This point system was used in summation to analyze the overall position of BYDHK(see below), and culminates to the SWOT Matrix in the upper left.

STRENGTHS RATING WEAKNESSES RATING

Competence Strategy 3 3 Cost/Price Competitive Skill Profitability Facilities

2 2 Technical Skills Experience Curve Cost Structure Management

1 Financial 1 Management Financial Resources Key Competencies 0 Resources 0 Product Reputation Strategy Development Marketing Skills Implementation Marketing Market Internal Effectiveness Leadership Market Image Operations Proprietary Economies of Product/Service Property Technology Scale Competitive Line Development Pressure

OPPORTUNITIES RATING THREATS RATING Pricing Prospects 3 3 Substitute Regulatory Technology Markets Products Overhead 2 2

1 Entry Barriers 1 Market Growth Product/Service Market Growth Enhancement 0 0 Regulatoy Demographics Overhead Rival Product Line Complacency Expansion Market Business Expansion of Vertical Requirements Cycle/Climate facilities Integration Buyer/Supplier Power Source: Team calculations

24 Appendix 22: Shareholding of Top Ten Shareholders

Name of Shareholder Nature of Share Number of Percentage of Type of Shares Shareholding(%) Shareholder Wang Chuanfu Restricted A share, A share 512,623,820 18.79 Actual Controller Lv Xiangyang& Zhang Changhong Restricted A share, A share 239,228,620 8.77 Shares ≥5%

BERKSHIRE HATHAWAY ENERGY H share 225,000,000 8.25 Shares ≥5%

Youngy Investment Holding Group Co.,Ltd Restricted A share, A share 162,681,860 5.96 Shares ≥5%

Xia Zuoquan Restricted A share, A share 118,977,060 4.36 Other

CCB Principal Asset Management-Agricultural Bank of China- China Fortune International Trust-China Fortune International Institutional Trust·Huarong Financial Town-Jiuzhi NO.1 Collective Funds Trust Restricted A share 75,000,000 2.75 Investors Plan

China Life AMP Asset Management-China Bohai Bank-China Fortune International Trust-China Fortune International Institutional Trust·Huarong Financial Town-Jiuzhi NO.2 Collective Funds Trust Restricted A share 55,662,020 2.04 Investors Plan

Samsung Semiconductor Co.,Ltd( Shanghai branch) Restricted A share 52,264,808 1.92 Other

Guolian Securities- China Construction Bank-The Guolian-BYD Institutional No.1 Collective Assets Management Plan A share 32,590,612 1.19 Investors

E Fund Asset BYD Zengchi No.1 Assets Management Plan A share 3,727,700 0.14 Institutional Investors Wang Chuanfu H share 1,000,000 0.04 Actual Controller SIGN INVESTMENTS LIMITED H share 305,000 0.01 Institutional Investors Xia Zuoquan H share 195,000 0.01 Other

Total 1,479,256,500 54.23

Source: Wind Database

Appendix 23: Analysis of Board of Directors

Indicators Explanations

•Six directors, one executive director, two non-executive directors and three independent directors. •The directors all received higher education and have rich management experience •The age of all the directors is all below 60. The Constitutin of Board of Directors •The inside directors are all the major stockholders of the company •The complete audit committee, compensation committee, nomination committee and strategic committee are all under the board of directors

•Zhang Ran, the chairman of the audit committee has abundant financial knowledge •The independent directors are financial experts and the experts in the industries related with the corporate business Independent Director •The part-time job of the independent director is quite few. •The independent directors have no absent meeting records. •The compensation of the independent directors has no relation with the company performance

•The inside directors are all the major stockholders of the company(the circumstance of neglecting the The Behavior of the Board of interests of the minority stockholders easily exists) Directors •The chairman executive holds additional posts of CEO •Directors have no absent meeting records

•The compensation of the executive directors is equivalent to their contributions to the company The Incentive Mechanism of the •The announce of the directors is detailed Board of Directors •The board of the directors have the whole meeting records •The independent directors clearly guarantees the integrity and authenticity of the company annual report

25 Appendix 24: Indicator of Dimension of CEO’s Right

Indicators Explanations

Wang Chuanfu is a senior engineer, and successively served as the deputy director of General Research Institute for Expert Power Nonferrous Metals (GRINM), general manager of BAK Battery with postgraduate degree. Wang enables to provide a strong technical guidance and support for the company development, and has a guiding role in the future development strategy of BYDHK battery industry and NEV.

Wang Chuanfu is Chairman, an Executive Director, and the President of the company. He is in charge of overseeing the Organizational Power general operations of the Group and determining the business strategies.

Possession Power The first major shareholder and the actual controller of BYDHK

In 1995, Wang Chuanfu founded his own company, the Chairman, an Executive Director and the President of the Company responsible for overseeing the general operations of the Group and determining the business strategies for the Group. He is a Reputation Rights non-executive director and the chairman of BYD-E, a director of Shenzhen BYD Daimler New Technology Co., Ltd., vice chairman of Shenzhen Pengcheng Electric Automobiles Renting Co., Ltd., a director of Tianjin BYD Auto Co., Ltd., chairman of Sheng Shi Xin Di Electric Automobile Service Co., Ltd, an independent director of Renren Inc., a director of South University of Science and Technology of China and a director of BYD Charity Foundation.

The situation that CEO holding various positions in the company, as chairman, executive director, and the first shareholder, may lead in too-high or heavy power, and expanded voice. It’s bad for inspection agency; in addition, it’s easy to grow the arbitrary dictation of CEO. Consequently, the development would be entirely up to CEO’s personal will, which will be bad for Risks company development, for instance, Xia Zhibing Incident; what’s more, Wang Chuanfu manages the daily decisions of the whole company, works in various roles of BYDHK, and additional director posts of other companies. This may cause low energy to CEO, or administrative vulnerability to company, which will impact company performance and development.

Sources: Company Data

Appendix 25: CSR Information

Index Explanations Total Strengths 40 • In December 30, 2015, Meritorious Enterprise of the Building of Shenzhen Enterprise Culture in 30th anniversary of Special Economic Zone30 In December 16, 2015, 2015 Golden Wrench of China Motorcar Service- New Energy Service • 20 • In December 15, 2015, Shannxi Vehicle Design Award of Excellence in a kind of Battery Module and Vehicle • In December10 15, 2015, Patent Excellence Award in a kind of battery energy storage station for leveling electric load In December 4, 2015, New York C40 Urban Awards • Total Total Threats • In November0 30t, 2015, China Trademark Golden Award Opportunities Awards • In November 13, 2015, the Best New Energy Coach of the Year-C9 of “China Road Transport Cup • In November 6, 2015, the Best Quality Product • In November 6, 2015, Excellent Technological Innovation Enterprise of Shannxi Employees • In October 15, 2015, Centralized Energy Storage Innovation Award of 2015-31.5MW FM Electric Station • In October 14, 2015, UN-DESA Energy Grant • In August 30, 2015, China Top-100 Electronic and Information Enterprises of 2015 • In July 30, 2015, AA-grade Enterprise of Entry-Exit Inspection and Quarantine credit management • In July Total Weaknesses17, 2015, Xi’an "Excellent Quality Management Achievement” certificate • Electric Vehicle: To remove exhaust pollution of cities Three Green Dreams • Energy Storage Power Station: to overcome the worldwide problem of electricity storage • Solar Power Station: to change human energy structure and realize sustainable development

• Volunteering supporting learning in Panyu • Complying with the policy “Uniting counties and townships to take charge of one poor county” to support Beibancun Village • The plan “To help the poor achieve dreams and learn; to facilitate their development” of BYDHK Charity Foundation Public service activities: Donating old clothes Social Benefits • • BYDHK anticipated the high-stakes meeting-“Every woman and every kid” of United Nations and proposed the concept of “Mobile Hospital”, which is using the energy storage system of BYDHK to provide power for medical equipment. In the mobile hospital, women would give a birth smoothly to protect them from diseases of infection or delivery-related; babies would be took good caring to decrease the death from premature birth complications, malnutrition or malaria.

• BYDHK has established the supreme decision-making body CSR- CAR Management Committee, cleared the regulation of Institution-building CSR management, and made the unified work plan. It makes CSR management being scientific and standard, to realize the unified organization and efficient management of CSR.

• Employees enjoy the rights protection, equal opportunity in employment, and the good welfare treatment Planning on Staff • Personnel training: management training and cultivation • Humanistic Concern: to look after employees’ health; to concern soul health; rich recreational activities • ESOP(employee stock ownership plan) Source: Company Data

26 Appendix 26: Analysis of Equity Indicator

Indicators Explanations

Herfindahl Index: H9=0.0675 The index approaches to 0, so the gap of shareholding ratio among the nine major stockholders is quite small. CRI=18.83% BYDHK is the company that ownership is quite dispersed; the first major stockholder has stronger control Z Index=128% power than the second major stockholder. Ownership Stakes:38.08% The major stockholders and the Board of Directors have more control power. Institutions and Corporations:16.15% Source: Company Data, Team Calculations

Appendix 27: Dividend Payment Appendix 28: Sensitive Coefficient

Time Dividends Sensitivity Analysis (1%) Coefficient ̗Share Price

Aug. 6, 2014 RMB0.05 per share The Exchange Rate of US Dollar against RMB -0.2568 -0.0026

March 14, 2010 RMB0.33 per share Growth Rate of Liabilities 0.9141 0.0091

March 5, 2008 Plus 28 shares every 10 shares, The Exchange Rate of HKD to RMB -55.8258 -0.5583 RMB0.33 per share April 23, 2007 RMB0.4 per share Ratio of Cost to Income -127.5304 -1.2753

March 24, 2005 RMB0.577 per share Ratio of R&D Costs to Revenue 7.0150 0.0702

February 20, 2004 RMB0.512 per share Ratio of Inventory to Cost 2.6865 0.0269

February 14, 2003 RMB0.28 per share Sales Volume of NEV Excluding Pure-electric 38.9012 0.3890 Bus Source: Team Calculations Sales Volume of Pure-electric Bus 12.5023 0.1250

Total Sales Volume of NEV 50.9588 0.5096

Source: Team Calculations

Appendix 29: Globe Vision of BYDHK

Source: Official Website

27 Appendix 30: Shareholding Structure

BYDHK

99.00% 4.29%

BYD Automobile BYD Lithium Batteries 55.00% BYD(H.K.) Co., Ltd. … Company Limited Co., Ltd.

45.00% 26.95% 73.05% 95.24% 0.48%

BYD Industry and Commerce Co., Limited, Golden Link Worldwide BYD Auto Industry Co., BYD Auto Sales Huizhou Ltd. Ltd. Company Ltd. …

65.76% 87.50% 12.50%

Changsha BYD Auto BYD-E BYD Motors Inc. BYD US Holding Inc. Company Limited …

BYD Electronic Company Limited BYD Energy LLC Universal Charging LLC …

Lingyu International Constellation Cromwell Company Limited LLC …

65.91%

BYD Precision … Manufacture Company Limited 34.09%

BYD (Huizhou) Electronic Company … Limited

Source: Company Data, team Calculations

28 Appendix 31: DuPont System of Analysis

ROE 2014 2.56% 2015 8.71% 2016F 9.33% 2017F 11.47% 2018F 13.52% 2019F 15.29% 2020F 16.86%

ROA Equity Multiplier 0.79% 3.25 2.72% 3.21 3.4% 2.75 4.26% 2.69 5.00% × 2.70 5.64% 2.71 6.21% 2.71

Net Profit Total Asset Margin Turnover 1.34% 0.59 4.04% 0.67 5.15% 0.66 6.03% 0.71 6.86% × 0.73 7.57% 0.75 8.21% 0.76

Net Profit Revenue Revenue Total Asset 740 55,366 55,366 94,009 3,138 77,612 77,612 115,486 5,222 101,490 101,490 153,740 7,290 120,913 120,913 170,989 9,985 ÷ 145,601 145,601 ÷ 199,590 13,392 177,017 177,017 237,487 17,836 217,125 217,125 287,035

Revenue Total Cost Other Income Income Tax Expenses Non-current Current Assets Assets 55,366 (56,091) 1,599 (134) 53,175 40,834 77,612 (76,147) 2,330 (657) 60,967 54,519 101,490 (97,053) 1,738 (953) 77,470 76,270 120,913 (114,128) 1,842 (1,336) 87,865 83,124 145,601 (135,737) 1,957 (1,836) 101,397 98,193 177,017 (163,249) 2,094 (2,470) 118,967 118,520 217,125 (198,252) 2,261 (3,298) 141,790 145,245

Cash and Cash Equivalents Account Receivable Inventories and Consumables Other Current Assets 3,950 26,335 10,046 503 6,011 32,098 15,807 604 19,323 39,768 16,556 623 19,032 44,041 19,412 639 21,197 53,305 23,033 658 24,994 65,232 27,613 680 30,505 80,623 33,412 705

Source: Team Calculations CNY in Million

29

Appendix 32: Explanation of Terms

1. AB: Automobile Business 2. APT: Arbitrage Pricing Theory 3. BYD-E: BYD Electronic (International) Company Limited 4. BYDHK: BYD Company (Hong Kong) Limited 5. CAGR: Compound Annual Growth Rate 6. CAPM: Capital Asset Pricing Model 7. CSR: Corporate Social Responsibility 8. DCF: The Discounted Cash Flow 9. EMS: Electronics Manufacturing Service, is a term used for companies that test, manufacture, distribute, and provide return/repair services for electronic components and assemblies for original equipment manufacturers (OEMs). 10.FIH: FIH Mobile Limited 11. HC&AS: Handset Components and Assembly Services 12.HSCI: Hang Seng Composite Index 13.IDC: International Data Corporation, a professional data service provider 14.NBS: National Bureau of Statistics of China 15.NEV: New Energy Vehicle 16.ODM: Original Design Manufacturing, which can make what you need and the expectations of your company’s customers and stakeholders. In this approach, the ODMs take care of the R&D, product concepts, testing and manufacturing. 17.PHEV: Plug-in Hybrid Electric Vehicle 18.PMH is the solution to the aerial signal of the metal shell of high-end flagship phones. The PMH technology treated metal-plastic will penetrate into the micro-holes on the surface of metal shell, and merge with the metal seamlessly, like root grasping the earth deeply. The PMH technology can be widely applicable to the high-end intelligent metal-shell mobile phones and laptops, and contributes to the high-grade characteristics of metal shell, such as light, thin and tactile impression, etc. 19.QHSL: Qinghai Salt Lake Industry Co., Ltd. 20.R&D: Research and Development 21.RB: rechargeable battery 22.RB&PB: Rechargeable Battery and Photovoltaic Business 23.SBID (Super-energy Beam Induced Deposition) Technology is a new scheme for processing 3D precision lines, which leads the intelligent design of electronic products, and is applicable to IT, auto and medical, etc.; it is also the sole vertical integrated technology used for materials, structural molding, laser device, metallization technology and RF products, etc. 24.SUV: Sport Utility Vehicle 25.Three Green Energy Dreams: The finial vision of BYDHK to realize the zero emission zero pollution, green energy solutions of the whole industry chain from power generation, storage, transmission to usage. 26.TongDa: TongDa Group Holdings Limited 27.YoY: year on year 28.1GW=1000MW=1000KW 29.“5-4-2 Initiative” target for the NEV: “5” represents the 0 - 100 km/h acceleration time of less than 5 seconds, “4” refers to electric four-wheel drive, “2” means within 2 liters of fuel consumption per 100 km. 30.“7+4” Vehicle Electrification Strategy refers to popularizing the NEV and realizing its overall coverage in 7 conventional fields (private cars, buses, taxis, sanitation vehicles, urban commodity logistics, passengers transportation and urban construction logistics) and four specialized fields (warehousing, mines, ports and airports).

30 Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA China, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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