Equity Research January 30, 2018

BYD Electronic International Frontrunner in industrial upgrade; initiate at BUY with HK$22 TP

Initial Coverage Initiate with BUY

Investment positives Ticker 00285.HK We initiate coverage of BYD Electronic International at BUY with a CICC investment rating * BUY target of HK$22.00, based on 12x 2018e P/E. A first-mover at Last close HK$16.82 upgrading in China’s electronics industry, BYDE significantly expanded CICC target HK$22.00 margins in 2017 and should gain presence in the metal casing market 52wk price range HK$26.45~6.03 and develop its 3D glass, automotive electronics and new businesses. Market cap (bn) HK$38

Why a BUY rating? Daily value (mn) HK$166.77 Shares outstanding (mn) 2,253 ► An upgrading frontrunner: BYDE has made significant changes Free float (%) 100 in the last two years, automating its manufacturing and Daily volume (mn sh) 9.19 Business sector Electronic Components reorganizing to better serve key customers. We believe the

moves helped it improve its gross margin from 7.6% in 2016 to 00285.HK HSCEI 10.9% in 2017, but more importantly, we think they will help 412 BYDE win as slowing smartphone demand growth prompts the component industry to consolidate. 334 ► Well-positioned in 3D glass: We see 3D glass as a challenge and 256 opportunity for BYDE and all metal casing vendors. Firms that 178

cannot penetrate glass casing will face more competition as the (%) Value Relative 100

market shrinks. BYDE has established its own 3D glass capability 22 Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 using equipment developed in-house. We expect it to start shipping in large volumes to Chinese customers in 1H18, and 3D glass to contribute 11% of its component sales by 2019. (Rmb mn) 2016A 2017E 2018E 2019E

► Leveraging BYD roots to expand into auto electronics: BYDE Revenue 36,734 40,982 46,420 50,197 mainly sells information systems to BYD and external auto OEM (+/-) 25.4% 11.6% 13.3% 8.1% customers. We expect revenue from this business to expand at a Net profit 1,233 2,542 3,191 3,769 57% CAGR over 2016–2019 on product and client expansion. (+/-) 35.8% 106.1% 25.5% 18.1%

How do we differ from the market? We are positive on BYDE’s EPS 0.55 1.13 1.42 1.67 automated production, which helps reduce costs and increase quality. BPS 5.22 6.34 7.76 9.43 DPS 0.00 0.00 0.00 0.00

Potential catalysts: Product line expansion at US client; glass casing 1.31 1.27 2.12 2.03 CPS adopted in more new smartphone models P/E 27.5 12.8 9.4 8.0 P/B 2.9 2.3 1.7 1.4 EV/EBITDA 10.6 6.7 4.5 3.5 Financials and valuation We forecast 2017–2019 EPS of Rmb1.13, Rmb1.42 and Rmb1.67, Dividend yield 0.0% 0.0% 0.0% 0.0% ROAA 5.3% 9.9% 10.7% 11.0% respectively, for a CAGR of22%. We set our target price at HK$22, based on 12x 2018e P/E. ROAE 11.1% 19.5% 20.1% 19.5%

Risks

Fierce competition in metal parts; penetration of 3D glass casing Source: Wind, Bloomberg, company data, CICC Research disappoints; weak demand for smartphones

Leping HUANG Jiaying ZONG Analyst Associate [email protected] [email protected] SAC Reg. No.: S0080117030005 SAC Reg. No.: S0080516080003 SFC CE Ref: AUZ066

Please read carefully the important disclosures at the end of this report CICC Research: January 30, 2018

Financial summary

Financial statement (Rmb mn) 2016A 2017E 2018E 2019E Financial ratios 2016A 2017E 2018E 2019E Income statement Growth ability Revenue 36,734 40,982 46,420 50,197 Revenue 25.4% 11.6% 13.3% 8.1% COGS -33,934 -36,516 -40,984 -44,063 Operating profit 51.6% 139.6% 26.5% 18.0% Selling expenses -185 -206 -233 -202 EBITDA 40.7% 46.9% 19.8% 14.2% Administrative expenses -562 -545 -618 -618 Net profit 35.8% 106.1% 25.5% 18.1% Other ops income (expense) -114 -127 -144 -156 Profitability Operating profit 1,193 2,857 3,613 4,263 Gross margin 7.6% 10.9% 11.7% 12.2% Finance costs 0 0 0 0 Operating margin 3.2% 7.0% 7.8% 8.5% Other income (expense) 159 0 0 0 EBITDA margin 8.0% 10.5% 11.1% 11.7% Profit before income tax 1,433 2,954 3,707 4,379 Net margin 3.4% 6.2% 6.9% 7.5% Income tax -200 -411 -516 -610 Liquidity Minority interest 0 0 0 0 Current ratio 1.34 1.47 1.60 1.83 Net profit 1,233 2,542 3,191 3,769 Quick ratio 1.06 1.12 1.31 1.48 EBITDA 2,928 4,300 5,152 5,881 Cash ratio 0.24 0.30 0.45 0.63 Recurrent net income 1,233 2,542 3,191 3,769 Liabilities / assets 51.0% 47.5% 45.8% 40.9% Balance sheet Net debt / equity net cash net cash net cash net cash Cash and bank balances 2,966 3,822 6,597 9,177 Return Trade and bill receivables 9,793 10,414 12,474 12,276 RoA 5.3% 9.9% 10.7% 11.0% Inventories 3,338 4,524 4,300 5,187 RoE 11.1% 19.5% 20.1% 19.5% Other current assets 247 247 247 247 Per-share data Total current assets 16,344 19,007 23,618 26,887 EPS (Rmb) 0.55 1.13 1.42 1.67 Fixed assets and CIP 6,397 6,954 7,415 7,797 BPS (Rmb) 5.22 6.34 7.76 9.43 Intangible assets and others 1,255 1,255 1,255 1,255 DPS (Rmb) 0.00 0.00 0.00 0.00 Total non-current assets 7,651 8,208 8,669 9,051 Cash flow per share (Rmb) 1.31 1.27 2.12 2.03 Total assets 23,995 27,215 32,288 35,939 Valuation Short-term borrowings 0 0 0 0 P/E 27.5 12.8 9.4 8.0 Trade and bill payables 10,119 10,797 12,679 12,560 P/B 2.9 2.3 1.7 1.4 Other current liabilities 2,122 2,122 2,122 2,122 EV/EBITDA 10.6 6.7 4.5 3.5 Total current liabilities 12,241 12,919 14,801 14,682 Dividend yield 0.0% 0.0% 0.0% 0.0%

Long-term borrowings 0 0 0 0 Total non-current liabilities 0 0 0 0 Total liabilities 12,241 12,919 14,801 14,682 Share capital 4,052 4,052 4,052 4,052 Retained profit 7,702 10,244 13,435 17,204 Equity 11,754 14,296 17,487 21,256 Total liabilities & equity 23,995 27,215 32,288 35,939 Cash flow statement Pretax profit 1,233 2,542 3,191 3,769 Depreciation & amortization 1,736 1,443 1,539 1,618 Change in working capital -650 -1,130 46 -807 Others 636 0 0 0 Cash flow from operations 2,954 2,856 4,775 4,580 Capital expenditure -1,878 -2,000 -2,000 -2,000 Others 27 0 0 0 Cash flow from investing -1,851 -2,000 -2,000 -2,000 Equity financing 0 0 0 0 Bank borrowings 0 0 0 0 Others -178 0 0 0 Cash flow from financing -178 0 0 0 Foreign exchange gain (loss) 82 0 0 0 Net changes in cash 1,007 856 2,775 2,580

Source: Company data, CICC Research

Company description

BYD Electronic International, a subsidiary of BYD, was incorporated in Hong Kong on June 14, 2007. Its major businesses includes electronic components manufacturing (metal parts, plastic parts, glass casing, ceramics, chargers, lithium battery packs), and OEMs & EMS. Vertically integrated, it can provide a full range of services and quickly respond to changes in demand. Its major component customers include Samsung, Huawei, LG, Vivo, and Xiaomi. Its major assembly clients include Lenovo and Huawei.

Please read carefully the important disclosures at the end of this report 2 CICC Research: January 30, 2018

Contents

Initiate coverage with BUY rating and target price of HK$22 ...... 5 Valuation: Target price of HK$22 based on 12x 2018e EPS ...... 6 A leading provider of handset components and assembly services ...... 7 Strategy: from assembly to components and from consumers to automotive ...... 8 An upgrading frontrunner ...... 9 Reorganization promotes efficiency ...... 9 To benefit from metal casing market consolidation ...... 11 Metal casings to boost revenue and gross margin ...... 11 To benefit from consolidation ...... 11 Metal casing penetration to continue to increase with metal frames adopted more ...... 13 Well-positioned in 3D glass ...... 14 Capacity expansion ready for increasing demand ...... 14 Glass casing penetration to increase; fits wireless charging and OLED ...... 14 Automotive electronics offer high growth potential ...... 16 To leverage BYD’s experience to expand client base ...... 16 Demand for automotive electronics increasing with auto market upgrades and expansion ...... 16 Target price set at HK$22 ...... 18 Outlook for 2017/18/19e...... 18 Strong cash flow and balance sheet ...... 19 Risks…………………...... 21 Appendix: Company background ...... 22

Figures

Figure 1: Forecast summary ...... 5 Figure 2: CICC vs. consensus ...... 5 Figure 3: Forecast summary by segments ...... 6 Figure 4: Peer valuation comparison ...... 6 Figure 5: Shareholder structure (Jan 29, 2018) ...... 7 Figure 6: Revenue by segment (2009–2016) ...... 7 Figure 7: Revenue breakdown by area (2016) ...... 7 Figure 8: Product lines ...... 8 Figure 9: Organizational adjustments: both two lines with function and clients ...... 9 Figure 10: Gross margin ...... 9 Figure 11: Product mix ...... 9 Figure 12: Operating margin...... 10 Figure 13: G&A expense ratio decreasing ...... 10 Figure 14: Metal casing sales and component margins up ...... 11 Figure 15: Metal casing client profile ...... 11 Figure 16: Mobile phone shipment forecast revisions ...... 12 Figure 17: Global mobile market growing more concentrated ...... 12 Figure 18: China’s mobile market, too ...... 12 Figure 19: Metal casing manufacturers’ CNC machines ...... 13

Please read carefully the important disclosures at the end of this report 3 CICC Research: January 30, 2018

Figure 20: Global metal parts market sales ...... 13 Figure 21: Glass casing revenue increasing ...... 14 Figure 22: 3D glass daily capacity ...... 14 Figure 23: Global glass casing market value and penetration ...... 14 Figure 24: iPhone casing changes ...... 15 Figure 25: Glass casing vs. metal casing ...... 15 Figure 26: Automotive revenue increasing ...... 16 Figure 27: Automotive products ...... 16 Figure 28: Autonomous driving market estimates ...... 17 Figure 29: Revenue trends ...... 18 Figure 30: Net profit trends ...... 18 Figure 31: Valuations of comparable companies...... 18 Figure 32: ROE ...... 19 Figure 33: Dupont analysis ...... 19 Figure 34: Cash flow trends ...... 19 Figure 35: Capex trends ...... 19 Figure 36: Net cash per share ...... 19 Figure 37: Forward P/E band ...... 20 Figure 38: Forward P/B band ...... 20 Figure 39: Income statement ...... 20 Figure 40: Balance sheet ...... 21 Figure 41: Cash flow statement ...... 21 Figure 42: Milestones ...... 22

Please read carefully the important disclosures at the end of this report 4 CICC Research: January 30, 2018

Initiate coverage with BUY rating and target price of HK$22

We initiate coverage of BYD Electronic (BYDE) with a BUY rating and target price of HK$22, based on 12x FY18e EPS. We expect BYDE to achieve overall revenue growth of 18%/11%/5% in 2017/18/19, given the following.

► 24%/12%/9% growth in the metal casing business, driven by rising penetration of metal casings and growing demand for metal frames. Metal casing is likely to face challenges from glass and ceramics going forward, but we believe metal frames will remain an essential part of casing solutions. ► 29%/675%/58% growth in the glass casing business, driven by increasing output and higher ASPs. We believe 3D glass will be used on a large scale from 2018 and estimate that the penetration of glass casing will increase to 28% in 2018 from 14% in 2017.

► 15%/-15%/-15% growth in the plastic casing business, where applications are limited.

► 7%/5%/3% growth in the assembly business, driven by automotive business.

Figure 1: Forecast summary (Rmb mn) 1H15 2H15 1H16 2H16 1H17 2H17E FY14 FY15 FY16 FY17E FY18E FY19E Turnover 9,560 19,726 15,484 21,250 17,526 25,958 19,832 29,286 36,734 43,484 48,284 50,720 % chg yoy 5% 84% 62% 8% 13% 22% 23% 48% 25% 18% 11% 5% COGS (8,594) (18,788) (14,248) (19,686) (15,412) (23,833) (17,727) (27,382) (33,934) (38,887) (42,871) (44,854) Gross profit 965 938 1,237 1,563 2,114 2,124 2,105 1,904 2,800 4,597 5,413 5,866 OPEX (523) (593) (626) (982) (823) (971) (1,223) (1,117) (1,608) (1,794) (1,872) (1,814) Operating income 442 345 611 582 1290 1153 882 787 1,193 2,802 3,541 4,052 % chg yoy -22% 8% 38% 69% 111% 98% 35% -11% 52% 135% 26% 14% Other revenue 37 173 37 71 199 29 30 195 159 59 59 59 Pretax income 518 518 698 735 1,530 1,231 1,012 1,036 1,433 2,957 3,722 4,283 % chg yoy -21% 45% 35% 42% 119% 67% 35% 2% 38% 106% 26% 15% Taxes (62) (66) (94) (105) (208) (152) (111) (128) (200) (412) (518) (597) Net income 456 452 604 630 1,322 1,223 902 908 1,233 2,545 3,204 3,687 % chg yoy -23% 45% 32% 39% 119% 94% 39% 1% 36% 106% 26% 15% Ratio analysis Gross margin 10.1% 4.8% 8.0% 7.4% 12.1% 8.2% 10.6% 6.5% 7.6% 10.6% 11.2% 11.6% SG&A / revenue 5.5% 3.0% 4.0% 4.6% 4.7% 3.7% 6.2% 3.8% 4.4% 4.1% 3.9% 3.6% Operating profit margin 4.6% 1.7% 3.9% 2.7% 7.4% 4.4% 4.4% 2.7% 3.2% 6.4% 7.3% 8.0% Pretax income/revenue 5.4% 2.6% 4.5% 3.5% 8.7% 4.7% 5.1% 3.5% 3.9% 6.8% 7.7% 8.4% Net margin 4.8% 2.3% 3.9% 3.0% 7.5% 4.7% 4.5% 3.1% 3.4% 5.9% 6.6% 7.3% Source: Company data, CICC Research

Figure 2: CICC vs. consensus 2016A 2017E 2018E 2019E (Rmb mn) CICC CON diff CICC CON diff CICC CON diff Revenue 36,734 40,982 40,887 0% 46,420 45,592 2% 50,197 49,775 1% Gross profit 2,800 4,466 4,814 -7% 5,436 5,640 -4% 6,134 6,376 -4% Operating profit 1,193 2,857 3,098 -8% 3,613 3,874 -7% 4,263 4,533 -6% Net Profit 1,233 2,542 2,680 -5% 3,191 3,242 -2% 3,769 3,734 1% EPS 0.55 1.13 1.19 -5% 1.42 1.44 -2% 1.67 1.66 1% Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 5 CICC Research: January 30, 2018

Figure 3: Forecast summary by segments FY14 FY15 FY16 FY17E FY18E FY19E Turnover (Rmb mn) 19,832 29,286 36,734 40,982 46,420 50,197 Component 9,056 11,589 14,876 17,689 21,949 25,017 Metal casing 4,000 7,200 11,000 13,695 15,329 16,721 Plastic casing 2,935 2,743 2,024 2,328 1,979 1,682 Glass casing 450 300 350 450 3,486 5,516 Other components 1,671 1,346 1,502 1,217 1,156 1,098 Assembly 10,776 17,697 21,858 23,293 24,472 25,180 Handset 10,776 17,697 21,158 21,793 22,447 22,447 Automotive - - 700 1,500 2,025 2,734 YoY growth (%) Component 28% 28% 19% 24% 14% Metal casing 80% 53% 24% 12% 9% Plastic casing -7% -26% 15% -15% -15% Glass casing -33% 17% 29% 675% 58% Other components -19% 12% -19% -5% -5% Assembly 64% 24% 7% 5% 3% Handset 64% 20% 3% 3% 0% Automotive 114% 35% 35% % of total revenue (%) Component 46% 40% 40% 43% 47% 50% Metal casing 20% 25% 30% 33% 33% 33% Plastic casing 15% 9% 6% 6% 4% 3% Glass casing 2% 1% 1% 1% 8% 11% Other components 8% 5% 4% 3% 2% 2% Assembly 54% 60% 60% 57% 53% 50% Handset 54% 60% 58% 53% 48% 45% Automotive 0% 0% 2% 4% 4% 5% Source: Company data, CICC Research

Valuation: Target price of HK$22 based on 12x 2018e EPS

We expect BYDE’s earnings to increase at a 22% CAGR over 2017–2019. We set our target price at HK$22, based on 12x 2018e P/E. Tracking back, BYDE’s forward P/E peaked at 22.7x and bottomed at 4.1x, while its forward P/B peaked at 4.1x and bottomed at 0.3x.

Figure 4: Peer valuation comparison CICC Mktcap Currency Stock price TP P/E P/B Ticker Company rating (US$ mn) 2018/1/30 2017E 2018E 2019E 2017E 2018E 2019E Casing competitors 300115.SZ Everwin BUY 2,751 RMB 19.15 40 27.5 18.8 15.7 3.9 3.3 2.8 300433.SZ Lens Tech Not rated 11,178 RMB 26.90 NA 32.3 21.3 16.2 4.2 3.5 2.9 300408.SZ Three Circle Not rated 5,812 RMB 21.12 NA 32.4 23.2 17.0 6.1 5.1 4.1 2018.HK AAC BUY 20,476 HKD 131.00 180 35.5 26.1 20.9 10.8 8.3 6.5 0698.HK Tongda Not rated 1,386 HKD 1.79 NA 10.3 7.6 6.5 1.9 1.6 1.4 Average 27.6 19.4 15.3 5.4 4.4 3.5 Median 32.3 21.3 16.2 4.2 3.5 2.9 Other electronic components competitors 2382.HK Sunny Optical BUY 15,014 HKD 107.00 153 53.8 36.5 27.5 20.8 14.6 10.4 002475.SZ Luxshare BUY 10,873 RMB 21.68 27 37.7 26.8 20.6 5.2 4.4 3.6 002241.SZ Goertek BUY 7,643 RMB 14.90 25 21.4 16.1 13.0 3.6 2.9 2.4 002456.SZ O-film Not rated 7,723 RMB 18.00 NA 33.2 21.5 15.6 4.9 4.1 3.3 6088.HK FIT Hon Teng BUY 4,255 HKD 4.94 10 18.6 14.2 11.1 2.1 1.8 1.5 1478.HK Q-Tech Not rated 1,493 HKD 10.46 NA 30.5 21.6 16.6 6.9 5.7 4.7 Average 30.3 21.3 16.4 6.4 5.0 4.0 Median 32.3 21.5 16.2 4.9 4.1 3.3 Source: Bloomberg, Company data, CICC Research

Please read carefully the important disclosures at the end of this report 6 CICC Research: January 30, 2018

A leading provider of handset components and assembly services

Subsidiary of BYD. Golden Link Worldwide Limited owns 65.76% of BYDE and Gold Dragonfly owns 6.08% (outstanding common shares total 2,253,204,500, all H-shares). Chairman Chuanfu Wang is BYDE’s actual controller; he owns 18.96% of BYDE’s parent, BYD Company Limited.

Figure 5: Shareholder structure (Jan 29, 2018)

Chuanfu Wang

18.96% BYD Company Limited

100%

BF Trustee BYD (HK) Limited

100% 100%

Gold Dragonfly Golden Link Others Limited Worldwide Limited 6.08% 65.76% 27.78%

BYD Electronic

Source: Company data, CICC Research

Major businesses: handset components and assembly services. BYDE researches, develops and produces handset components such as casings, keypads and modules for handset manufacturers such as Samsung, Huawei, LG, Vivo, and Xiaomi. It also provides services comprising basic and PCB assembly services to handset manufacturers such as Lenovo and Huawei.

Figure 6: Revenue by segment (2009–2016) Figure 7: Revenue breakdown by area (2016)

40,000 (RMB mn)

35,000 America 3% Others 30,000 EU 4% 2% 25,000 21,858

20,000 17,697 PRC (including 15,000 10,776 7,006 Hong 9,463 8,574 10,000 7,804 Kong, 4,998 14,876 Macau and, 11,589 Taiwan) 5,000 9,056 9,056 6,201 7,184 7,294 6,287 91% - 2009 2010 2011 2012 2013 2014 2015 2016 Handset Components Assembly services

Source: Company data, CICC Research Source: Company data, CICC Research

Assembly services contributed 60% of BYDE’s revenue in 2016. While the business offers lower gross margins than components, its helps solidify relationships with major customers and enables BYDE to foresee terminal design trend, two factors that have supported high-quality growth in the company’s handset component manufacturing business.

China is the firm’s main market, accounting for 91% of revenue in2016. The U.S. and Europe are BYDE’s main export destinations, taking up 3% and 2% of total revenue in 2016, respectively.

Please read carefully the important disclosures at the end of this report 7 CICC Research: January 30, 2018

Figure 8: Product lines BYD Electronic

Handset Component Manufacturing Assembly Service

Mobile Phone Casing Mobile Phone Notebook & Pad Plastic+Metal Metal casing Plastic casing (PMH)

Ceramics New Glass casing casing materials

Notebook & Pad Casing EMS + ODM Others Auto Electronics Unmanned Planes Charger Connector Modules

Source: Company data, CICC Research

Strategy: from assembly to components and from consumers to automotive

To invest more in metal parts, aggressively expand glass and ceramic product businesses. We expect the metal parts business to remain a growth driver and the company to invest more in this area. We also expect the firm to aggressively work to expand new businesses including glass and ceramics to satisfy growing demand for better handset aesthetics.

To widen client networks, explore new assembly terminals like auto electronics and drones. Leveraging its relationships with well-known domestic and overseas handset manufacturers, BYDE is likely to seek wider-ranging cooperation in the smartphone industry chain and expand client networks to increase market share. In the assembly business, we believe the company will actively expand in auto electronics, drones and other consumer electronic products to cultivate new growth and development.

Please read carefully the important disclosures at the end of this report 8 CICC Research: January 30, 2018

An upgrading frontrunner

Reorganization promotes efficiency

BYDE has been reorganizing since 2015 and operates along two lines, one focused on its various operations and the other on specific clients. For instance, the Apple business unit, or ABU, contains sales, project, manufacturing, and quality control departments for the single client.

Figure 9: Organizational adjustments: both two lines with function and clients

#1 BU

IT Public Plastic parts #3 BU Afairs Metal, glass and ABU: Apple business cerematic parts

Electronics Molding #5 BU: SBU: Samsung business center business ODM group

HBU: Huawei business #9 BU: R&D EMS

Sales and marketing

Source: Company data, CICC Research

Improving efficiency and high level of automation to drive up margin

BYDE’s gross margin has rebound off a 4Q15 bottom of 3.8% to improve to 13.5% in 2Q17, benefiting from an enhanced product mix, improving yields and better expense control. With metal casing gross margins averaging around 20% (vs, 3.2% for assembly), a growing contribution from metal casings should further bolster profitability.

G&A expense ratios have trended down since 2015, which we view as a sign that reorganization has improved efficiency.

Figure 10: Gross margin Figure 11: Product mix

Handset Components Assembly services 16% Gross margin 100% 14% 13.5% 90% 12% 11.5% 80% 10.3% 10% 70% 10.5% 10.1% 60% 8% 8.2% 7.8% 50% 6% 6.6% 6.9% 40% 5.4% 4% 30% 59% 61% 54% 53% 3.8% 46% 45% 44% 47% 2% 20% 29% 10% 0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 0% 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 Source: Company data, CICC Research Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 9 CICC Research: January 30, 2018

Figure 12: Operating margin Figure 13: G&A expense ratio decreasing

3.0% G&A expense ratio 8.0% Operating margin 2.8% 7.0% 2.6% 6.0% 2.4% 2.2% 5.0% 2.0% 4.0% 1.8% 3.0% 1.6% 1.4% 2.0% 1.2% 1.0% 1.0% 2011A 2012A 2013A 2014A 2015A 2016A 1H17A 2011A 2012A 2013A 2014A 2015A 2016A 1H17A

Source: Company data, CICC Research Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 10 CICC Research: January 30, 2018

To benefit from metal casing market consolidation

Metal casings to boost revenue and gross margin

BYDE entered the metal casing industry in 2012, and its sales of the products increased at a CAGR of 57% over 2012–2016, reaching approximately Rmb1,100mn in 2016 and contributing 30% of the firm’s total revenue. We expect penetration of metal casings to continue to increase and BYDE’s business to grow steadily.

Technological considerations create fairly high entry barriers to mass production of metal casing using computer numerical control (CNC) machines. BYDE owns 25,000 CNC machines and outsources to 5,000, making it among the top in capacity. Its major clients for metal casing include Samsung, Huawei, Oppo, and Vivo.

Figure 14: Metal casing sales and component margins up Figure 15: Metal casing client profile

(Rmb mn) BYDE's metal casing revenue 18,000 BYDE's handset components' GM (RHS) 25% 16,000 Others, 20% 15% 14,000 Samsung, 12,000 40% 15% 10,000 Vivo, 10% 8,000 10% Oppo, 10% 6,000

4,000 5% 2,000 Huawei, 25% - 0% 2012 2013 2014 2015 2016 2017E 2018E

Source: Gartner, CICC Research Source: Gartner, CICC Research

To benefit from consolidation

We foresee steady growth in global smartphone shipments and growing industry concentration, especially in China. As smaller manufacturers struggle to compete with increasingly dominant large-scale manufacturers, the handset production market is likely to consolidate. We believe BYDE will benefit, given its scale, high degree of automation and cost advantages.

Smartphone shipment volume to grow steadily

We expect growth in shipment volume of global mobile phones to remain steady at 4.6% in 2017 and 4.7% in 2018. In China, shipment volume likely dropped 10% in 2017 after a surge in 2016, but should return to modest growth in 2018 on innovations and replacement demand.

Please read carefully the important disclosures at the end of this report 11 CICC Research: January 30, 2018

Figure 16: Mobile phone shipment forecasts (mn units) 2016 2017E 2018E 2019E 1Q17 2Q17 3Q17 4Q17E Global smartphone units 1,495 1,565 1,637 1,719 378 366 383 437 y-y 5.0% 4.6% 4.7% 5.0% 9% 7% 3% 1% China smartphone market 472 425 434 444 115 102 107 101 y-y 6% -10% 2% 2% 0% -12% -11% -17% Apple 216 219 243 265 52 44 45 78 y-y -4% 2% 11% 9% 1% 0% 6% 1% Samsung 306 328 344 362 79 83 86 81 y-y -4% 7% 5% 5% -3% 8% 19% 5% Top-10 Chinese brands 557 624 671 735 148 145 161 171 y-y 18% 12% 8% 10% 21% 14% 11% 5% Huawei 133 150 170 200 34 36 37 43 Xiaomi 62 93 120 150 13 21 27 32 Oppo 85 110 120 140 31 26 29 24 Vivo 74 97 110 125 26 24 26 21 Lenovo+Moto 53 53 45 35 11 11 14 17 ZTE 52 42 40 40 11 10 10 12 Coolpad + LeEco 14 11 6 - 4 2 2 3 TCL 31 25 25 25 6 5 6 8 Gionee 29 27 20 10 8 6 7 7 Meizu 23 16 15 10 5 3 3 4 Rest of brands 416 393 379 357 99 95 92 107 y-y 2% -6% -4% -6% 7% -1% -19% -6% Source: Gartner, CICC Research

Industry to become more concentrated as small brands exit

Gartner data show an increasingly concentrated mobile phone industry, especially in China.

► The combined market share of the top-6 brands in the world (Samsung, Apple, Huawei, Oppo, Vivo and Xiaomi) reached 65.1% in 3Q17, vs. 55.8% in 1Q15.

► The combined market share of the top-6 brands in China (Oppo, Huawei, Vivo, Apple, Xiaomi and Gionee) reached 87.5% in 3Q17, vs. 53.9% in 1Q15.

Smartphone penetration has limited room to increase. Incremental demand should be modest and mobile makers will compete for existing consumers. We expect tier-1 brands like Huawei, Xiaomi, Oppo and Vivo to gain presence, squeezing the market for tier-2/3 and no-name brands.

Figure 17: Global mobile market growing more concentrated Figure 18: China’s mobile market, too

Top-6 in total(RHS) Apple Huawei Top 6 in total (RHS) OPPO Huawei Samsung OPPO Vivo Vivo Apple Xiaomi 30% Xiaomi 66% 25% Gionee 90%

64% 85% 25% 20% 62% 80% 20% 60% 75% 15%

15% 58% 70%

10% 56% 65% 10%

54% 60% 5% 5% 52% 55%

0% 50% 0% 50% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Source: Gartner, CICC Research Source: Gartner, CICC Research

Please read carefully the important disclosures at the end of this report 12 CICC Research: January 30, 2018

Rising concentration in component manufacturing

We believe brand concentration will pass to component suppliers, allowing manufacturers with scale and cost advantage to capture more market share.

Figure 19: Metal casing manufacturers’ CNC machines Ticker Company Process No. of CNC Major customers machines 285 HK BYDE CNC/Die casting 25,000 Samsung, Huawei, OPPO, Vivo 2474 TT Catcher CNC 30,000 Apple, Sony 2317 TT Hon Hai CNC 34,000 Apple 5264 TT Casetek CNC 11,000 Apple 060720 KS KH Vatek Die casting 200 Samsung 300115 CH Everwin CNC 3,500 OPPO, Vivo, Huawei Source: Company data, CICC Research

Metal casing penetration to continue to increase with metal frames adopted more

We estimate the global metal parts market will deliver 9%/6%/6% revenue growth over 2018– 2020, driven by growing penetration and demand for metal frames.

Metal casing has penetrated mid-range and low-end smartphones

Shipments of smartphones with metal casing grew rapidly over 2014–2016, with volume totaling 684mn units in 2016, or 46% of all mobile phone shipments. We believe more mid-range and low-end smartphones wil adopt metal casing in 2018.

Metal frame to be a new driver for the industry

Metal frames are essential in glass or ceramics casing solutions and should be a major driver growth in the metal parts market. We estimate that global shipment of smartphones with metal frames will grow to 1.16bn units in 2020 from 459mn units in 2017, and the size of the global market for metal frames will expand at a CAGR of 37% over 2017–2020.

Figure 20: Global metal parts market sales

(Rmb mn) Metal casing Metal frame 160 140 120 100 80 60 40 20 - 2014 2015 2016 2017E 2018E 2019E 2020E

Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 13 CICC Research: January 30, 2018

Well-positioned in 3D glass

Capacity expansion ready for increasing demand

We expect glass casings to be a new source of revenue thanks to increasing output and ASPs.

BYDE has been supplying 2.5D glass casing for several China smartphone brands and has been expanding 3D glass casing capacity. The company now has capacity to produce 300,000 pieces daily in Huizhou, and it expects to have the capacity to produce 800,000 pieces daily in Shantou by June 2018. BYDE is promoting its 3D glass casing + metal frame solution to the market.

Figure 21: Glass casing revenue increasing Figure 22: 3D glass daily capacity

(Rmb mn) BYDE's glass casing revenue YoY (RHS) 900 (k pieces per day) 6,000 800% 800 700% 700 5,000 600% 600 500 4,000 500% 500

400% 400 3,000 300% 300 2,000 200% 200 100% 300 300 100 1,000 40 150 0% 15 0 - -100%

2013 2014 2015 2016 2017E 2018E 2019E

2017/03 2017/05 2017/09 2017/11 2018/06

Huizhou Shantou Source: Company data, CICC Research Source: Company data, CICC Research

Figure 23: Global glass casing market value and penetration

(Rmb mn) 2.5D glass casing 3D glass casing 900 Glass casing penetration (RHS) 60% 800 50% 700 600 40% 500 30% 400 300 20% 200 10% 100 - 0% 2015 2016 2017E 2018E 2019E 2020E

Source: Gartner, Company data, CICC Research

Glass casing penetration to increase; fits wireless charging and OLED

We believe 3D glass will be used on a large scale from 2018 and penetration of glass casing will increase to 28% in 2018 from 14% in 2017. Driven by the adoption of 3D glass, we expect the glass casing market to expand rapidly, growing a respective 38%/40%/39 over 2017–2019. In 2019, we believe glass casing will surpass metal casing with penetration of 40%.

Please read carefully the important disclosures at the end of this report 14 CICC Research: January 30, 2018

Increasing penetration of glass casing

The iPhone X introduced glass casing. A review of iPhone design innovations shows that glass remained an important casing element ahead of the iPhone 6, is consistent with screen materials and conforms to the simple aesthetic standard.

Figure 24: iPhone casing changes

Metal + Glass: Glass + Metal: Metal: iPhone 5/5s Plastic: iPhone 4/4s (two high- iPhone 6/6s/SE/7 Glass + Metal frame: (Aluminum alloy three- iPhone 3G/3GS strength glass and a (Anode aluminum iPhone 8/X part back board, circle of stainless steel) oxide) decorated with glass)

Source: Apple’s website, CICC Research

Glass outperforms metal in feeling, appearance and function. Compared to metal casing, glass underperforms in terms of strength, but it has a number of advantages—it looks better, requires no signal shielding, and is more conductive to wireless charging. Furthermore, glass casing will allow for better transmission rates as telecom services transition to 5G.

Figure 25: Glass casing vs. metal casing Metal Glass Hardness (Mohs scale) 4~5 7 Scratch / pressure Weak Strong resistance Strength against fracture Strong (Metal has lattice structure and first Weak (Amorphous structure, shape change is changes its shape when subjected to difficult) stress, making it hard to break.) Signal blocking Yes No Technology Unibody technology Shaped by hot bending. Fixed case (iPhone 4 uses a clip fastener) Coloring Anode aluminum oxide coloring Printed Cost Rmb150~250 Rmb15~20 (2~2.5D)

Source: www.glasshr.com, CICC Research

Higher ASP

Production of 3D glass casing is more difficult. Companies in the smartphone value chain told us the price of 3D glass is four times that of 2.5D glass due to lower yields. If yields increase, unit prices should decline, but production is also much more difficult.

Metal casing plants will need to produce frames and assemble casings. Metal casings are made in a single process, but front and back glass covers need support from metal frames and require assembly. Metal casing plants will have to purchase assembly machines to make glass casings.

We estimate the price of a total solution of 3D glass casing + metal frame at more than twice that of only a metal casing solution. Thus, with mass production and higher revenue contribution from glass casings, BYDE should see improvement in its product portfolio.

Please read carefully the important disclosures at the end of this report 15 CICC Research: January 30, 2018

Automotive electronics offer high growth potential

We believe the automotive business will bring much more upside to BYDE’s top and bottom line than the handset assembly business, given the much larger addressable auto market and higher gross margin (around 10%). BYDE’s automotive sales surged 136% to around Rmb700mn in 2016, and we expect high growth to continue, with the businesses sales increasing to Rmb1.5bn in 2017 and Rmb2.25bn in 2018.

Figure 26: Automotive revenue increasing Figure 27: Automotive products

(Rmb mn) BYDE's automotive business revenue Power Auto body Infotainment 3,000 YoY (RHS) 120% Safe control control electronics system

2,500 100% Direction Information ADAS Enging control system 2,000 80%

Automotive Brake Exhaust Dashboard 1,500 60% audio

1,000 40% Brake Automatic Control Automotive assistance transmission locking TV 500 20% Communication Anti-theft - 0% module 2016 2017E 2018E 2019E

Source: Company data, CICC Research Source: Company data, CICC Research

To leverage BYD’s experience to expand client base

BYDE sees growing its auto electronics business as a major initiative. The firm mainly engages in manufacturing modules for infotainment systems (access to navigation, music and other multimedia functions) for high-end German brand models, including BMW’s 5-series.

BYD (1211.HK) owns 67% of BYDE and is a leading automotive brand in China. At present, BYDE It indirectly supplies international high-end brands like Audi via tier-1 OEMs but does not directly provide automotive products for its parent company models. We believe BYDE could leverage BYD’s experience in automotive technology and client cooperation to further expand its client base and grow further. The group is also expected to internally adjust personnel and production.

Demand for automotive electronics increasing with auto market upgrades and expansion

Market for autonomous driving hardware may reach US$48.6bn in 2025. Mainstream technologies are now confined to the SAE L2 (partial automation), and major OEMs aim to realize SAE L4 (full automation) by 2020–2021. Gartner estimates that automotive electronics now occupy around 10% of the global semiconductor market, and the market likely expanded to US$34.3bn in 2017 (+6.2%) and could reach US$35.8bn in 2018 (+7.2%). Based on ADAS penetration at various SAE levels, we expect the market for autonomous driving sensors and chipsets to total US$48.6bn in 2025.

Please read carefully the important disclosures at the end of this report 16 CICC Research: January 30, 2018

Figure 28: Autonomous driving market estimates Global auto sales ADAS penetration Market size Year (mn) L1/2 L3/4 (USD bn) 2016 88 17.0% 0.0% 10 2020 100 25.0% 1.0% 29 2025 112 45.0% 5.0% 49 Source: Mobileye, Nvidia, Infineon, Tesla, Quanergy, Bosch, BCG, IEK, CICC Research

Please read carefully the important disclosures at the end of this report 17 CICC Research: January 30, 2018

Target price set at HK$22

Outlook for 2017/18/19e

We expect BYDE’s net profit to reach Rmb2.55bn/3.20bn/3.69bn in 2017/18/19e, respectively, implying YoY growth of 106%/26%/15%, backed by both sales expansion and margin enhancement. We estimate the company’s sales to grow 18%/11%/5% in 2017/18/19e and its gross margin to improve 2.9ppt/0.6ppt/0.4ppt YoY, buoyed by: 1) increasing sales of high-margin metal and glass casings; 2) more contributions from automotive business; and 3) increasing operation efficiency driven by organizational adjustments and a high level of automation.

Figure 29: Revenue trends Figure 30: Net profit trends

(Rmb bn) BYDE's revenue (Rmb bn) YoY (RHS) (Rmb mn) BYDE's net profit (Rmb mn) YoY (RHS) 60 60% 4,000 120% 50% 3,500 100% 50 40% 3,000 80% 40 60% 30% 2,500 40% 30 20% 2,000 20% 10% 1,500 20 0% 0% 1,000 -20% 10 -10% 500 -40% - -20% - -60% 2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

Source: Company data, CICC Research Source: Company data, CICC Research

We expect BYDE’s earnings to increase at a 22% CAGR over 2017–2019. We set our target price at HK$22, based on 12x 2018e P/E. Tracking back, BYDE’s forward P/E peaked at 22.7x and bottomed at 4.1x, while its forward P/B peaked at 4.1x and bottomed at 0.3x.

Figure 31: Valuations of comparable companies CICC Mktcap Currency Stock price TP P/E P/B Ticker Company rating (US$ mn) 2018/1/30 2017E 2018E 2019E 2017E 2018E 2019E Casing competitors 300115.SZ Everwin BUY 2,751 RMB 19.15 40 27.5 18.8 15.7 3.9 3.3 2.8 300433.SZ Lens Tech Not rated 11,178 RMB 26.90 NA 32.3 21.3 16.2 4.2 3.5 2.9 300408.SZ Three Circle Not rated 5,812 RMB 21.12 NA 32.4 23.2 17.0 6.1 5.1 4.1 2018.HK AAC BUY 20,476 HKD 131.00 180 35.5 26.1 20.9 10.8 8.3 6.5 0698.HK Tongda Not rated 1,386 HKD 1.79 NA 10.3 7.6 6.5 1.9 1.6 1.4 Average 27.6 19.4 15.3 5.4 4.4 3.5 Median 32.3 21.3 16.2 4.2 3.5 2.9 Other electronic components competitors 2382.HK Sunny Optical BUY 15,014 HKD 107.00 153 53.8 36.5 27.5 20.8 14.6 10.4 002475.SZ Luxshare BUY 10,873 RMB 21.68 27 37.7 26.8 20.6 5.2 4.4 3.6 002241.SZ Goertek BUY 7,643 RMB 14.90 25 21.4 16.1 13.0 3.6 2.9 2.4 002456.SZ O-film Not rated 7,723 RMB 18.00 NA 33.2 21.5 15.6 4.9 4.1 3.3 6088.HK FIT Hon Teng BUY 4,255 HKD 4.94 10 18.6 14.2 11.1 2.1 1.8 1.5 1478.HK Q-Tech Not rated 1,493 HKD 10.46 NA 30.5 21.6 16.6 6.9 5.7 4.7 Average 30.3 21.3 16.4 6.4 5.0 4.0 Median 32.3 21.5 16.2 4.9 4.1 3.3 Note: All stock prices as of January 29, 2018 Source: Bloomberg, company data, CICC Research

Please read carefully the important disclosures at the end of this report 18 CICC Research: January 30, 2018

Strong cash flow and balance sheet

BYDE’s ROE has been trending up, and its asset turnover and net margin have both increased. The company has a much stronger balance sheet than its peers, with ample cash and no debt, supported by robust free cash flow. The company has never raised funds since its IPO.

Figure 32: ROE Figure 33: Dupont analysis

Asset turnover rate Asset/ equity Net margin (RHS) ROE 16% 14.7% 2.3 6.5% 14% 2.1 6.0% 1.9 5.5% 12% 11.1% 9.7% 1.7 5.0% 10% 9.0% 7.8% 7.6% 1.5 4.5% 8% 1.3 4.0% 6% 4.7% 1.1 3.5% 4% 0.9 3.0% 2% 0.7 2.5% 0% 0.5 2.0%

2010 2011 2012 2013 2014 2015 2016

2010 2012 2013 2014 2015 2016 2011 Source: Company data, CICC Research Source: Company data, CICC Research

Figure 34: Cash flow trends

(Rmb mn) Net operating cash flow Net investing cash flow Net financialing cash flow

4,000 3,359 2,954 3,000 2,349 1,647 2,000 1,296 948 1,000 744 0 0 - -123 -7 -70 -3 -178 (1,000) -603 -636 (2,000) -1,366 -1,790 -1,864 -1,851 (3,000) -3,118 (4,000) 2010 2011 2012 2013 2014 2015 2016

Source: Company data, CICC Research

Figure 35: Capex trends Figure 36: Net cash per share (Rmb mn) Capex Capex/ revenue (Rmb) Net cash per share 3,500 12% 1.4 1.32

3,000 1.2 10% 1.05 2,500 1.0 0.94 0.94 8% 0.87 0.77 2,000 0.8 0.69 6% 1,500 0.6 4% 1,000 0.4

500 2% 0.2

- 0% 0.0 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Source: Company data, CICC Research Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 19 CICC Research: January 30, 2018

Figure 37: Forward P/E band Figure 38: Forward P/B band

(HKD) (HKD) 35 30 20.0x 30 25 4.1x 25 15.0x 20 20 2.9x 15 15 10.0x 10 1.7x 10 5.0x 5 5 0.5x 0 0

Jul-13 Jul-10 Jul-11 Jul-12 Jul-14 Jul-15 Jul-16 Jul-17

Jul-09 Jul-08 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Source: Company data, CICC Research Source: Company data, CICC Research

Figure 39: Income statement (Rmb mn) 2014A 2015A 2016A 2017E 2018E 2019E Revenue 19,832 29,286 36,734 40,982 46,420 50,197 YoY 23% 48% 25% 12% 13% 8% COGS -17,727 -27,382 -33,934 -36,516 -40,984 -44,063 Gross profit 2,105 1,904 2,800 4,466 5,436 6,134 Gross margin (%) 11% 6% 8% 11% 12% 12% Opex -1,223 -1,117 -1,608 -1,609 -1,823 -1,870 as % of sales -6.2% -3.8% -4.4% -3.9% -3.9% -3.7% Operating Income 882 787 1,193 2,857 3,613 4,263 Financial Income & Expense 130 250 241 96 94 115 Interes income 105 57 109 123 121 142 Finance costs -6 -3 -27 -27 -27 -27 Others 30 195 159 0 0 0 Pre-tax income 1,012 1,036 1,433 2,954 3,707 4,379 Tax -111 -128 -200 -411 -516 -610 Tax rate (%) -11% -12% -14% -14% -14% -14% Minority interest ------Profit attribute to shareholders 902 908 1,233 2,542 3,191 3,769 YoY 39% 1% 36% 106% 26% 18% Net margin (%) 4.5% 3.1% 3.4% 6.2% 6.9% 7.5% Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 20 CICC Research: January 30, 2018

Figure 40: Balance sheet (Rmb mn) 2014A 2015A 2016A 2017E 2018E 2019E Inventory 2,439 3,948 3,338 4,524 4,300 5,187 Accounts receivable 6,428 8,270 9,793 10,414 12,474 12,276 Cash 1,740 1,959 2,966 3,822 6,597 9,177 Other current assets 241 270 247 247 247 247 Total current assets 10,848 14,447 16,344 19,007 23,618 26,887 Fixed assets 4,697 6,657 6,397 6,954 7,415 7,797 Prepaid land lease payments 224 219 215 215 215 215 Intangible assets 21 18 25 25 25 25 Other long-term assets 1,044 903 1,015 1,015 1,015 1,015 Total long-term assets 5,987 7,797 7,651 8,208 8,669 9,051 Total assets 16,834 22,244 23,995 27,215 32,288 35,939 Trade & bills payables 5,170 9,265 10,119 10,797 12,679 12,560 Bank loans 0 0 0 0 0 0 Other current liabilities 1,999 2,431 2,122 2,122 2,122 2,122 Current liabilities 7,169 11,697 12,241 12,919 14,801 14,682 Non-current liabilities 0 0 0 0 0 0 Share capital 4,052 4,052 4,052 4,052 4,052 4,052 Reserves 5,888 6,796 7,879 10,244 13,435 17,204 Others -275 -301 -177 0 0 0 Minority shareholder 0 0 0 0 0 0 Equity attributable to shareholders 9,665 10,548 11,754 14,296 17,487 21,256 Source: Company data, CICC Research

Figure 41: Cash flow statement (Rmb mn) 2014A 2015A 2016A 2017E 2018E 2019E Profit after tax 902 908 1,233 2,542 3,191 3,769 Depreciation 907 1,295 1,736 1,443 1,539 1,618 Change in WC -348 -726 -650 -1,130 46 -807 Others -165 1,882 636 0 0 0 Operating cashflow 1,296 3,359 2,954 2,856 4,775 4,580 Capex -1,975 -3,121 -1,878 -2,000 -2,000 -2,000 Prepayment for land lease/PPE 0 0 0 0 0 0 Disposals of PPE 0 0 0 0 0 0 Acquisition 0 0 0 0 0 0 Others 111 3 27 0 0 0 Investing cashflow -1,864 -3,118 -1,851 -2,000 -2,000 -2,000 Dividends 0 0 0 0 0 0 Increase in loans 0 0 0 0 0 0 Decrease in loans 0 0 0 0 0 0 Others -70 -3 -178 0 0 0 Cashflow from financing -70 -3 -178 0 0 0 Net cashflow -635 219 1,007 856 2,775 2,580 Cash at beginning of year 2,375 1,740 1,959 2,966 3,822 6,597 Effect of FX changes 4 -19 82 0 0 0 Cash at end of year 1,740 1,959 2,966 3,822 6,597 9,177 Source: Company data, CICC Research

Risks

Fierce competition in metal parts; penetration of 3D glass casing disappoints; weak demand for smartphones.

Please read carefully the important disclosures at the end of this report 21 CICC Research: January 30, 2018

Appendix: Company background

BYDE’s origin can be traced to 2002, when BYD (1211.HK) listed in Hong Kong and spun off a large part of its handset component and assembly business into BYD Electronic. In 2007, BYDE listed in Hong Kong (0285.HK). The company is a world-leading provider of original design, component-manufacturing and complete assembly services for mobile intelligent terminals. It provides vertically integrated, one-stop services to leading global brand manufacturers of mobile intelligent terminals (OEMs), covering both EMS and ODMs.

Figure 42: Milestones

2015 2017 • Started supplying well- • Expanded scope of metal known notebook component applications manufacturers • Committed to becoming world's 2010 • Assembly business leading 3D glass casing supplier segment began to Vigorously developed provide smart phone 3G handset ODM EMS services business; TD-SCDMA particularly prominent 2008 Chennai India production base (phase I) completed and put into production 2002 Group business restructuring. BYD IT industry group established (BYD predecessor)

2016 • Began mass producing Future 2013 2.5D glass casings and Will actively develop Expanded metal supplying international automotive electronics, casing business; brands unmanned aerial vehicles developed plastic and • Began mass producing and other intelligent hardware metal mixing ceramic casings 2009 technology (PMH) • Handset component business expanded wtih BYD Huizhou buying BYD Company Limited's handset charger business 2007 • Listed in HK (0285.HK) • BYD Huizhou established to provide high-end assembly services • BYD India established to manufacture handset components

Source: Company data, CICC Research

Please read carefully the important disclosures at the end of this report 22 CICC Research: January 30, 2018

Management profile

► Non-executive Chairman Chuan-fu Wang (王 传福 ): In February 1995, he founded Shenzhen BYD Battery with Lu Xiang-yang and took the position of general manager. He is a non-executive director and chairman of BYDE and also the chairman, executive director and president of the BYD Group; a director of Shenzhen BYD Daimler New Technology, and a director of BYD Charity Foundation.

► Chief Executive Officer and Executive Director Nian-qiang Wang (王念强): Mr. Wang worked at the Anhui Tongling Institute of Non-ferrous Metals as an engineer. He joined Shenzhen BYD Battery in February 1995 as a chief engineer. He has since assumed various other positions within the group. Immediately prior to his appointment to BYDE, he was vice president and general manager of BYD’s Division 1 and a director of the BYD Charity Foundation. On April 27, 2015, he resigned as vice president of BYD.

► Executive Director Bo Wang (王渤): Mr. Wang worked as assistant engineer at the No. 18 Research Institute of China Electronics Technology Group, and a process engineer and resource development manager at Motorola (China). He joined the group in September 2001 and is responsible for marketing and sales and the day-to-day management of the commercial and customer service aspects of company business.

► CFO Ai-yun Zhu (朱爱云): Ms. Zhu worked as an accountant for Yantai, Marine Salvage Bureau under the Ministry of Communications and in 1997 joined the BYD Group, where she served as an accountant, manager and senior manager of the financial department.

► COO and Executive Director Yi-zao Sun (孙一藻): Mr. Sun joined the group in December 2002 and is responsible for managing various aspects of BYDE business such as production, procurement and quality control.

Please read carefully the important disclosures at the end of this report 23 CICC Research

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Beijing Jianguomenwai Avenue Branch Beijing Kexueyuan South Road Branch Shanghai Pudong New District Century Avenue 1st Floor, Capital Tower Room 1311, Block B, Raycom Infotech Park Branch 6A Jianguomenwai Avenue 2 Kexueyuan South Road, Haidian District Unit 4609-14, 46th Floor, Phase II Shanghai IFC, No.8 Beijing 100022, P.R. China Beijing 100022, P.R. China Century Avenue, China (Shanghai) Pilot Free Trade Tel: (86-10) 8567-9238 Tel: (86-10) 8286-1086 Zone, Shanghai, 200120, P.R. China Fax: (86-10) 8567-9235 Fax: (86-10) 8286 1106 Tel: (86-21) 5359-9800 Fax: (86-21) 2057-9488

Shanghai Huangpu District Hubin Road Branch Shenzhen Fuhuayilu Branch Hangzhou Jiaogong Road Branch 18th Floor, 3 Corporate Avenue,No.168 Room 201, Annex Building 1st Floor, Euro American Center Hubin Road, Huangpu District, Shenzhen Duty Free Commercial Tower 18 Jiaogong Road Shanghai 200021, P.R. China 6 Fuhua 1st Road, Futian District Hangzhou 310012, P.R. China Tel: (86-21) 6386-1195 Shenzhen 518048, P.R. China Tel: (86-571) 8849-8000 Fax: (86-21) 6386-1180 Tel: (86-755) 8832-2388 Fax: (86-571) 8735-7743 Fax: (86-755) 8254-8243

Nanjing Hanzhong Road Branch Guangzhou Tianhe Road Branch Chengdu Binjiang Road (East) Branch Section C, 30th Floor, Asia Pacific Tower 40th Floor, Teemtower 1st & 16th Floors, Shangri-La Center 2 Hanzhong Road, Gulou District 208 Tianhe Road Block 9B, Binjiang Road (East) Nanjing 210005, P.R. China Guangzhou 510620, P.R. China Chengdu 610021, P.R. China Tel: (86-25) 8316-8988 Tel: (86-20) 8396-3968 Tel: (86-28) 8612-8188 Fax: (86-25) 8316-8397 Fax: (86-20) 8516-8198 Fax: (86-28) 8444-7010

Xiamen Lianyue Road Branch Wuhan Zhongnan Road Branch Qingdao Middle Hongkong Road Branch 4th Floor, Office Building, Paragon Center 4301-B, Poly Plaza 11th Floor, Shangri-La Center 1 Lianyue Road, Siming District 99 Zhongnan Road, Wuchang District Block 9, Hongkong Road (M), South District Xiamen 361012, P.R. China Wuhan 430070, P.R. China Qingdao 266071, P.R. China Tel: (86-592) 515-7000 Tel: (86-27) 8334-3099 Tel: (86-532) 6670-6789 Fax: (86-592) 511-5527 Fax: (86-27) 8359-0535 Fax: (86-532) 6887-7018

Chongqing Honghu Road (West) Branch Tianjin Nanjing Road Branch Dalian Gangxing Road Branch 1st & 10th Floors, Ourui Lanjue Center 10th Floor, Tianjin Global Trading Center 16th Floor, Wanda Center Block 9, Honghu Road (W), New North District 219 Nanjing Road, Heping District 6 Gangxing Road, Zhongshan District Chongqing 401120, P.R. China Tianjin 300051, P.R. China Dalian 116001, P.R. China Tel: (86-23) 6307-7088 Tel: (86-22) 2317-6188 Tel: (86-411) 8237-2388 Fax: (86-23) 6739-6636 Fax: (86-22) 2321-5079 Fax: (86-411) 8814-2933

Foshan Jihua 5th Road Branch Yunfu Xinxing Dongdi North Road Branch Changsha Chezhan Road (North) Branch 12th Floor, Trend International Business Building 2nd Floor, Service Building C1, Wens Science & 3rd Floor, Annex Building, Securities Tower 2 Jihua 5th Road, Chancheng District Technology Garden, Dongdi North Road 459 Chezhan Road (North), Furong District Foshan 528000, P.R. China Xincheng Town, Xinxing County Changsha 410001, P.R. China Tel: (86-757) 8290-3588 Yunfu 527499, P.R. China Tel: (86-731) 8878-7088 Fax: (86-757) 8303-6299 Tel: (86-766) 2985-088 Fax: (86-731) 8446-2455 Fax: (86-766) 2985-018

Ningbo Yangfan Road Branch Fuzhou Wusi Road Branch Xi’an Yanta Branch 11th Floor, Building Five, 999 Yangfan Road 38th Floor, Henglicheng Office Building 21th Floor, Capitaland West Tower, Hi-tech Industrial Development Zone No.128 Wusi Road, Gulou District No.64 Second Ring South Road West Section, Ningbo 315103, P.R. China Fuzhou 350001, P.R. China Yanta District, Xi'an 710065, P.R. China Tel: (86-574) 8907-7288 Tel: (86-591) 8625 3088 Tel: (+86-29) 8648-6888 Fax: (86-574) 8907-7328 Fax: (86-591) 8625 3050 Fax: (+86-29) 8648-6868