China's Buffett-backed BYD shares surge on debut

AP News
Posted: Jun 30, 2011 4:53 AM
China's Buffett-backed BYD shares surge on debut

Shares in Chinese auto and battery maker BYD Co. jumped 41 percent in their debut on the Shenzhen Stock Exchange on Thursday, despite news that the company's profit fell by 84 percent in the first quarter.

Shenzhen-based BYD's 1.42 billion yuan ($220 million) share offering was aimed at raising cash needed for an expansion mainly focused on an auto research, development and production base.

Its shares gained 7.45 yuan, or 41.4 percent, to 25.45 yuan, performing much better than some other recent lackluster share offerings.

BYD, whose name stands for Build Your Dreams, said the plunge in its first quarter profit was mainly due to weak auto sales. Unaudited results showed net profit in the quarter ended March 31 was 266.7 million yuan ($41.2 million), compared with 1.7 billion yuan a year earlier, it said.

"The performance in the first quarter of 2011 dropped significantly, which was mainly due to a decline in the performance of the automobile business," BYD said in a notice to the Hong Kong Stock Exchange, where its shares already trade. But it also noted weakening sales of rechargeable batteries and cell phone parts.

MidAmerican Energy, a subsidiary of billionaire investor's Warren Buffett's Berkshire Hathaway, owns 9.9 percent of BYD.

The company sold 79 million shares, or a 3.4 percent stake, at 18 yuan each in its offering on the Shenzhen Stock Exchange, the smaller of China's two stock markets.

Local media reports said the company chose to be listed on the small- and medium-size company index to help improve the likely performance of its shares. The company scaled back its original fundraising plans by some 770 million yuan ($119 million), apparently in recognition of relatively weak markets recently.

The Shenzhen Composite Index has lost 9.4 percent in the past three months, as sentiment has been battered by worries over the slowing economy.

BYD's sales of its best-selling F3 conventional sedan have faltered as the once torrid Chinese car market, the world's largest, has cooled in recent months. Efforts to win a wider market for its hybrid electric cars have also made slow progress.

In recent comments to shareholders, Berkshire Hathaway's vice chairman, Charlie Munger, said he was still enthusiastic about BYD, despite its recent troubles, which have delayed its plans to launch car sales in North America.

Munger said BYD's mistake was in trying to double its automotive sales every year for six years in a row. It worked for the first five years, he said.

The company started out making batteries and later shifted to automaking. Recently, it has branched into energy storage systems and bus production.

The strategy reflects an expectation that China will move faster in commercializing use of electric buses than private autos, said a report Thursday in the state-run newspaper Southern Weekend.

Until China develops the infrastructure needed to support wider use of electric vehicles, BYD sees greater promise in sales to government fleets and bus companies, it said.