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Chardan warning hits BYD

(China Daily/Agencies)
Updated: 2009-11-19 08:07

BYD Co, the Chinese electric-car maker backed by Warren Buffett, fell the most in two weeks in Hong Kong after Chardan Capital Market LLC advised investors to sell the stocks following a fivefold jump in the share price.

The company dropped as much as 7.6 percent, the biggest intraday decline since Nov 2. It closed down 6 percent at HK$64.65.

BYD is overvalued as it's trading at 37 times next year's earnings, a premium to peers, Chardan said. Investors replicating Buffett's strategy have caused the automaker to surge since the billionaire's Berkshire Hathaway Inc agreed to buy a stake last year.

"It's time to get off this bus," Chardan said in a note to investors on Monday. "Given that electric vehicles remain years away from gaining meaningful penetration, we would recommend investors take profits."

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Chardan began coverage with a "sell" rating and a 12-month price target of HK$40. That's 38 percent lower than yesterday's close.

Berkshire's MidAmerican Energy Holdings Co bought 225 million new shares of BYD for HK$8 apiece in July. The tie-up with Buffett may help boost BYD's profile overseas and also reassure potential customers, Chief Executive Wang Chuanfu said last year. The automaker started selling the F3DM, the world's first mass-produced plug-in hybrid car, in December, 2008.

The Chinese company has said it plans to sell shares on the mainland to help fund development of its automobile business.

BYD's Wang was named China's richest man by Forbes Magazine earlier this month after Buffett's investment helped increase his estimated personal wealth to $5.8 billion.