This Chinese electric carmaker's stock could rally by more than 260%, Citi says

Published Mon, Oct 31 20228:20 PM EDT

Citi says BYD is one of its "top" buy ideas among Chinese stocks and expects shares in the automaker to soar by more than 260% over the next 12 months. The Wall Street bank expects shares in the Warren Buffett-backed company to hit 640 Hong Kong dollars ($81.50) from around 175 Hong Kong dollars currently. The Citi analysts said in a note to clients on Oct. 25 that they expect BYD to grow sales of "new energy vehicles" by 137% next year from 1 million units this year. China classifies battery, plug-in hybrid, or electric fuel cells as NEVs. Jeff Chung, an equity analyst at Citi, reiterated his buy rating and price target on the stock after the company announced earnings on Oct. 28. Chung said the 52% rise in NEV sales in the third-quarter was a "bright spot" in the company's results. Chung also expects net profit per car to rise by 20% to 12,000 Yuan ($1,644) on sales of up to 280,000 vehicles in the next quarter. Chung's price target for BYD is significantly higher than other analysts'. The median price target from six analysts covering the stock gives the stock a potential upside of 60.8%, according to FactSet data. However, Chung said his price target for BYD was derived from an estimated future earnings growth rate that is comparable to its peers such as CATL and Tesla . "We believe [it] is justified as we see BYD as a key winner from sector consolidation," he added. Shares in BYD, which also trade in the U.S. over the counter, have fallen 38.8% this year, but are up 600% over the past 10 years. In the past year, Chinese stocks have fallen sharply on concerns over lackluster growth in the broader economy, tighter financial conditions for the property sector, and increased regulation. The Shenzhen Component and the Shanghai Composite indexes are in a bear market this year and have been targets for short sellers. BYD was the sixth most shorted stock in China by total dollar value as of Oct. 28, according to data analytics firm S3 Partners. However, bets against the carmaker have eased over the past 30 days as short sellers take profit. Citi Research thinks China GDP growth will rebound to 5.6% next year if Covid restrictions are lifted more meaningfully following the National Party Congress in March. "With politics settled, Beijing may refocus on economic development, and policy uncertainty could diminish as a result as well," the analysts said. Citi analysts recommended investors in China adopt a "barbell strategy" — a mix of conservative stocks to protect against downside risks and "high-conviction growth stocks" — in their base case scenario. Their basket of stocks includes the Bank of China (Hong Kong) , China Mobile , and PetroChina for the defensive and BYD, JD.com , and Mengniu for growth. —CNBC's Michael Bloom contributed to this report.