Goldman Sachs maintains 's shares traded in Hong Kong on its Conviction Buy list with a price target of HK$405.

(Image credit: BYD)

BYD (SHE: 002594, HKG: 1211, OTCMKTS: BYDDF) announced an earnings preview yesterday and analysts are starting to get more optimistic about the company's profitability.

BYD maintained its gross margin in the second quarter amid rising battery costs, Goldman Sachs said in its latest research note, adding that they believe the company's profitability will continue to expand in the second half of this year, according to the content shared by Sina.

BYD expects to achieve a net profit attributable to shareholders of RMB 2.8 billion ($410 million) to RMB 3.6 billion in the first half of the year, up 138.59 percent to 206.76 percent from RMB 11.7 in the same period a year earlier, according to its earnings preview released yesterday.

This means that in the second quarter, BYD's net profit attributable to shareholders is expected to be RMB 1.992 billion to RMB 2.792 billion, up 112.7 percent to 198.2 percent year-on-year and up 146.4 percent to 245.3 percent from the first quarter.

Goldman Sachs said BYD's performance in the second quarter was better than the bank and the market's consensus expectations.

Within its capacity, BYD has been shifting its production mix from lower-priced models to higher-priced models, Goldman Sachs noted.

Goldman Sachs maintained BYD's shares traded in Hong Kong on its Conviction Buy list with a price target of HK$405.

As of press time, BYD was up 3.67 percent to HK$293.4 in Hong Kong. Goldman Sachs' price target implies a 38 percent upside.

Over the past year, while BYD's new energy vehicle (NEV) deliveries have continued to rise, its earnings have not risen at the same rate, raising some questions about its profitability.

BYD's earnings preview, released yesterday, is beginning to dispel those doubts.

BYD earned an average profit of RMB 5,600-7900 ($1,170) per vehicle in the second quarter, CSC Financial said today, citing their calculations. For comparison, that figure was RMB 2,400 in the first quarter.

The surge in NEV sales drove a significant improvement in earnings and somewhat eased earnings pressure from upstream raw material prices, BYD said in its earnings preview yesterday.

Although upstream raw material costs were rising in the first half of the year, the company saw some price increases for its products to cope with the situation, Yicai said in a report earlier today, citing BYD sources.

The source said that upstream raw material costs are stabilizing, and if they come back down in the future, BYD will see more profitability.

BYD's monthly production expected to reach about 300,000 units in August, report says