The Tale of BYD before and after its A Share IPO: The Art of Precise Profit Management

This case is set in 2011, before and after BYD’s return to the A-share market in June that year. The case describes how BYD attracted much attention from the media and investors after receiving an investment from Warren Buffett’s MidAmerican Energy Holdings in September 2008. BYD’s share price soared from HK$ 8.4 per share (the closing price on the date of the signing of the Placing Agreement with MidAmerican Energy Holdings) to a record high of HK$ 85.5 per share (the closing price on October 23, 2009), an increase of 917.86%. The miracle that BYD had created set high expectations among Chinese investors for its return to the A-share market in June 2011. Although BYD’s 2010 Annual Report showed that its performance had already taken a dip, its Prospectus gave an optimistic statement on the market prospects for its three main business activities. But the first quarter report of 2011 issued one day before its A-share IPO confirmed the earlier worries of the investors. Though BYD’s A-shares fared quite well on the day of the IPO, its mid-year report fell short of investors’ expectations, showing a massive decline of 88.6% in net profits and forecasting a further slide for the 3rd quarter. However, the 2011 annual report surprised everyone with a statement that operating profits had declined by only 49.04% year on year, meaning the company narrowly escaped being called to account by the CSRC (which would have taken action had losses exceeded 50%, as specified in Article 72 of the Administrative Measures for the Sponsorship Business of the Issuance and Listing of Securities).