Li Ka-shing Follows Warren Buffett’s Path

Posted by: Bruce Einhorn on January 26, 2010

Before Warren Buffett invested in the company, few investors outside China knew much about BYD, a Chinese manufacturer of batteries for mobile phones. Then Buffett’s Berkshire Hathaway paid $231 million for a 9.9% stake in BYD, attracted by the company’s diversification into autos, especially electric cars. Buffett’s investment triggered an amazing surge in BYD’s Hong Kong-listed stock price, which has gone up 550% since news of the Buffett investment broke in September 2008.

Might lightning strike twice? That’s what some investors are hoping today after learning that Hong Kong’s richest man is making a bet similar to Buffett’s. Jia Sheng Holdings, a Hong Kong-listed manufacturer of auto parts, announced today that Li Ka-shing, the billionaire who controls blue chips Hutchison Whampoa, Cheung Kong, Hong Kong Electric and many other companies, is buying a 2.5% stake in the company for $38 million. According to my colleagues at Bloomberg News, Jia Sheng is diversifying into batteries for electric vehicles and will use some of Li’s money to build battery factories. Sure enough, Jia Sheng’s shares – which as late as December 1 were worth just 17 Hong Kong cents (that’s two pennies in the U.S.) – surged today 61% to close at HK$1.43.

Meanwhile, BYD is pushing ahead even more aggressively. The company has quickly become one of the largest Chinese automakers (and the top car company outside of state control), and it now plans to launch its rechargeable electric car, the e6 hatchback, in the U.S. by the end of the year. The company had earlier planned on waiting till 2011 for the U.S. launch of the e6. According to Bloomberg News on Jan. 22, a BYD spokesman told China Business News the company also plans to invest $3.3 billion in a plant to make solar-powered batteries.

Investors in Jia Sheng shouldn’t get carried away. First of all, success in green cars is no sure thing: China last year passed the U.S. as the world’s largest auto market, but hybrids and other green cars have yet to catch on in the country, as automakers look to Beijing to offer incentives to make environmentally friendly cars more affordable. And despite his reputation in Hong Kong as Superman, Li Ka-shing makes some bad decisions every so often. Remember tom.com, his fledgling Internet company that IPOed just before the dot-com bubble burst? (The name tom didn’t mean anything, it just rhymed with com.) On March 1, 2000, the company began its first day of trading in Hong Kong priced at HK$7.75 a share. Today, the company (renamed Tom Group) trades at 79 Hong Kong cents a share.

Reader Comments

Efficient Market Theory Really Works

January 26, 2010 7:44 PM

So he can sell out his stock to those who buy only because he bought...

Steven

January 26, 2010 10:29 PM

BYD has a very short history in auto industry, but its sold more than 400,000 cars in China, average growth rate of 100% a year in 5 years. Its target is 800,000 in 2010. China it own has huge market space for domestic companies. On the contrary, entering US market does not mean profit.

I bet BYD is using "entering US market" as a marketing tool for Chinese domestic sales.

Husin O'Bama

January 26, 2010 10:32 PM

Beware of the wily old foxes. It is only a matter of time when they promote green cars to enrich themselves.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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