Investment Summary

– 60% Decrease in 2017H Results

– Beijing Mercedes-Benz`s doubled profits

– BAIC self-owned brand and Beijing Hyundai all turn gain to loss

Investment Thesis

Judging from the latest sales data, in July, sales volume of Beijing Hyundai and BAIC selfowned brand increased month on month, but we think it is difficult to see a strong rebound in the short term. The strong momentum of Beijing Mercedes-Benz has not diminished, with a sales increase of 48% year on year in July. In terms of new energy vehicles, BAIC selfowned brand, Beijing Hyundai and Beijing Mercedes-Benz have sufficient reserves of new energy models in the low, medium and high fields, aiming to meet the challenges of future new energy market competition.

Semiannual report of the company showed that the result was greatly worse than expected, so we reduced the company`s earnings forecast. Earnings per share in 2017/2018 will reach to 0.62/0.84 yuan. We will also reduce target price to 7.62 HKD (10.4/7.7x for 2017/2018 P/E) and rating to careful accumulate.