Investment Summary

GAC Group`s 2018 interim results were in line with expectations, and sales in July/August 2018 recovered well. It is expected that the Company will maintain steady growth this year under the strong product cycle of the joint venture car companies. We revised the Company`s 2018 earnings forecast and introduce the predicted value of 2019. We reaffirm the “Buy” rating with the target price to HKD 11. (Closing price as at 5 September)

Mid-term result basically in line with expectations

According to GAC`s latest result report, the net profit attributable to the parent company in 2018 H1 increased by 10.3% yoy to RMB6.91 billion, which is basically in line with our expectations. Earnings per share were diluted to RMB0.68 due to the expanded share capital by 12.8%, and the interim dividend was RMB0.1.

The growth of the Group`s car sales volume slowed down in H1

At the group level, GAC`s total sales volume recorded 1,017,000 units in H1. The increase in the base number and the slowdown in the industry slackened the growth rate from over 30% in the last year to 5.5%. Among them, GAC Honda/GAC Toyota/GAC`s self-developed brands/GAC Fait/GAC Mitsubishi increased by 5.5%/16.4%/6.9%/-35%/38%, respectively, contributing the incremental sales of 17,631/35,932/17,319/-38,119/20,951 units, respectively.