- Investment Summary

2017 Result Forecast in Line with Expectation

Sales increase by more than 20% throughout 2017

Ideal situation in the first two months in 2018

The sales target for 2018 will be met hopefully

The overweight of a major shareholder gives a positive signal

- Investment Thesis

2017 Result is in line with our expectation. With a good beginning and a brilliance new car plan in 2018, we believe that the excellent growth will last for GAC in this year, and so we reaffirm the estimate of the company's EPS to RMB 1.64/2.08 in 2017/2018, and target price to HKD 24.65, equivalent to 12.7/10x P/E ratio in2017/2018, and the "Buy" rating. (Closing price as at 9 March 2018)

2017 Result Forecast in Line with Expectations

According to GAC's preliminary results, the net profit attributable to parent company in 2017 grew by 55% to 85% yoy to RMB9.74 billion - RMB11.63 billion with the median of RMB10.7 billion (+70%), close to the estimated RMB10.6 billion.

Sales increase by more than 20% throughout 2017

GAC sold approximately 2 million vehicles throughout 2017, an increase of 21.3 % yoy. Among other things, approximately 1,997,000 passenger vehicles were sold, an increase of 21% yoy, and 4,168 commercial vehicles were sold, an increase of 111% yoy. The production and sales announcement indicated that the sales volume of GAC Honda rose by 10.4% yoy to 705,000; that of GAC Toyota rose by 4.9% yoy to 442,000; that of the self-owned brand passenger vehicles of GAC rose by 36.7% yoy to 509,000; that of GAC Fiat Chrysler rose by 40% yoy to 205,000; that of GAC Mitsubishi rose by 110% yoy to 117,000. The five major increment contributors were GAC's self-owned brand (+137,078), GAC Honda (+66,231), GAC Mitsubishi (+61,440), GAC Fait (+58,738) and GAC Toyota (+20,580).

From the perspective of models, the sales volume of middle- to upper-class sedans decreased by 3% to 250,000, that of middle-class sedans increased by 5.8% to 360,000, that of economical sedans increased by 13% to 206,000, and that of MPV decreased by 20% to 38,000. Model SUV accounts for the largest proportion of the total sales volume. Its annual sales volume surged by 40.7% yoy to 1,135,000, accounting for 94% of the total annual sales volume of all passenger vehicles, up by 7.8ppts to 56.8% from 49% of the previous year. The sales volume of Trumpchi GS4, a self-owned brand, totaled up to 335,000, ranking the fourth among domestic SUVs; that of GS8 exceeded 100,000; those of Highlander of GAC Toyota and Avancier of GAC Honda, two high-end SUV models, were near to 100,000 and 90,000, respectively; those of other fast-selling SUV models like Vezel, Cherokee, Compass, and Outlander turned out to be excellent by virtue of their unique power of product and marketing.

Ideal situation in the first two months in 2018

According to the Company's preliminary production and sales results, in the first two months of 2018, the sales volume of passenger vehicles rose by 15% yoy to approximately 320,000. From the perspective of classification of automobile companies, GAC Honda jumped by 30% yoy to 112,000; that of GAC Toyota slightly declined by 4.5% yoy to 680,000; that of the passenger vehicles of GAC surged by 20% yoy to 950,000; that of GAC Fiat Chrysler decreased by 25% yoy to 210,000; that of GAC Mitsubishi jumped by 71% yoy to 260,000. From the perspective of model characteristics, as a result of base number, model updating, etc., the growth of middle- to upper-end sedans rebound to 47%, that of SUVs declined to 12.5%, and those of high-end models were more remarkable. Sales of Accord, Avancier and Camry are quite remarkable and the demands for Trumpchi GS4 and GS8 have been partially diverted to new models GS3 and GS7, and there is room for improvement of the sales of GA4 and GA8.

The sales target for 2018 will be met hopefully

The basic and advanced sales targets determined by the Company for 2018 are an increase of 10% to 2.2 million and an increase of 15% to 2.3 million, respectively, including approximately 0.75 million of GAC Honda models, approximately 0.5 million of GAC Toyota models, approximately 0.63 to 0.7 million of passenger vehicles of GAC, approximately 0.23 million of GAC Fiat Chrysler and approximately 0.14 million of GAC Mitsubishi.

According to the new model plan, the Company's new products will mushroom in 2018: Trumpchi will have GM6, brand-new GS5, new GS4 and GA4 that was just launched in January; GAC Honda, the tenth generation of Accord and compact SUVCHR of GAC Toyota will be launched in April; Acura RDX will be put into production at the end of the year; with Eclipse Cross of Eclipse Cross, a 7-seat new model, Great Commander of GAC Fiat Chrysler as well as Acura TLX and the brand-new generation of Camry launched at the end of 2017, the Company will more comprehensively cover the model market in 2018. In 2018, 100,000 to 200,000 new productivity of Hangzhou Trumpchi Factory will be invested in succession, and the productivity bottleneck of GAC Honda will possibly be broken through (100,000 vehicles increased). We think that driven by new models and newly increased productivity, GAC will achieve the annual sales target.

The overweight of a major shareholder gives a positive signal

Guangzhou Automobile Industry Group, the Company's controlling shareholder, recently announced that it planned to increase its holding of shares of the Company from February 9 to December 31, 2018 and the increased amount will be no less than RMB30 million or more than RMB0.3 billion and promised that it will not decrease its holding during the period. Originally, Guangzhou Automobile Industry Group held 53.74% of the total shares of the Company. We hold that the increased holding by the major shareholder in this period indicated that it is confident about the Company's future development, and the Company's share price will possibly rise accordingly.

Financials

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