Prosperous sales in May, up 22% yoy

GAC recently released its latest Production and Sales Express, which showed that the company sold 112,600 cars in May, up 22.1% yoy, better than the industry average (-0.4%).

Over the first five months in 2015, the company sold 461,100 vehicles, up 13.2% yoy.

Japanese-branded cars picked up gradually

Driven by new models, GAC Honda sales in May reached 51,262 units, up 52% yoy. For the first five months this year, the brand sold 196,000 cars, up 39% yoy. Benefiting from the booming compact SUV market in China, GAC Honda's new compact SUV model—VEZEL, which was launched at the end of last year, gained quite good sales, with monthly volume close to 10,000 units.

GAC Toyota sold 37,068 units in May, up 20% yoy. During the first five months of 2015, the sales reached 154,600 cars, up 5% yoy. Meanwhile, driven by the new models, i.e. LEVIN launched in 2014H2 and new HIGHLANDER released in March this year, offset the stagnation of CAMRY and YARiS L partially. GAC Toyota grew at a slower rate than GAC Honda mainly due to its higher base last year.

Sales of GAC MITSUBISHI MOTORS and GAC FIAT down 9.2% and 50% yoy to 6,006 and 2,896 units respectively. Restrained by their weak product lines and channel nets, the two JVs have always failed to meet the sales expectation. This, however, hasn`t had much impact on the company's profit as a whole.

Jeep localization project is progressing

At the end of 2014, GAC, FIAT and Chrysler established a JV for the marketing. The Jeep brand plans to launch its first localized model Jeep CHEROKEE on Guangzhou Auto Show, which will be held in H2 2015, and take three models on to the market this year and next year, including RENEGADE and a brand-new compact SUV. By 2018, Jeep will have full lines of products from compact SUV to deluxe full-size SUV.

We believe that Jeep's good brand reputation and lower price following its localization in China help expand its customer base. Once the management is arranged, GAC-FIAT- Chrysler JV looks promising in the future.

Investment Thesis

For valuation, we revised EPS expectation of the Company to RMB0.60/0.93/1.14 of 2015/2016/2017. And we maintain the target price to 8.52, respectively 11/7/6x P/E for 2015/2016/2017. We reaffirm our "Accumulate" rating. (Closing price as at 15 June 2015)

Prosperous sales in May, up 22% yoy

GAC recently released its latest Production and Sales Express, which showed that the company sold 112,600 cars in May, up 22.1% yoy, better than the industry average (-0.4%). Its total sales of passenger cars exceeded 110,000, up 25% yoy. Over the first five months in 2015, the company sold 461,100 vehicles, up 13.2% yoy.

Due to its diversifying models GAC Motor saw stable sales growth in May, its car sales reached 13,554 units, up 18% yoy. The JVs under the company perform with differentiation; Japanese-branded cars performing well while European branded-cars continuing to fall considerably

Japanese-branded cars picked up gradually

Driven by new models, GAC Honda sales in May reached 51,262 units, significantly up 52% yoy. For the first five months this year, the brand sold 196,000 cars, up 39% yoy. Benefiting from the booming compact SUV market in China, GAC Honda's compact SUV—VEZEL, which was launched at the end of last year, gained quite good sales, with monthly volume close to 10,000 units. What's more, the new generation of FIT and ODYSSEY, which came in to the market H2 2014, also sold well, having sales of nearly 10,000 and over 4,200 units respectively since this year.

GAC Toyota sold 37,068 units in May, up 20% yoy. During the first five months of 2015, the sales reached 154,600 cars, up 5% yoy. Meanwhile, driven by the new models, i.e. LEVIN launched in H2 last year and new HIGHLANDER released in March this year, offset the stagnation of CAMRY and YARiS L partially. GAC Toyota grew at a slower rate than GAC Honda mainly due to its higher base last year.

Sales of GAC MITSUBISHI MOTORS and GAC FIAT down 9.2% and 50% yoy to 6,006 and 2,896 units respectively. Restrained by their weak product lines and channel nets, the two JVs have always failed to meet the sales expectation. This, however, hasn`t had much impact on the company's results as a whole.

Jeep localization project is progressing

At the end of 2014, GAC and FIAT established a JV for the marketing, sales management, product planning and after-sales service of China-made and imported Jeep, FIAT and CHRYSLER cars. The Jeep brand plans to launch its first localized model Jeep CHEROKEE on Guangzhou Auto Show, which will be held in H2 2015, and take three models on to the market this year and next year, including RENEGADE and a brand-new compact SUV. By 2018, Jeep will have full lines of products from compact SUV to deluxe full-size SUV. We believe that Jeep's good brand reputation and lower price following its localization in China help expand its customer base. Once the management is arranged, GAC-FIAT JV looks promising in the future.

Investment Thesis

As analyzed above, we revised EPS expectation of the Company to RMB0.60/0.93/1.14 of 2015/2016/2017. And we maintain the target price to 8.52, respectively 11/7/6x P/E for 2015/2016/2017. We reaffirm our "Accumulate" rating.

Financials

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