1H19 results miss market consensus
Brilliance China announced revenue dropped 16.7% YoY and 8.9%HoH to Rmb1,904mn in 1H19, and net profit attributable toshareholders reached Rmb3.23bn （Rmb0.64/sh）， a drop of 9.4% froma year ago but a rise of 43.3% from 2H18, missing market consensus.
In 1H19, sales volume of BMW grew strongly, while profit atBMW-Brilliance dropped, which we believe is the main reason behindthe weaker-than-expected earnings at Brilliance China.
Trends to watch
BMW-Brilliance: Sales volume increases, while promotion and forexhedging weigh on profit.
Minibus business continues to make losses; auto financial businesskeeps growing.
Brilliance China pays special dividend of HK$0.74/sh; we willmonitor shareholders’ willingness and company’s capital conditionsto see if it will continue to pay special dividends.
Financials and valuation
We keep our 2019 and 2020 net profit forecasts unchanged. Thestock is trading at 5.4x 2019e P/E. We maintain our NEUTRAL rating,but cut our target price 4.8% to HK$8.0 to reflect forex changes. Ourtarget price implies 6x 2019e P/E, and offers 3.8% upside.
Risks
Sales volume of new models misses expectations; discounts increasesubstantially.