Brilliance China’s 2019 shareholders’ profit increased 16.2% yoy to RMB6,763 million, aligning with market expectations but below our expectation by 6.0%. Results slightly missed our expectations as the minibus and MPV segment loss widened with gross margin dropping 4.6 ppts yoy to 1.9% due to an increase in production cost and provision on inventories. On the other hand, share of results of Brilliance BMW was up by 22.1% yoy, thanks to strong vehicle sales. During the year, sales of vehicles was up by 17.1% yoy, with the 5-Series and X3 being the growth drivers.Better sales mix also drove ASP to increase 4.3% yoy.
Brilliance BMW expected to continue to outperform the market. We expect China to continue to drive the premium market sales, just as in 2019.Brilliance BMW's strong performance in 2019 is therefore expected to be replicated in 2020, with the X2 launched in 4Q19 and the facelifted 5-Series and iX3 coming up in 2H20 to meet the thirst of premium car demand in China.
We have reduced shareholders’ profit by 11.3% and 5.7% in 2020 to 2021, respectively. In 2020 and 2022, shareholders’ profit is still expected to grow yoy by 9.5%/ 20.5%/ 6.7%, respectively. We have fine-tuned our volume forecasts for Brilliance BMW to reflect the impact on the coronavirus, expecting sales volume to stay largely flat in 2020 but rebound in 2021.
We maintain "Accumulate" rating for Brilliance China, but revise downwards TP to HK$7.60, representing 4.6x 2020 PER and 3.8x 2021 PER. The premium segment in China remained robust in 2019 and we expect such trend to continue in 2020. Signs of recovery from the coronavirus impact was noticed in March and the management expects sales to get back to normal by April. Valuation is attractive; we believe it is an opportunity to accumulate.