What's new
　　On May 24, Grand Baoxin announced CGA HK hasconditionally agreed to purchase the entire equityinterest of Baoxin Finance, which was incorporated by theCompany as the issuer of the senior perpetual securities.
　　Comments
　　On December 16 & 27 last year, CGA issued a total of US$400mnsenior perpetual securities with an interest rate of 8.75%. Afterthis announcement, the price of Baoxin plummeted by 24% toHK$2.30. Investors’ major concerns include: 1） financial costsincreasing by US$35mn annually; and, 2） the high-cost financingthrough the Baoxin platform stops the company from maximizingits benefits. The transfer of the senior perpetual securitiesfrom Baoxin to CGA HK eliminates certain worries, andfurther implies that Baoxin will maintain itsindependence after the acquisition.
　　Financial costs reduced by Rmb62mn to increase 2017net profit by Rmb46.5mn. Considering the long term loaninterest rate of 4.9% （excl. change of exchange rate）， theinterest spread after the transfer reaches 3.85%. The agreementwill take effect on June 1, which means the overall saving offinancial costs in 2017 is expected to be ~US$9mn （Rmb62mn）。
　　Valuation and recommendation
　　Sales volume growth of BMW and JLR – two of Baoxin’s majorprofit contributing brands – are expected to both exceed 30%this year, which will lead to large earnings elasticity. We expectthis transfer of perpetual securities will increase Baoxin’s profitby 5%, and jointly considering another 5% increase of valuation,the price will go up by 10% in the short term. We lift our2017/18e EPS by 5%/8% to Rmb0.38/0.51. Wemaintain our BUY rating and hike target price 11% toHK$5.00, implying 12x 2017e P/E.
　　Risks
　　Sales of BMW 5 series miss expectations.