Beijing Hyundai confirmed its recovery trend. Beijing Hyundai sales wasup 72.2% in May 2018, with YTD sales up 10.1%, mainly driven by recoveryin its SUV segment. The brand new Encino （昂希诺） hit the market in April2018, making 4,385 units of sales in its first month. We believe it has thepotential to rise above 10,000 units in monthly sales in 2H18 after fullyramping up.
We have slightly adjusted upwards our profit forecast by 4.2% / 4.9% /2.2% in 2018 to 2020, respectively. We have mainly adjusted upwards onour forecast of Beijing Benz as sales has performed better than expected sofar, particularly both the C-class and E-class. Meanwhile, the recovery ofBeijing Hyundai is largely in line with our expectation, therefore we maintainour previous forecasts unchanged.
We downgrade to "Neutral" rating for BAIC on fair valuation andpriced-in recovery trend. We slight revise up TP to HK$ 8.74, representing8.5x 2018 PER, 6.3x 2019 PER. We believe our valuation is fair, which alignswith the long-term average. We believe the stock has rallied since late April,partly reflecting recovery in its Korean brand and a rebound of negativeinvestment sentiment regarding the opening up of the auto market in China.We should continue stay cautious in the future due to the competitiveenvironment and the short-term effects from lowering import duties.