BAIC’s 1H18 net profit increased by 186.1% yoy, slightly below ourexpectation. Revenue increased 15.2% yoy to RMB 76,902.2 million, mainlydriven by Beijing Benz, thanks to a 19.3% yoy increase in vehicle sales and a0.7% yoy increase in ASP, driven by the E-Class and C-Class. However,performance was dragged by the underperformance of the Beijing Brand.Beijing Brand sales volume was down 33.6% yoy in the first half. Revenuewas down by 20.7% yoy in its own segment, and continued to record grossloss during the period. Nonetheless, the Company still recorded a 0.4 pptincrease in gross profit to 26.6% on a consolidated level, thanks to the bettersales mix from Beijing Benz. On the other hand, share of profits from jointventures was RMB 582.3 million, an improvement from share of loss of RMB132.3 million in 1H17.
We have adjusted our profit forecast by 6.3%/ -9.7%/ -4.8% in 2018 to2020, respectively. We have reduced sales volume of Beijing Brand andBeijing Hyundai on slower growth outlook. Moreover, we have reduced grossmargin for Beijing Hyundai as to reflect their more aggressive pricingstrategy.
We maintain our "Neutral" rating for BAIC, and revise down TP to HK$7.00, representing 6.8x 2018 PER, 5.7x 2019 PER. We expect Beijingbrand to continue to drag in our forecast period, as we believe sales will behard to recover under the current competitive environment, and the lack ofupdates on the spinoff of Wevan could mean a larger loss to expect this year.Meanwhile Hyundai is to face pressure after disappointing July sales, and thegeneral outlook is still unstable for them.