1Q20 results in line with our forecast
　　Fuyao announced 1Q20 results: revenue, attributable net profit andrecurring attributable net profit were Rmb4.17bn （-15.47% YoY and-23.8% QoQ）， Rmb460mn （-24.11% YoY and -16.6% QoQ） andRmb380mn （-26.35% YoY and -43.9% QoQ）， largely in line with ourexpectations.
　　Trends to watch
　　1Q20 revenue decline slower than sector; forex income offset lossat SAM. 1Q20 revenue fell 15.5% YoY, compared with a sector salesvolume drop of 43%, as overseas sales volume in the US, GermanyJapan and the UK booked smaller declines than the domestic market.
　　After-market business was also less affected by new car sales.
　　Operating cash flow strong and payout ratio high; expense controleffective. Operating cash flow rose 17.2% YoY to Rmb870mn onstrong turnover management and bargaining power along the valuechain.
　　Domestic earnings to bottom out; impact from overseas COVID-19likely reflected in 2Q20. Domestic sector sales volume has so farrebounded in 2Q20, and we think the domestic business will bottomout soon. However, we expect the spread of COVID-19 overseas toaffect factories in 2Q20, as major clients in the US such as GeneralMotors and Ford began suspending operations in mid-to-late Marchand have not announced work resumptions.
　　Financials and valuation
　　We lower our 2020 and 2021 earnings forecasts 7.3% and 10.1% toRmb2.6bn and Rmb3.2bn, considering the impact from COVID-19overseas. H-share trades at 14.0x 2020e and 11.4x 2021e P/E.
　　A-share trades at 18.2x 2020e and 14.8x 2021e P/E. We maintainOUTPERFORM for both A- and H-shares, but given our cuts to theearnings forecast, we lower our TP 14.8% to HK$23.00 （19.1x 2020eP/E and 15.6x 2021e P/E）， offering 36.7% upside for H-shares, andlower our TP 8.4% to Rmb22.90 （22.1x 2020e P/E and 18.0x 2021eP/E）， offering 21.6% upside for A-shares.
　　Risks
　　Sharper-than-expected headwinds in overseas business due to globalCOVID-19 outbreak.