Earnings forecasts increase 10% YoY
　　We expect Harmony's net profit to have risen 10% YoY in 1H16,as a result of gross margin rebound and the rising contribution ofcomprehensive maintenance service.
　　Trends to watch
　　Gross margin on new car sales may rebound in 1H16;financial cost well controlled. Harmony's GM of new carsales hit a bottom at 3.8% in 2H15, and considering BMW'simproved bonus policy plus a higher proportion of ultra-luxurybrands in sales, we think the GM of new car sales will show arebound in 1H16 with 0.4——0.5ppt growth. Due to the interestrate cut, Harmony's financial cost might decline 30——40%.
　　Comprehensive maintenance service keeps climbing,pulling gross margin boost. Harmony has rapidly developedafter-sales service, and we believe its revenue will realize highgrowth in 1H16 and the contribution of comprehensivemaintenance service to gross profit may keep climbing. Thus, theGM of after-sales service should rise.
　　Looking forward, profitability will be improved by betterGM structure. The company set a goal of expanding to 500comprehensive stores in 2017, and we believe with the increasedGP contribution, Harmony will achieve a steadily growing GM.
　　Valuation will benefit from SZ-HK Connect, as Harmony istrading with relatively low volume.
　　Valuation and recommendation
　　Considering the uncertainty existing in its AFV project, we cutour forecast 16% to Rmb632mn for 2016 and 13% toRmb682mn for 2017. Maintain BUY, and cut TP 24% toHK$5.35 （11.5x 2016e P/E）。
　　Risks
　　Profitability of new stores is lower than expected.