What's new
　　Harmony announced a share buy-back program thataims to repurchase ≤10% of its total shares.
　　Comments
　　Buy-back spurs price performance, show management’scommitment. Harmony plans to repurchase not more than157.6mn shares through its available funds. It has sufficient cashon hand, and the buyback program is an efficient and workableaction that displays its management’s strong level of confidencein its future performance. Harmony’s price surged 11.8% onJanuary 23; despite retreating the next day, we believe its pricewill lift to approach a reasonable valuation.
　　Beneficiary of sector-wide rallies; large BMWcontribution highly elastic. Auto dealers have seen a strongwave of rallies, with Zhongsheng, Yongda, and Baoxin allenjoying ~40% price changes over the last 15 work days;however, Harmony’s post-announcement bump only reached36%, thus it still has large upside room. Besides, with BMWtaking up a 75% share of its new car sales revenue, Harmony ishighly elastic when BMW sees a boost.
　　EV program moves forward; upbeat on medium/longterm brand premium. FMC has signed an agreement withNanjing Government on a high-end EV program and a plant with150,000 SUV production capacity. Harmony has slowed down itsnew store openings from 2014 to 2016, and focused on raisingthe profitability of its old stores. We are upbeat on itsmedium/long term profitability and its brand premium after itsEV SUV is launched and operation efficiency enhanced.
　　Valuation and recommendation
　　We maintain our BUY rating and raise our target price by7% to HK$4.5, implying 9.6x 2017e PE.
　　Risks
　　The EV program progresses at a slower than expected pace.