Q1-Q316 net profit was up 14.8% YoY, slightly miss our expectation In Q1-Q316, the company achieved revenue of Rmb53.6bn (up 11.4% YoY) and netprofit of Rmb7.74bn (up 14.8% YoY), accounting for 70% of our 2016 estimate andslightly missing our expectation. Gross margin came in at 17.2%, down 0.8ppt YoY,which we attribute to price cuts in some products and a higher weighting of low-endvehicle sales. In Q316, the company recorded revenue of Rmb17.8bn (up 18.3% YoY)and net profit of Rmb2.25bn (up 35.8% YoY). Investment income grew 16.7% YoY in 9M16 Investment income grew 16.7% YoY to Rmb7.57bn in 9M16, with investment incomeof Rmb2.36bn in Q316, up 55.3% YoY. Changan Ford's sales volume grew8.6%/33.7% YoY to 652,000/228,000 units in Q1-Q316. Proprietary brands' net profitdropped 33.5% YoY to Rmb170m, with a loss of Rmb110m in Q316, missing ourexpectation. We mainly attribute this to intensified competition in the proprietary brandindustry and competitors' promotions and price cuts in Q316, which caused an increasein selling expenses: selling expense ratio was 7.6% in Q316, growing substantiallycompared to 5.3% in Q216. We expect Changan Ford's Q416 sales to trend well Since the launch of face-lifted Kuga in the market in mid-September, Changan Ford'send-market inventory has been stabilizing at a low position. Kuga's main model isequipped with a 1.5T engine and is entitled to preferential vehicle purchase tax rate. We believe Changan Ford's sales volume will bottom out and is likely to reach ourestimate of 956,000 units in 2016 (+10% YoY). Valuation: maintain Buy rating, price target of Rmb19 Our price target of Rmb19 is based on 7.3x 2017E PE.

9M16 net profit +122%, in line with expectations. 9M16 revenue was Rmb3.4bn, up 128% YoY, and net profit (NP) was Rmb740m, up122% YoY, in the middle of the preannounced range (Rmb700-800m) and broadly inline with expectations. This included revenue of Rmb1.02bn in Q3, up 69% YoY butdown 16.5% QoQ, and net profit of Rmb200m, up 84% YoY but down 10% QoQ. We mainly attribute the QoQ earnings deterioration to: 1) a delayed rollout of thesubsidy policy leading to downstream automobile companies slowing their productionschedules for new-energy vehicles; and 2) higher expenses due to the Hefei phase IIIand Qingdao factories coming on stream. Better-than-expected GPM expansion but sharp rise in expense ratios. 9M16 gross margin was 48.1%, up 2.4ppt YoY, while Q3 gross margin was 49.1%, up5.3ppt YoY and 4.4ppt QoQ. The degree of improvement was bigger than weexpected. We think this was due to two factors: 1) capacity utilization rose due toincreased production levels; and 2) there was a major jump in raw material selfsufficiencyafter the company's cathode material production line started operation. Meanwhile, the administrative and selling expense ratio rose a sharp 4ppt to 21% in9M16, which we attribute to a substantial increase in R&D spending, staff salaries andprovisions for after-sale service costs following the launch of the new factories. Guiding for full-year NP growth of 75-105% YoY. In the Q3 report, the company disclosed full-year 2016 NP guidance of Rmb1-1.2bn,which would be a 75-105% YoY increase. Our full-year forecast of Rmb1.2bn is at theupper end of the company's guided range. Based on the midpoint of the range, Q4 netprofit could reach Rmb360m, up 42% YoY and 76% QoQ. Valuation: Maintain Buy rating, Rmb48 price target. Our Rmb48 price target is based on DCF (WACC 7.9%).

Q1-Q316 net profit fell 13.5% YoY. Q1-Q316 revenue was Rmb4.24bn, up 15.1% YoY, while net profit was Rmb324m,down 13.5% YoY, missing our expectation. Q3 revenue jumped 31.5% YoY toRmb1.76bn but net profit fell 2.4% YoY to Rmb130m. Disappointing revenue growth. We attribute the disappointing Q1-Q316 revenue growth to delayed deliveries todownstream customers amid delayed new-energy subsidy policies, resulting in arevenue contribution from the lithium battery business that was lower than weexpected. Q3 gross margin was 21.1%, down a slight 0.3ppt YoY, although down3.1ppts from H1 (24.1%). Greater product ASP declines than we expected, caused byincreased competition in the conventional start battery segment, were the main reasonfor the gross margin contraction. Q1-Q316 administrative expenses rose 25.2% toRmb160m, as operation of a lithium battery plant in August led to large upfrontexpenses, in our view. Standards to drive replacement of traditional batteries with stop-start batteries. We expect significant improvement in the penetration of stop-start systems in China inthe next five years, rising from 7% in 2014 to 60% in 2020E, due to increasinglystringent fuel consumption regulations. In our view, under the pressure of phase IV fuelconsumption standards, auto companies will have no choice but to replace traditionalbatteries with stop-start batteries, which should give the company a tailwind for anextended time. Valuation: Maintain Buy; price target of Rmb22. Our DCF-based price target assumes WACC of 7.3% and implies 19.5x 2017E PE.

9M16 net profit +22% YoY, in line with expectations 9M16 net profit was Rmb2.28bn (UBS-Se: Rmb2.4bn), +22% YoY and broadly in linewith expectations. This included Q3 net profit of Rmb1.04bn, +13% YoY. 9M16revenue was Rmb21.7bn, +15% YoY, with ASP reaching Rmb457k, +6.8% YoY, drivenmainly by product mix upgrades. 9M16 gross margin reached 25.7%, +1.8ppt YoY,and the overall expense ratio came to roughly 12.7%, +0.9ppt YoY. In addition, thecompany recorded a sharp rise in impairment losses, to Rmb210m (9M15: -Rmb3.56m),which we mainly attribute to a sizeable increase in accounts receivable. GPM kept improving on product mix upgrades; accounts receivable stayed high 9M16 gross profit margin (GPM) was 25.7%, +1.8ppt YoY, and Q3 GPM was 27%,+2.5ppt YoY, with both figures reaching historical highs. We believe this was largelydriven by product mix upgrades due to robust sales of new-energy buses (new-energybus sales reached 27% of overall sales in 9M16 vs. 23% in 9M15). Meanwhile, thecompany's accounts receivable climbed further, reaching Rmb12.9bn, or 59% ofrevenue, as of end-Q3 (beginning of year: Rmb9.9bn; end-Q2: Rmb11.2bn), mainly dueto national subsidies held in arrears. Sales of new-energy buses grew quickly, likely to reach co.'s FY16 target of 25k The company's sales of new-energy buses totalled 13k units in 9M16, +30% YoY. Thecompany has slowed shipments of new-energy buses since Q3 due to heightenedfinancial pressure caused by delays in issuing new subsidy policies and the cashsubsidies in arrears. We expect the subsidy arrears to be disbursed in late October, andgiven the current robust downstream demand and strong order backlog, we think thecompany remains likely to reach its full-year sales target for new-energy buses of 25kunits, which would be a 25% YoY increase. Valuation: Maintain Buy rating, Rmb25.7 price target Our price target is based on DCF and assumes a 7% WACC.

H1 net profit +8% YoY, in line with expectations. H1 net profit was Rmb5.49bn (UBS-S-e: Rmb5.47bn), up 8% YoY and in line withexpectations. Revenue came in at Rmb35.8bn, up 8.3% YoY, with gross margin of16.6%, down 0.8ppt YoY, which we mainly attribute to price cuts for some productscoupled with a higher proportion of low-end models. Selling and administrativeexpenses totalled 12.1% of revenue, down 0.5ppt YoY. Looking at the JV brands,Changan Ford and Changan Mazda recorded net profit of Rmb9.17bn/950m,respectively, up 4.3%/14.9% YoY. Meanwhile, its domestic brand posted profit ofRmb280m, up 130% YoY. Changan Ford: Solid earnings growth on improving product mix. Changan Ford sold 424k units in H1 (44% of our full-year estimate), down 1.4% YoYand missing expectations. However, product mix continued to improve, helped by brisksales of the high-end Vignale SUV. Revenue reached Rmb57.4bn, up 3.2% YoY. ASPreached Rmb135k, up 4.2% YoY. Net profit was Rmb9.17bn, up 4.3% YoY. Netmargin reached 16%, edging up 0.2ppt YoY, which came as a pleasant surprise to us. Changan Ford's end-market inventories are low, and we expect sales to start recoveringfrom the trough once the face-lifted Kuga hits the market in Q3. We expect full-yearsales to reach our estimate of 956k units, which would be a 10% YoY increase. Domestic brand: PVs steady, CV losses likely to narrow. The company's domestic brand sold 409k passenger vehicles (PVs, excludes mini cars) inH1, up 0.7% YoY. After the 1.5T version of the CS75 is launched in Q4, we expect thecompany's PV sales to continue logging steady growth. Its commercial vehicle (CV)business is actively refocusing towards SUVs and MPVs, and the new CX70 and Auchanmodels have both achieved decent sales since launch, selling 24k/58k units,respectively, in H1. We expect the domestic brand's ASP and margins to improve on abetter product mix. The domestic brand recorded net profit of Rmb280m in H1, up130% YoY. Our full-year estimate for domestic brand profit contribution remainsunchanged at Rmb750m. Valuation: Maintain Buy rating, Rmb19 price target. Our price target is based on 8x 2016E PE.

H116 net profit up 7.5% YoY, missing our estimate. Jianghuai Automobile's (JAC) H116 revenue was Rmb26.4bn, up 12% YoY, and netprofit was Rmb580m, up 7.5% YoY, missing our estimate (Rmb650m). The lower-thanexpectedearnings were mainly caused by a 3.8ppt contraction of core business grossmargin (GM) as a result of the company's bigger price reductions and increasedpromotional efforts in response to intensified competition in the passenger vehiclemarket. Meanwhile, its selling expense ratio was 6.1%, flat YoY, and its administrativeexpense ratio was 6.2%, up 0.3ppt YoY, due to increases in R&D spending and wages. Non-operating income came in at Rmb1.79bn, up a hefty 129% YoY, driven by asubstantial increase in new-energy subsidies. Robust sales growth across all segments H116; LDT sales beat expectations. In H116, JAC's total sales were 333,639 units, +14% YoY. SUV/MPV/LDT/pure EV salesreached 143,781/32,117/104,225/9,720 units, +30%/+5%/+14%/+261% YoY,respectively. LDT sales volume was the big bright spot, as its growth continued to beatexpectations and far outpaced industry growth (-5% YoY). We attribute this to thefollowing: 1) with its launch of a full range of State IV-compliant products, thecompany is regaining the market share it lost in the past two years due to the absenceof such products in its offerings; and 2) the rise of the e-commerce logistics and coldchaintransportation industries has fuelled demand growth for high-end LDTs, which islikely to help leading companies such as JAC further increase market share. EVs maintained rapid growth; IEV6S likely to ramp up in 2017. In H116, despite its new model IEV6S's failure to ramp up due to battery supplierproblems, JAC posted sales of 9,720 units (+261% YoY), driven solely by old modelsIEV5 and IEV4, a testament to the strong competitiveness of its products. Our recentchannel survey showed JAC changed to a made-to-order mode of production forIEV6S, which had total sales of c2,200 units in H116. The company is also consideringreplacing IEV6S's battery supplier. In view of the time required for battery re-alignmentand inclusion on the government's list of approved battery companies, we believe theramp-up of IEV6S will have to wait until 2017. JAC is also likely to launch its Yueyuebasedelectric compact car IEV6E by end-2016. We remain optimistic about it meetingits full-year sales estimate of 22,000 units of NEVs. Valuation: Buy rating and Rmb13.00 PT. Our DCF-based PT of Rmb13.00 (8.1% WACC) implies 15x 2016E PE.

H116 net profit up 6.3% YoY, in line with expectations SAIC's H116 net profit was Rmb15.1bn (UBS-S est: Rmb14.9bn), up 6.3% YoY, andEPS were Rmb1.37, basically in line with our and consensus expectations. Revenue wasRmb351.2bn (UBS-S est: Rmb336.1bn), up 8.5% YoY. The gross margin of the OEMbusiness was 10.3%, up 2.16ppts YoY, which we attribute to direct recognition ofdealer rebates as sales expenses rather than deduction of revenue after SAIC's salescompanies changed the accounting method for such rebates. That also led to a 77%YoY increase in SAIC's selling expenses to Rmb20.4bn. Also, the company's investmentgain was Rmb14.4bn, down 4.5% YoY, due to sliding profit at SAIC VW. Varying JV performances; Huayu/SAIC Finance were strong SAIC GM reported H116 revenue/net profit of Rmb89.5/8.66bn, respectively, (+6.9%/+17.6% YoY) and net margin of 9.7% (+0.4ppt YoY), mainly driven by Envision SUV'ssustained strong sales (sales volume +76% YoY in H116). SAIC VW's H116 revenue/netprofit were Rmb110.5/11.8bn (-13.2%/-21.3% YoY), respectively, and net margin was10.7% (-0.7ppt YoY), mainly due to declines in sales volumes and prices of thecompany's flagship models, Passat and Tiguan, as they are at the end of their lifecycles. Meanwhile, SAIC-GM-Wuling/Huayu Automotive/SAIC Finance reported netprofit of Rmb2.5/3.1/1.9bn, respectively, (-2%/+19%/+20%). Steady performance despite weak cycle; new product cycle likely after 2017 From 2015 to 2016 so far, SAIC VW and SAIC GM have been in weak product cycles,characterised by limited new product launches and a lack of blockbuster products,resulting in market share declines. Still, sales volumes sustained steady growth on theback of strong brand heritage and effective promotions. We look ahead to SAIC VWlaunching its next-generation Tiguan/Passat in late 2016/2017, in addition to its new Cclasscar/B-class SUV in Q416/2017, which could drive a strong pickup in sales growthfor the company in 2017. For SAIC GM, flagship SUV model Envision has exceeded20,000 units in monthly sales, while Cadillac showed a good trend of ramping up andcould become the company's new profit growth driver. Valuation: Maintain Buy, Rmb28.70 price target Our Rmb28.70 price target is based on 10x 2016E PE.

H116 net profit up 141% YoY; in line with expectations Guoxuan's H116 revenue was Rmb2.4bn (+169% YoY) and net profit was Rmb530m(+141% YoY), consistent with the company's earnings pre-announcement. The sharpearnings growth was driven by the following: 1) China's NEV industry maintained rapidgrowth in H116; and 2) the company's battery production capacity further expanded,as its new Hefei phase II, Nanjing and Suzhou factories came on stream. The grossmargin of the battery business was 50.4% in H116, down merely 1ppt YoY, in linewith expectations. Meanwhile, the administrative and selling expense ratio rose sharply,5ppts YoY to 18.8%, which we attribute to a substantial increase in R&D spending,staff salaries and a provision for after-sale service costs. Guoxuan guided Q1-Q3 net profit up 110-140% YoY Guoxuan guided Q1-Q3 net profit to come in at cRmb700-800m (+110-140% YoY),with Q3 net profit at Rmb170-270m (+56-145% YoY and -25% to +19% QoQ). Weattribute the slower earnings growth in Q3 to: 1) a delayed rollout of the subsidy policyleading to downstream automobile companies slowing down their productionschedules for new-energy vehicles; and 2) the Hefei phase III and Qingdao factoriescoming on stream to increase some costs. Net capacity + subsidy policy to drive profit to hit new high in Q4 The interim report showed Guoxuan's Hefei phase III and Qingdao factories will comeon stream in Q3. We expect the company to achieve actual effective productioncapacity of 2.7/5.5GWH in 2016/17, including 0.6/2.3GWH for ternary batteries. Thecapacity expansion will help the company further consolidate its leading position. Inaddition, we expect the new-energy subsidy policy to be rolled out in September andautomobile companies to ramp up production in Q4. Therefore, we estimate thecompany's profit is likely to be close to Rmb500m in Q4. Valuation: Maintain Buy rating, PT is Rmb48 Our DCF-based price target of Rmb48 assumes 7.9% WACC.

H116net profit up 31% YoY, in line Yutong posted H116net profit of Rmb1.24bn (we estimated Rmb1.3bn), with growthof 31% YoY, basically in line with expectations. Revenue was Rmb13.3bn, up 28%YoY, outpacing sales volume growth of 23.6% YoY, suggesting that product miximprovement continued to boost product average selling prices. Helped by product miximprovement, the company's bus segment had a gross margin of 24.9%, up 1.83pptsYoY, while the selling and administrative expense ratio was c13%, down 1ppt YoY,mainly due to decreased R&D spending. Product mix improvement drove sustained gross margin improvement The H116gross margin (24.9%, up 1.83ppts) of Yutong's bus segment was better thanwe expected, which we attribute to the following: 1) a sharp decrease in 6-8metrebuses combined with a substantial increase in 8metre+ buses in the company's mix ofnew-energy bus products led to improvement in the company's overall product mix; 2)lithium-ion battery prices dropped gradually, as downstream battery manufacturersincreased production and continued to expand capacity; and 3) the depreciationamount has dropped since the company started using the double declining balancemethod to calculate it. We expect new-energy bus sales to ramp up in Q4to meet full-year target Yutong's new-energy bus sales came to 7,400units in H116, up 104% YoY. However,since July, the company has slowed down shipment of new-energy buses due to thedelayed rollout of the subsidy policy and increased financial pressure resulting fromcash subsidy arrears. Nevertheless, since we expect the subsidy policy to be rolled out inSeptember, we believe the company is likely to achieve its full-year sales target of25,000units (+25% YoY) of new-energy buses, as the industry and the company'sshipments are likely to ramp up in Q416. Valuation: Maintain Buy rating; price target pf Rmb25.70 Our DCF-based price target assumes 7% WACC.

H116 net profit down 19.7% YoY on a higher consumption tax rate. H116 revenue rose 5.7% YoY to Rmb2.5bn, while net profit fell 19.7% YoY toRmb190m, dragged down by a higher consumption tax rate. China started collecting a4% consumption tax on lead-acid batteries as of 1 Jan 2016, leading to the companyincurring Rmb111m (+855% YoY from Rmb11.67m in H115) in taxes and surchargesfor core operations. Given tough competition, the company tapped its internalpotential, strengthened its cost control and adjusted its product mix to cushion theimpact of a higher tax rate. The storage battery segment posted a 3.15ppt YoY rise ingross margin to 24.16% in H116, largely due to the company's excellent cost control. Solid growth in storage battery business; progress in start-stop batteries. The company produced 9.61m KVAh of storage batteries in H116, up 13.9% YoY,compared with auto production growth of 5.7% in the period, mainly because thecompany's after-sales segment maintained rapid growth. In addition, the company’spre-/after-sales market shares grew steadily. In its semi-annual report, the companymaintained its 2016 production target at 24.1m KVAh (+21.8% YoY), largely in linewith our estimate. For the start-stop battery business, the company has entered intoagreements to develop EFB and AGM start-stop batteries for many major OEMs (eg,GM, Fiat and FAW Car) and obtained supplier qualifications from OEMs (eg, FAW VW,SAIC VW, Ford, Zhengzhou Nissan and Geely). We are bullish on Camel's leasing + battery/motor/electronic control models. The company has a complete presence in the new-energy vehicle (NEV) value chain,with its leasing + battery/motor/electronic control business models. We expect Camel'slithium battery plant to come on-stream in August, with phase I capacity of 0.7 GWh(we estimate 2016 actual capacity at 0.3 GWh). In the conventional start batterymarket, the company has a broad customer base and a sound cooperative relationshipwith almost all major vehicle-makers, giving it a unique advantage in growing lithiumbattery customers. In addition, the company is carrying out an NEV financial leasingbusiness. We believe this business model will give a big boost to the company's lithiumbattery sales. We forecast the lithium battery segment to contribute revenue ofRmb750/1,630m in 2016/17. Valuation: Price target of Rmb22; maintain Buy. Our DCF-based price target assumes WACC of 7.3%.

Lithium-ion battery plant to come on-stream soon, creating new growth driver We expect Camel's lithium battery plant to come on-stream in August, with phase Icapacity of 0.7 GWh (we estimate 2016 actual capacity at 0.3 GWh). In theconventional start battery market, the company has a broad customer base and asound cooperative relationship with almost all major vehicle-makers, giving it a uniqueadvantage in growing lithium battery customers. In addition, the company is carryingout a new-energy vehicle (NEV) financial leasing business. We believe this businessmodel will give a big boost to the company's lithium battery sales. We forecast thelithium battery segment to contribute revenue of Rmb750/1,630m in 2016/17. Complete NEV presence: Leasing + battery/motor/electronic control models In May 2015, the company established Camel Financial Leasing to enter the NEVleasing field. It acquired Yuqing Transmission in December 2015 to tap into the NEVmotor/electronic control value chain. By that time, it had built a complete presence inthe NEV field with its leasing + battery/motor/electronic control business models. Withits leasing model, it will tackle the issue of downstream customers' insufficient ability topay initially and make a profit on the interest rate spread while partnering withcustomers and car manufacturers to greatly boost battery/motor/electronic controlsales. The company made NEV sales of c300 units with its financial leasing model lastyear and targets sales of 5,000/10,000 units for 2016/17. Start battery segment: Continued solid sales growth; slightly lower net profit In H116, sales of start batteries (including start-stop batteries) rose 10% YoY, largely inline with expectations. However, we estimate a slight fall in the segment's net profitdue to lower ASPs and a change in the consumption tax rate this year. The company'sstart-stop battery business is expanding smoothly. With stricter requirements oncorporate average fuel consumption in China, we forecast start-stop battery salesgrowth to accelerate. Valuation: Raising PT to Rmb22 from Rmb17.5; maintain Buy We are lifting our 2016-18E lithium battery segment sales, ASP and gross margin andour 2016-18E EPS to Rmb0.88/1.13/1.31, as we are optimistic about the company’sleasing + battery/motor/electronic control business models in the NEV field. We areraising our DCF-based PT to Rmb22 (WACC 7.3%), translating into c25x 2016E PE and19x 2017E PE, higher than the 17x implied by our prior PT because we believe acomplete NEV presence will boost valuation.

Rising demand and market share to drive high growth in next three years. We are initiating coverage of Guoxuan High-Tech with a Buy rating, as we believe themarket has underestimated its market share expansion and overestimated its margindownside pressure. We believe Guoxuan can double its market share in the next twoyears through a capacity ramp-up, high product quality and good cooperation with itsmain clients. Although the price of lithium-ion batteries faces downside pressure, weexpect Guoxuan's engagement in anode materials and separators and excellent costcontrol to greatly ease the pressure. Battery market share to double in the next two years. We forecast Guoxuan's market share will rise to 10.6%/13.5% in 2016/17 from 6.4%in 2015, largely because: 1) the company's sales were constrained by a capacity crunchin 2015. With substantial capacity coming on-stream in 2016/17, we estimate thecompany's actual production capacity could reach 0.85/1.65bn Ah in 2016/17 (+180%/94% YoY). 2) The quality of the company's customer base is high. In the bus field, thecompany has formed long-term strategic partnerships with leading bus makers such asNanjing Kinglong, Suzhou Kinglong, Ankai Bus and Zhongtong Bus. In the PV field, itformed an in-depth strategic cooperative partnership with Jianghuai Automobile andacquired a strategic stake in BAIC BJEV. Also, we expect Guoxuan to be one of BAICBJEV's suppliers as its new production facility at Laixi, Qingdao commences operation. Margins to hold steady on upstream investment, good cost control. Although overall lithium-ion battery prices will face downward pressure, the companyhas moved to invest in the upstream section of the lithium-ion battery value chain. ItsRmb5bn anode material production line in Lujiang, Hefei has been put into operation. Furthermore, its JV with Senior Technology Material – Hefei Senior New Energy Material– will start production in end-2016. We project its gross margin will be c46.3%/44.8%in 2016/17, up from 45.4% in 2015. Valuation: Initiating coverage with a Buy rating and Rmb48 price target. We estimate the company's 2016-18 net profit at Rmb1.22/1.73/2.24bn, with a threeyearCAGR of c56%. Our DCF-based price target of Rmb48 (WACC 7.9%) impliesc34.5x/24.2x 2016/17E PE. The current share price is at a record high but implies alower PE ratio than the peer average. We believe it will continue to re-rate on strongindustry growth and the company's market share expansion/earnings growth.

Yutong's H116NEV bus sales up 106% YoY, better than expected Yutong posted total bus sales of 29,768units (+23.6% YoY) in H116, of which 7,400units were new-energy buses (+106% YoY). Both figures were higher than ourexpectations, mainly because: 1) 6-8metre all-electric vehicles only account for c30%of Yutong's total NEV bus sales, so Yutong is little affected by subsidy cuts; and 2) withmore visibility on the subsidy policy, Yutong's 8metre+ all-electric bus and plug-inhybrid bus (<10m) sales both increased substantially in H116. We are raising ourestimates for Yutong's 2016NEV bus sales and total bus sales to 25,000(previously21,000) and 74,765(previously 70,000) units, up 22%/11.6%, respectively. Limited negative impact from subsidy cuts on Yutong's gross margin According to the new energy vehicle subsidy policy, subsidies will be cut by 20% in2017/18from the 2016level and another 20% in 2019/20, with an annual cut ofc10%. The market appears concerned that declining subsidies will have a negativeimpact on Yutong's gross margin, but we believe the impact will be limited, as: 1)lower battery costs will offset most of the subsidy cuts – we estimate battery costs willdecline from the current Rmb2,100/kWh to Rmb1,500/kWh by 2020, an annual declineof c7%; 2) Yutong's procurement costs for other parts will decline substantially withbigger manufacturing scale; and 3) Yutong uses the accelerated depreciation method,so its depreciation cost will decline each year. Stable traditional bus sales growth Yutong's traditional bus sales increased 9% in H116. We estimate its full-yeartraditional bus sales will increase 7% YoY, mainly driven by replacement demand andhigher market share. We believe Yutong will maintain its leadership in the traditionalbus segment, eg, long-haul coach, tour coach and school bus. Valuation: Maintain Buy rating; raising PT to Rmb25.7 We are raising our estimates for Yutong's total sales in 2016-18by 11.6%/8.4%/8.3%and our 2016-18E EPS to Rmb1.79/1.98/2.19from Rmb1.64/1.88/2.09. We are alsoraising our DCF-derived price target to Rmb25.7from Rmb24. Buy rating maintained.

Overall sales grew 2% YoY in H1 According to the company's flash production/sales report, SAIC sold ~454,773 units inJune, up 2% YoY, bringing cumulative H1 sales to 3m units, up 4.9% YoY andrepresenting about 45% of its full-year target of 6.66m units. Included in this total,SAIC VW sold 146,052 units in June (+8.2% YoY) and 970,018 in H1 (+2.9% YoY), orabout 51% of its full-year target; and SAIC GM sold 146,483 units in June (+5% YoY)and 834,264 in H1 (+4% YoY), or 45% of its full-year target.。 JVs: Steady performance in a weak market, new product cycle starting in 2017 SAIC VW and SAIC GM are at a weak point in their product cycles in 2015-15, withfew new releases and no best-sellers. This has led to some market share erosion.Nevertheless, sales and profits have maintained steady growth due to strong brandpower and effective promotions. Looking ahead, we expect SAIC VW to update theTiguan in late 2016 and Passat in 2017. We also expect two new model launches: a Csegmentsedan in Q416 and a B-segment SUV in 2017. SAIC VW is likely to post strongsales growth in 2017 as a result. As for SAIC GM, monthly sales of its flagship SUV, theEnvision, have exceeded 20,000 units. Cadillac is ramping up nicely and is likely tobecome a new earnings growth driver for the JV. Domestic brands: Sales up 61% YoY in H1, losses to narrow in 2016/17 SAIC's domestic brands sold 110,000 units in H1, up 61%, helped by contribution fromnew models (the Roewe 360 and MG GS SUV). This was the first time its domesticbrands posted positive sales growth following two years of declines. Meanwhile, theRoewe RX5, an internet-connected SUV jointly developed with Alibaba, was releasedon 6 July. Priced between Rmb99,800 and Rmb186,800, the RX5 comes in eightconfigurations with 1.5T and 2.0T versions. As SAIC's first internet car developed withAlibaba, the RX5 is equipped with Alibaba's independently developed YunOS operatingsystem. Drawing on Alibaba's ecosystem (Alipay, Taobao, AliMap, etc.), this modeloffers consumers a novel driving experience. We expect the RX5 to achieve monthlysales of 5,000 to 10,000 units in 2017. We foresee narrowing losses for SAIC'sdomestic brands as capacity utilization improves. Valuation: Maintain Buy, Rmb28.7 price target Our Rmb28.7 price target is based on 10x 2016E PE.

H1sales +14% YoY, all segments posted robust growth According to its production and sales report, in June, Jianghuai Automobile's (JAC)total sales came to 44,000units, flat YoY. SUV/MPV/LDT/pure-EV sales reached18,221/3,993/13,391/1,349units, +10%/-2.7%/+2.4%/+33% YoY. In H1, JAC's totalsales came to 333,639units, +14% YoY. SUV/MPV/LDT/pure-EV sales reached143,781/32,117/104,225/9,720units, +30%/+5%/+14%/+261% YoY. SUV sales growth may slow; LDT sales continued to beat expectations JAC's SUV sales growth in H1is basically consistent with our full-year forecast. Butgrowth has slowed considerably since Q2, which we attribute to significant price cutson competing products and the weakening novelty effect of the new S2/S3models. InH2, we expect growth to slow further due to a significantly higher base. LDT sales rose14% YoY in H1, much higher than our forecast of -3% for the full year and the LDTindustry average of -5% in H1. We attribute this to the following: 1) with its launch ofa full range of State IV-compliant products, the company is regaining the market shareit lost in the past two years due to the absence of such products in its offerings; 2) therise of the e-commerce logistics and cold-chain transportation industries has fuelledgrowth in demand for high-end LDT, and this is likely to help leading companies suchas JAC further increase market share. EV sustained high growth; we see ramp-up of electric logistics vehicles in H2 In H1, despite its new model IEV6S's failure to ramp up due to battery supplierproblems, JAC managed to post sales of 9,720units (+261% YoY) driven solely by itsold models IEV5and IEV4, a testament to the strong competitiveness of its products. InH2, even without considering IEV6S's contribution, we see little difficulty for JAC toachieve its sales target of 22,000units. The company is waiting for IEV65's batterysupplier to be included in the government's next list of approved battery companies.But even if it is not included in the list, we believe the company should still be able toswitch to domestic battery producers within three months and be considered.Meanwhile, we expect robust growth in China's electric logistics vehicle market in H2.Since the company has already lined up several models of electric logistics vehicles in itsofferings, we believe this segment will likely become a new earnings growth driver asthe government releases the lists of models eligible for subsidies.Valuation: Buy rating, Rmb13.00PTOur DCF-based PT of Rmb13.00(8.1% WACC) implies 15x 2016E PE.