Eyes on Aistaland and exports

GAC Group (2238 HK/601238 CH) Eyes on Aistaland and exports MaintainBUY.Weexpect the launch of GAC’s first model co-developed withHuawei in Jun 2026 to be a positive catalyst, following non-event FY25 results.We also expect exports to double YoY, cost reduction to be more apparent andequity income to stabilize, which help GACnarrow its net loss in FY26E. 4Q25resultsin line with profitwarning.GAC’s 4Q25 revenue rose 22%QoQ to RMB29.6bn, 23%higher than our forecast. GPM improved3.8pptsQoQ to-0.8%,beatingour forecast by 2.9ppts. Share of profits fromJVsand associates in 4Q25 turned negative(RMB-390mn)for the first timesince FY12 amid widening losses at GAC Honda.That, along witha larger-than-expected impairment of RMB2.4bn,resulted in a net loss ofRMB4.5bnin 4Q25, in line withitsprevious profit warning. China Auto Aistaland and exports as keysto FY26E.TheGT7, the first mid-to-largecar undertheAistaland brand co-developed with Huawei, will be launchedin Jun 2026, which could be a positivecatalyst for GAC’s shares.Inaddition, GAC aims to double export volume to 0.25mn units for itshomegrown brands this year. We expect anincreasedexport mix to liftGPMby 3.3ppts YoYto 0.5% in FY26E, given that overseas GPMwas10.7pptshigher than domestic onein FY25. Equity income couldstabilize in FY26E.We believe GAC Toyotaremains better positioned thanmostof itsJVpeersin China, with a resilient4.6% NPM and earnings contributionofRMB2.5bnin FY25. The successof thebZ3Xhasprovided a viablepathfor Toyota’sNEVtransition inChina.Weexpect GAC Honda’s lossin FY26Eto narrow from RMB981mnin FY25with capacity and personnel downsizing.Therefore, we expectGAC’s equity income to be RMB2.2bn in FY26E, vs. RMB2.5bn inFY25.In addition, we also expect more cooperation between GAC and its JVsduringNEV transition, which could increase GAC’s income. Earnings/Valuation.Weexpect GAC’s SG&A and R&D ratios combinedto fall 1.7ppts YoY to 10.5% in FY26E amidits continued cost reductionefforts.Therefore, weestimateFY26E net loss to narrow to RMB4.8bn.Wemaintain our BUY rating andcutour H-share target priceslightlyfromHK$4.30 to HK$4.20, based on the sum-of-the-parts valuation. We valueall GAC’s consolidated businessesat HK$3.40 per share, based on 0.3x(unchanged)our FY26E P/S. We value its JVs and associates at HK$0.80per share based on 3x(unchanged)FY26E P/E.Our A-share TP ofRMB9.00 is based on an A/H premium of 142%.Key risksto our rating andTPinclude lower sales volume and margins than we expect, slowerelectrification for its JVs than we expect, and a sector de-rating. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primaryresponsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about thesubject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in theHong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line withthe relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months Address: 45/F, Champion Tower, 3Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial positionor special requirements. Past performance has no indication of future performance, and actual events may differ materia