20260831-招银国际-广汽集团-601238.SH-Exports,customer_mix_to_drive_margin_recovery_5页_1mb

GAC Group (2238 HK/601238 CH) Summary

Core Content

GAC Group is a major Chinese automotive company that has been undergoing a transformation to improve its financial performance, particularly through export expansion and cost optimization. The report highlights the company's strategic efforts to recover gross profit margin (GPM) over the next few years. Despite a net loss in 2Q26, the company managed to beat revenue expectations, driven by a strong increase in overseas sales. The report also outlines the company's current valuation and future earnings expectations.

Main Points

• Revenue and GPM Trends:

  • In 2Q26, GAC's revenue increased by 16% YoY and beat the estimate by 13%, reaching RMB26.3 billion.
  • The gross profit margin improved slightly to -2.4% (vs. -2.7% in 1Q26 and -4.9% in 2Q25), beating the forecast of -3.1%.
  • The net loss in 2Q26 widened to RMB3.8 billion, largely due to higher selling expenses and lower equity income.

• Margin Recovery Strategy:

  • Management has raised the FY26E export target by 20%, which is expected to lead to margin improvement in 2H26E.
  • The domestic customer mix is improving, with ride-hailing accounting for 20% of sales in 1H26, down from 50% in FY25.
  • A 15% cost-reduction target for FY26 is expected to support GPM recovery to -1.2% in 2H26E, +0.6% in FY27E, and +2.7% in FY28E.

• Product Launch and JV Outlook:

  • The first Huawei co-developed model, Aistaland GT7, launched on 26 June with 298 sales channels (40% Huawei-authorized) in operation.
  • The second model, GX7, is expected to launch in September.
  • GAC Toyota remains resilient with a strong NEV pipeline, contributing a stable equity income of RMB2.1-2.2 billion annually during FY26-28E.
  • GAC Honda is expected to narrow its net loss in FY27-28E with upcoming models incorporating HarmonyOS cockpits and Momenta ADAS solutions.

• Earnings and Valuation:

  • CMBIGM projects GAC's FY26-28E net loss to be RMB9.9 billion, RMB6.5 billion, and RMB4.2 billion, respectively.
  • The H-share target price has been reduced to HK$3.60 from HK$4.20, based on a SOTP valuation.
  • The A-share target price is RMB8.60, reflecting a 175% A/H premium.
  • The SOTP valuation includes HK$2.85 per share for homegrown businesses at 0.2x FY27E P/S and HK$0.75 per share for JVs and associates at 3.0x FY27E equity-income P/E.

• Stock Performance:

  • The 12-month price performance for GAC's H and A shares is shown in the report, with the H-share currently at HK$2.3 and the A-share at RMB5.4.
  • The stock has experienced negative performance over the past 12, 3, and 6 months.

Key Information

• Financial Highlights:

  • The company has a significant number of overseas sales channels, with seven KD plants in operation.
  • The gross margin for overseas sales is guided at ~8% for FY26, significantly outperforming domestic negative margins.
  • The company's net gearing has increased from -20.6% in FY24A to 17.2% in FY28E, indicating a shift in leverage.

• Investment and Growth:

  • The company's revenue is expected to grow at a CAGR of 17.6% over FY24A to FY26E.
  • The gross profit is projected to improve from negative values in FY24A to positive in FY27E and FY28E.

• Risks:

  • Potential risks include lower sales volume and margins, further erosion of JV earnings, higher overseas risks than expected, and a sector de-rating.

Financial Summary

Metric	FY24A	FY25A	FY26E	FY27E	FY28E
Revenue (RMB mn)	107,784	96,542	113,510	119,240	126,575
Gross Profit (RMB mn)	4,152	(2,700)	(1,999)	685	3,479
Net Profit (RMB mn)	824	(8,784)	(9,914)	(6,453)	(4,247)
Gross Margin (%)	3.9%	(2.8%)	(1.8%)	0.6%	2.7%
Net Margin (%)	-4.9%	-1.1%	-8.7%	-5.4%	-3.4%

Analyst Certification and Ratings

• The research analyst certifies that the views expressed accurately reflect his or her personal views about the subject securities or issuer.
• CMBIGM has maintained a "BUY" rating on GAC, indicating potential returns of over 15% over the next 12 months.
• The report includes disclosures and disclaimers to ensure that the information is not used for individual investment advice and that there may be conflicts of interest.

Legal and Regulatory Disclosures

• The report is for the use of intended recipients only and may not be reproduced, reprinted, sold, redistributed, or published without prior written consent.
• It is provided in compliance with the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 in the UK and the United States Securities Exchange Act of 1934.

Conclusion

GAC Group is focused on improving its financial performance through export expansion, cost reduction, and customer mix optimization. Despite challenges in the short term, the company is expected to see margin recovery over the next few years. The report outlines the company's financial performance, future projections, and the associated risks, with a "BUY" rating and updated target prices for both H and A shares.