Wuling's shareholder losses in the first half of 2021 narrowed 86.7% year on year to RMB 26.4 million. However, mainly due to weak gross margin, the degree of improvement was less than we expected. Gross margin increased by 2.5 percentage points to 6.9%, but was 3.3 percentage points lower than in the second half of 2020. The improvement in gross margin fell short of our expectations, mainly due to a significant increase in raw material costs.

In terms of revenue, revenue increased 25.5% year over year to RMB 7.162.8 billion. All segments showed growth. Among them, auto parts increased the most, with a year-on-year increase of 42.9% to RMB 3,098 billion, followed by the Automotive Power Systems Division, which grew 20.9% year over year to RMB 1,453.6 billion.

The three major business segments showed a growth trend. With its relationship with SAIC-GM-Wuling, Wuling will continue to benefit from strong sales of the Wuling Hongguang Mini EV, which also set a record for the highest monthly sales volume in August 2021. On the other hand, the company is expanding its business cooperation with Great Wall Motor to make its customer base more diverse. Meanwhile, Wuling's NEV business expansion is progressing smoothly, with sales reaching 5,000 units in the first half of 2021 and seeking new customers in the US and Japan.

We lowered our shareholder net profit forecast for 2021 to 2023 by 63.4%/35.9%/30.6%, respectively. After the adjustment, we continue to expect Wuling to restore shareholders' net profit to RMB 72 million in 2021, and further increase by 127.2% and 48.2% year on year from 2022 to 2023 to RMB 164 million and RMB 243 million, respectively. We lowered our gross margin forecast to reflect cost pressure.

Due to lower profit forecasts, we downgraded our investment rating to “Collect” and lowered our target price to HK$1.60. Our target price is equivalent to 26.9 times the 2022 price-earnings ratio and 18.1 times the 2023 price-earnings ratio.