Tai Fook maintains a rating held by 0626.HK, with a target price of HK $4.20.

Dafu said Volkswagen's mid-2010 profit was slightly higher than the bank's forecast, but signs such as price competition and operating expenses rising faster than expected increased risk.

The bank added that a sharp drop in impairment provisions and financing costs had boosted Volkswagen's profits in the first half, but that this would not continue in the future.

The bank proposes to swap shares to other large local banks, which have more attractive growth potential and are still undervalued, such as BOC Hong Kong (Holdings) Limited.

Volkswagen Finance rose 1.46 per cent to HK $4.16 yesterday.