In line with expectations for the first three quarters, Jiangling Motors announced the results for the first three quarters: operating income of 17.229 billion yuan, up 1.55% year on year; net profit attributable to the parent company was 1,094 billion yuan, down 29.01% year on year, corresponding to profit of 1.27 yuan per share. Basically in line with expectations. Development trend 3Q gross margin picked up as scheduled, and the expense ratio increased: in the third quarter, the company's revenue was 6.42 billion yuan, up 28.97% year on year, net profit was 390 million yuan, down 15.2% year on year, after deducting 370 million yuan in non-net profit, down slightly by about 2.8% year on year. The company's gross margin reached 24.2% in the third quarter, up 2.8 percentage points from 21.4% in 2Q, and rebounded as scheduled. The company continued to increase investment in sales channels and R&D. The sales expense ratio and management expense ratio for the third quarter reached 7.04%/8.64% respectively, an increase of 0.5/0.1 percentage points over the previous year. The gross margin was not as high as the same period last year and the increase in expense ratio was the main reason for the company's revenue growth and profit decline in the third quarter. The model sales structure has been optimized, and the trend is expected to continue: in the third quarter, the company sold 64,000 units, up 23.7% year on year, of which Quanshun sold 18,000 units, up 18.6% year on year, while sales of pickup trucks and Yusheng SUVs reached 1.5/0.69 million units respectively, up 28.1%/69.1% year on year, respectively. The trend of optimization of the company's structure was obvious, and the share of light trucks with low gross margin declined. Currently, the company's SUV sales are clearly showing a continuous upward trend. ASP and gross margin have increased compared to light trucks, which is beneficial to the company's future sales structure and continuous month-on-month improvement in gross margin. Yusheng Shuangxiong's production capacity continues to climb, and the Everest channel needs to be broken through: Currently, the company's Yusheng S350/S330 is in the process of climbing production capacity during the peak season. Judging from terminal research feedback, the two models currently need to wait a month for a pick-up cycle, and the four-wheel drive version of the S350 is still in short supply. With new models and new power configurations, Yusheng SUV still has great potential for growth next year. Furthermore, the company's Everest channel may change next year, and the Tourio automatic transmission is also expected to be launched in March next year, and Ford brand SUV and MPV products are also expected to achieve a certain breakthrough next year. Earnings Forecast We maintain our earnings per share forecast for the full year of 2016/2017 unchanged. However, whether the company can receive financial subsidies for the fourth quarter of this year as scheduled is an uncertain point of this year's performance growth. Valuation and recommendations Currently, the company's stock price corresponds to 12.1x 2016e P/E. We maintain the recommended A share rating and target price of RMB 35.00, with 20.56% upside compared to the current stock price. Maintain the recommended rating for Jiangling B shares and the target price of HK$25, corresponding to 14.6x and 9x2016e P/E, respectively. Risk Management S330 sales fell short of expectations.