BAIC's net profit for the first quarter of 2020 fell 95.1% year-on-year to RMB 60.85 million, in line with the profit warning announced in mid-April. The main reason for the sharp decline was due to the impact of the novel coronavirus pandemic. Among them, sales of Beijing brands and Beijing Hyundai declined sharply. As a result, the own-brand business continued to lose money in the first quarter of 2020, and its losses increased 5.0% year-on-year to RMB 1,276 million. Similarly, due to Beijing Hyundai's weak sales in the first quarter of 2020 (sales fell 42.9% year over year), the company's share of joint ventures and associated companies lost RMB 329 million. Beijing Mercedes-Benz contributed the most profit, with the division's profit of RMB 3.399 billion.

Independent brands will flourish under policy tailwinds and rebranding. We expect Beijing brands to benefit from the extension of the NEV subsidy policy and the possible increase in license plate quotas. The rebranding to BEIJING also brought hope, and the new model X7 won the attention of the market.

We raised our net profit forecast for 2020 to 2022 by 2.0%/6.5%/8.5%. After the adjustments, we expect shareholder profits to grow 17.4%/38.0%/18.4%, respectively. We mainly adjusted our own brand profit margins and joint venture profit attributable assumptions. We keep our sales assumptions unchanged because we think our expectations can still be met.

We continue to believe that the Beijing brand and Beijing Hyundai will improve this year. Beijing Mercedes-Benz will continue to be BAIC's strongest growth engine. As a result, we maintained BAIC's “collection” rating, but raised the target price to HK$3.88. Our target price is equivalent to 6.1 times the 2020 price-earnings ratio and 4.4 times the 2021 price-earnings ratio.