Maintain BUY. Although the market had a low expectation for GAC’s 1Q25 earnings amid a high inventory level at the end of FY24, we are of the view that its net loss of RMB732mn was still a miss, especially for Aion. We expect its earnings to improve from 2H25E, as the automaker may become more aggressive in grabbing market share, although uncertainties still linger. GAC’s net cash of RMB23.5bn at the end of FY24 is equivalent to 85% of its H-share market cap now.

1Q25 earnings miss. Although GAC’s 1Q25 revenue was stronger than our prior forecast, its gross margin of -1.1% was about 4ppts lower than our projection. Although equity income from joint ventures (JVs) and associates of about RMB1.1bn in 1Q25 was in line with our forecast, selling expenses were higher and government grants were lower than our estimates. We estimate that homegrown brands’ net loss in 1Q25 was about RMB1bn wider than our forecast.

Earnings may start to improve from 2H25E, although volatility is likely to continue. We expect the sales pattern at GAC in FY25E to be similar to FY24 with sales volume rising sequentially in 2H25E, which could also lead to higher gross margin. We also believe that the cost reduction efforts starting from the end of last year may become more apparent in 2H25E. Therefore, we still expect GAC’s FY25E net profit to be in the positive territory with assumptions of significantly reduced impairment loss and SG&A expense cuts. On the other hand, we cut our FY25E net profit forecast by 50% to RMB340mn, mainly due to Aion. We have also cut Aion’s FY25E sales volume forecast by 4% to 0.38mn units.

Valuation/Key risks. We maintain our BUY rating and target price of HK$3.60, based on the sum-of-the-parts valuation. We value all GAC’s consolidated businesses at HK$2.95 per share, based on 0.3x (unchanged) our FY25E P/S. We value its JVs and associates at HK$0.65 per share, based on 3x (unchanged) our FY25E P/E. Our A-share target price of RMB10.00 is based on GAC’s current A/H premium of about 200% (vs. the average A/H premium of 200% in the past 12 months). Key risks to our rating and target prices include lower sales volume and margins than we expect, as well as a sector de-rating.