Maintain BUY. We believe GAC’s FY25E earnings have become a non-event, despite its deteriorating earnings in 2Q25. We think new models next year, including those which partner with Huawei, could be more competitive and become a positive catalyst. We also see large room for cost reduction and stabilized profits at joint ventures (JVs) and associates.

2Q25 earnings miss on GPM and impairment. GAC’s 1H25 net loss of RMB2.5bn was in line with its preliminary profit warning. 2Q25 net loss was about RMB1.3bn wider than our previous forecast, largely due to its gross margin of -4.9%. We believe we underestimated its intangible assets amortization from its previous capitalized R&D. GAC also booked an impairment loss of RMB490mn in 2Q25, mainly for its inventories.

New models, cost reduction as keys to FY26E earnings, valuation. We project GAC’s net loss in 2H25E to be RMB1.6bn and we believe its FY25E earnings have become a non-event. Instead, we pay more attention to GAC’s new models next year and cost reduction capabilities. We think that GAC may reexamine its scheduled new models this year to better satisfy customers’ needs and delay some models to next year. New models partnering with Huawei are also scheduled to be rolled out from next year. Therefore, we project GAC’s sales volume for homegrown brands to rise 21% YoY to 0.68mn units in FY26E. We also see large room for cost reduction, especially for staff costs, based on data in 1H25.

Profitability at JVs and associates to stabilize. Equity income from JVs and associates in 1H25 only fell 4% YoY. GAC Toyota’s earnings remained stable with rising NEV sales, thanks to the new bZ3X BEV. We expect GAC Honda’s sales volume decline to continue but we estimate its loss to be manageable after the plant closure. We project GAC’s equity income to be RMB3.0bn and RMB2.9bn in FY25E and FY26E, respectively.

Valuation/Key risks. We maintain our BUY rating and raise our H-share target price from HK$3.60 to HK$4.30, based on the sum-of-the-parts valuation. We value all GAC’s consolidated businesses at HK$3.40 per share, based on 0.3x our FY26E P/S (prior 0.3x FY25E). We value its JVs and associates at HK$0.90 per share based on 3x FY26E P/E (prior 3x FY25E). Our unchanged A-share target price of RMB10.00 is based on GAC’s current A/H premium of about 150%. Key risks to our rating and target price include lower sales volume and margins than we expect, slower electrification for its JVs than we expect, and a sector de-rating.