Maintain BUY. We are of the view that GAC’s 4Q24 earnings have become a non-event, while the huge impairment loss in FY24 may provide some earnings upside for FY25E. We believe the reform led by new management team could be more crucial to its future product positioning and share price. We also think that GAC Toyota’s earnings could be more resilient than some investors’ expectation, given its recent strategic changes in product pricing and technology localization.

4Q24 revenue missed, GPM beat. GAC’s 4Q24 revenue was about 19% lower than our prior forecast, whereas its GPM widened 3.5ppts QoQ to 7.1% in 4Q24 without the warranty provision adjustment, or 1.2ppts higher than our projection. A large impairment loss of RMB2.5bn was offset by the gains from disposal of Guangzhou Juwan Technology’s 18.82% stakes. Both equity income from joint ventures (JVs) and associates and government grants were also higher than our prior estimates. GAC’s FY24 net profit was close to the lower range of its previously announced profit warning.

Reform led by new management could be a positive catalyst. It appears to us that GAC’s homegrown brands (Trumpchi, Aion and Hyptec) still need some product mix adjustments to be better positioned. We believe that Aion’s huge loss in FY24 as a lesson learnt and senior management changes could accelerate the reform. Should there be any positive outcome, it could be a strong catalyst for its share price, in our view. In the past, GAC had early moves in many state-of-the-art technologies but most of them became one-hit wonder. We project homegrown brands’ sales volume in FY25E to fall 6% YoY to 0.74mn units. Although it is still too early to draw a conclusion on GAC’s partnership with Huawei, it could also be a positive surprise in the future.

Equity income still in the positive territory in FY25-26E. Although we project GAC Honda to continue making loss in FY25-26E, we are of the view that GAC Toyota’s earnings could be more resilient than some investors may expect. We project sales volume at GAC Toyota to be flat YoY in FY25E, after its drastic strategy shift for the bZ3X BEV with more localized parts and technologies. We project GAC’s equity income to fall 28%/24% YoY to RMB2.1bn/1.6bn in FY25-26E.

Valuation/Key risks. We maintain our BUY rating and raise our H-share target price from HK$3.30 to HK$3.60, based on the sum-of-the-part valuation. We value all GAC’s consolidated businesses at HK$2.95 per share, based on 0.3x our FY25E P/S (previously 0.7x on Aion’s FY25E P/S). We value its JVs and associates at HK$0.65 per share based on 3x (prior 4x) our FY25E P/E. We have changed from Aion’s valuation to all the consolidated businesses’ valuation, as homegrown brands are more integrated now. GAC’s net cash of RMB23.5bn as of end-FY24 is equivalent to 80% of its H-share market cap now. 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.