Exports,customer mix to drive margin recovery

　　广汽集团(601238)

　　Maintain BUY.GAC’s2Q26net loss widened QoQ on selling expenses andequity income,despite revenue beat.Management raised FY26E export targetby20%,which may result in margin improvement in2H26E.That,along withimproving Aion retail customer mix and continuous cost reduction efforts,coulddrive multi-year GPM recovery,in our view.

　　2Q26revenue beat,brand-building expenses drag.GAC’s2Q26revenue rose16%YoY and beat our estimate by13%to RMB26.3bn.GPMimproved slightly to-2.4%(vs.-2.7%in1Q26and-4.9%in2Q25),beatingour forecast of-3.1%.Net loss in2Q26widened by almost RMB3.2bn QoQto RMB3.8bn on larger selling expenses(Aistaland’s brand building andnetwork build-out,as well as homegrown brands’overseas channelexpansion)and weaker equity income(GAC Honda’s wider net loss with30%QoQ sales volume decline).

　　Margin recovery on exports and customer mix improvement.Following a132%YoY surge in1H26overseas sales volume,management raised its FY26E export target to0.3mn(from0.25mn),or~39%of our homegrown volume forecast.Overseas gross margin isguided at~8%this year,significantly outperforming domestic negativemargins.Localization efforts continue to mitigate tariff risks,with seven KDplants in operation.Meanwhile,Aion’s domestic customer mix is improving,with ride-hailing accounting for~20%in1H26(vs.~50%in FY25).Suchtrends,coupled with a15%cost-reduction target in FY26,we expect GPMto recover to-1.2%in2H26E,+0.6%in FY27E and+2.7%in FY28E.

　　Aistaland rollout on track;JV outlook diverges.The first Huawei co-developed model,Aistaland GT7,launched on26Jun with298saleschannels(40%Huawei-authorized)in operation,following by the2ndmodel GX7in Sep.GAC Toyota remains resilient,with a denser2027-28NEV pipeline supporting our stable RMB2.1-2.2bn annual equity incomecontribution during FY26-28E.Upcoming models at GAC Honda willincorporate HarmonyOS cockpits and Momenta ADAS solutions.Weproject GAC Honda’s net loss to narrow in FY27-28E.

　　Earnings/Valuation.We now project GAC’s FY26-28E net loss to beRMB9.9bn/6.5bn/4.2bn,respectively.We maintain BUY and cut H-sharetarget price from HK$4.20to HK$3.60,based on a SOTP valuation:HK$2.85per share for homegrown businesses at0.2x FY27E P/S(loweredfrom0.3x due to larger net loss projection);and HK$0.75per share for JVsand associates at an unchanged3.0x FY27E equity-income P/E.Our A-share target price of RMB8.60reflects a175%A/H premium.Key risksinclude lower sales volume/margins,further JV earnings erosion,higheroverseas risks than we expect,and a sector de-rating.