UBS: Brilliance China's (01114) target price was cut in half to HK$2, reaffirming the “neutral” rating

The Zhitong Finance App learned that UBS released a research report saying that the profitability of BBA, a BMW joint venture under Brilliance China (01114), has deteriorated since the second quarter of 2026. In addition, the company is about to pay an interim dividend of 50 HK cents per share, the target price of Brilliance China was lowered from HK$4 to HK$2, reaffirming the “neutral” rating. The bank also lowered the BBA sales forecast for 2026 to 2028 by about 10% and the BBA equity earnings forecast by 57%.

UBS pointed out that BMW's new Neue Klasse electric vehicle, the iX3, went on pre-sale at the Chengdu Auto Show, starting at 269,900 yuan, similar to the Tesla Model Y, and about 10% higher than the Xiaomi YU7. However, in the face of intense competition in the Chinese electric vehicle market, the visibility of its sustainable sales volume and profitability is low. Even if iX3 can offset the decline in fuel vehicle sales and achieve a net profit margin of 3% or a net profit of 10,000 yuan per vehicle, it will only make up for the impact of the fuel vehicle transformation, not a reversal in joint venture profits. The bank believes that Neue Klasse's ability to drive BBA's profitability recovery is facing a major test.

Brilliance China's joint venture equity revenue in the first half of the year reached 974 million yuan, which is equivalent to a net profit of about 18,000 yuan per vehicle, up 144% from the previous month, but still fell 42% year on year. The company declared an interim dividend of HK50 cents per share, equivalent to a dividend ratio of approximately 20%. UBS estimates that the company's cash on hand after dividends is approximately HK90 cents per share, and it is expected that most of it will be used for future dividend distributions.

In terms of valuation, UBS changed Brilliance China's valuation benchmark from the 2026 forecast minus 5 times the cash price-earnings ratio to 0.5 times the net market ratio. The new target price of HK$2 is mainly based on asset value, including 100% cash and cash equivalents of HK$90 per share, and 0.5 times the BBA book value of HK$1.1 per share, which is equivalent to the BBA profit margin stabilizing at a low single digit. The return on equity is about 10%, which is far below the historical level.