UBS has issued a research note reiterating a "Neutral" call on BRILLIANCE CHI (01114), while slashing its price target from HK$4 to HK$2. The move comes as the bank flags a deterioration in the profitability of the company's BMW joint venture, BBA, starting from the second quarter of 2026, alongside the impending interim dividend of 50 HK cents per share.

The bank has also cut its 2026 to 2028 sales volume forecasts for BBA by approximately 10%, and lowered its equity income projection for the venture by 57%.

UBS noted that BMW's new Neue Klasse electric SUV, the iX3, began pre-sales at the Chengdu Auto Show, priced from RMB 269,900, which is comparable to the Tesla Model Y and about 10% higher than the Xiaomi YU7. However, given the intensely competitive landscape of China's EV market, the sustainability of sales volumes and profit visibility remains low.

Even if the iX3 manages to offset declining fuel vehicle sales and achieve a 3% net profit margin, or approximately RMB 10,000 net profit per vehicle, UBS argues this would only compensate for the impact of the fuel car transition, rather than signal a turnaround in the joint venture's earnings. The bank believes that whether the Neue Klasse can drive a recovery in BBA's profitability faces a significant test.

In the first half, BRILLIANCE CHI's equity income from the joint venture reached RMB 974 million, translating to roughly RMB 18,000 net profit per vehicle, a 144% quarter-on-quarter increase but still down 42% year-on-year. The company declared an interim dividend of 50 HK cents per share, implying a dividend yield of around 20%.

UBS estimates that after the payout, the company will hold approximately 90 HK cents per share in cash, which it expects to be largely allocated toward future dividend distributions.

On valuation, UBS has shifted its assessment basis for BRILLIANCE CHI from a 5 times forward 2026 price-to-earnings ratio (excluding cash) to a 0.5 times price-to-book ratio. The new target price of HK$2 is primarily based on asset value, including 100% of cash and cash equivalents at 90 HK cents per share, plus 0.5 times BBA's book value at HK$1.1 per share, implying BBA's profit margins will stabilize at low single digits with a return on equity of about 10%, well below historical levels.