On September 12th, shares of Brilliance China Automotive Holdings Limited (01114.HK) suffered a significant drop, with the stock falling by 12.2% to close at 2.59 Hong Kong dollars per share.

On the news front, on September 11th, Brilliance China announced that Wu Xiao'an has resigned from his positions as executive director and chairman of the board due to other commitments.

This high-level personnel change has added more uncertainty to the company's future strategic direction, triggering cautious sentiment among investors, which may be one of the reasons for the significant stock price fluctuation.

Morgan Stanley stated that considering Wu Xiao'an's age of 62 and his resignation as chairman, it is not entirely abnormal.

This high-level change indeed increases the uncertainty of the company's future development, such as the company's significant increase in cash returns over the past 2 to 3 years (7.72 Hong Kong dollars per share).

The report mentioned that considering Brilliance China has not yet announced a new chairman, any new investment plans under the new management, and potential changes in shareholder return policies are worth paying attention to.

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In addition to the impact of high-level changes, the continuous decline in Brilliance China's stock price in recent times is also closely related to its fundamental performance.

As an investment holding company, Brilliance China mainly manufactures and sells BMW cars in the Chinese market through its joint venture Brilliance BMW, and is involved in the manufacturing, sales, and automotive financial services through other subsidiaries.

In the first half of 2024, Brilliance China is still struggling with poor performance.

During the reporting period, it achieved a revenue of 518 million yuan, a year-on-year increase of 2.01%.

However, the net profit attributable to the parent company experienced a significant decline, plummeting by 60.65% year-on-year to 1.473 billion yuan, mainly due to a substantial increase in China's withholding tax on dividends.

Looking at the business segments, Brilliance China's manufacturing and sales of automotive parts business revenue is relatively stable, reaching 405 million yuan, a year-on-year increase of 6.38%; the revenue from automotive financial services is slightly weaker, with a year-on-year decrease of 11.14% to 113 million yuan.

It is also worth noting that as a joint venture, Brilliance BMW's sales revenue is not directly included in Brilliance China's revenue, but affects the company's net profit through profit distribution.

It can be said that Brilliance BMW's performance has a significant impact on Brilliance China's profit situation.

The financial report shows that in the first half of 2024, the joint venture brought 2.735 billion yuan in performance to Brilliance China, a year-on-year decline of 27.26%, mainly from Brilliance BMW, and the decline in performance is due to a decline in Brilliance BMW's sales.

In the first half of the year, Brilliance BMW's domestic sales reached 312,700 BMW cars, a year-on-year decrease of 6.4%.

Looking forward to the future market, the market is still not optimistic about Brilliance BMW's sales and profit forecasts for the second half of the year.

Recently, due to brake system failure issues, BMW has recalled more than 1.5 million cars worldwide.

According to the China Market Supervision Administration, Brilliance BMW will recall a total of 304,502 domestic cars, and BMW China will recall 57,441 imported cars.

BMW frankly stated that due to technical issues leading to the suspension of production of some cars, it will have a negative impact on the company's global sales in the second half of the year.

In addition, the continued sluggish demand in important markets such as China also affects sales.

Against this backdrop, the BMW Group had to adjust its performance guidance for the 2024 financial year, lowering its delivery volume, pre-tax profit margin, return on capital usage, and other indicators.

Some industry insiders have said that with BMW's declining sales, coupled with the strategy of trading price for volume, it may become increasingly difficult for Brilliance China to make money through Brilliance BMW.

Citigroup also pointed out in its report that Brilliance BMW's full-channel (factory and dealer) inventory rose sharply from 0.6 months at the end of June to 2 months at the end of August; considering the pressure of de-stocking for Brilliance BMW in the fourth quarter, it is expected that Brilliance BMW's capacity utilization rate will be affected, mainly due to the decline in production volume and the increase in rebates proposed by distributors to enhance consumer demand, which is believed to have a certain impact on its sales and profitability.

Based on this consideration, the bank has lowered its sales and net profit margin forecasts for Brilliance BMW from 2024 to 2026, and its target price has been correspondingly reduced from 5.68 yuan to 4.42 yuan.