Changzhou Xingyu Auto (601799 CH): Buy: 2Q26 below expectations; better risk-reward

2Q26 earnings below expectations on weak domestic auto demand; we expect improvement in 4Q26e. Domestic auto wholesale sales fell 6% y-o-y in 1H26, while we estimate Xingyu's sales to major domestic customers declined c10% y-o-y in 2Q26 (both CPCA data), mainly due to weaker sales at key customers, including Seres and Volkswagen. 2Q26 revenue declined 6% y-o-y to RMB3.45bn but increased 1% q-o-q. The gross margin fell 1.4ppt y-o-y and 1.1ppt q-o-q, mainly due to weaker operating leverage and higher raw material costs. The company's net profit declined 18% y-o-y and 12% q-o-q to RMB314m. We expect earnings to remain under pressure in 3Q26e before gradually recovering from 4Q26e. Risk-reward looks more attractive after the recent share price correction. We lower our 2026-27e net profit estimates by c30% each year to reflect weaker domestic demand. Following our earnings estimate cuts, Xingyu is trading at a 12.7x 12-month forward PE multiple, around the 8th percentile of its 15-year hist