Guangzhou Auto- H&A: M&A a positive move: Upgrade to OW; 100% potential upside for the H share

We upgrade GAC-H&A to OW and estimate ~100% potential upside for the H-share: GAC announced that it plans to acquire a partial equity stake held by FAW in an auto JV, which we believe is Toyota, given Toyota is the common JV partner of FAW and GAC. We believe the proposed deal, subject to regulatory, AGM approval and final announcement, would lead to an integrated business effort and strategy across Toyota business in China. In the long term, we believe GAC/FAW will further explore similar synergy among their own brand businesses. Key events to watch include GAC's next announcement by 28 Sept on deal details and the resumption of GAC-A trading, the deal structure and how Toyota integrates its businesses across the FAW and GAC JVs, the valuation of new shares issued to FAW and potential dilution (FAW would become GAC's second-largest shareholder upon completion, expected in 2027), and approvals from regulators and AGMs. We believe 0.6x P/B is an important benchmark based on Dongfeng's p