Excellent 2M18 NEV bus sales: Yutong bus announced Feb 2018 sales volumeand we estimate its Feb NEV bus sales at 300 units (up 15x YoY due to low base),or 2M18 sales at 1.3k units (up 2.8x YoY), generally in line with consensus. Due tolate CNY holiday this year, we expect March 2018 Yutong NEV bus sales maydecline slightly YoY but should still deliver 1Q18 sales at 2.3x YoY pace, followedby a stronger NEV sales rally in 2Q18 before the subsidy cut by mid-June 2018

Conventional bus 2M18 sales growth intact with sales-mix upgrade: Byexcluding Yutong NEV sales, we estimate its Feb bus sales at 2.3k unit, up 39%YoY (2M18 up 19% YoY to 6.5k unit). We are encouraged to see its sales miximproved massively with 2m18 large bus sales up 76% YoY and accounted for 47%of its YTD total sales, compared with 2M17’s 32% and FY17’s 41%, which shouldgive strong support to its margin trend in 1H18.

June-July NEV sales swing will be a critical factor: We believe the market is stillconcerned about 3 things on Yutong Bus’ earnings outlook: (1) The visibility on NEVbus GPM trends after & during subsidy cut; (2) 2Q18 NEV bus pre-buying effectmay trigger a sharp QoQ volume decline in 3Q18; (3) Questionable long-term NEVbus volume growth outlook from 2018-2020 and beyond 2020 as the Chinesegovernment has been switching its subsidy focus from NEV bus to NEV cars.Having said that, we recognize Yutong has been consistently gaining bus and NEVbus market shares over the past years and should ultimately benefit from marketconsolidation and potential battery cost reduction. The recent new subsidy policyshould also improve quality players’ FCF yield going forward. Maintain Buy rating.

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