1H17missed on slower revenue; margin expansion at navigation offset by Jiefa    1H17revenue expanded 16.8% YoY to RMB833.8m, driven by the consolidationof revenue from Jiefa Technology (AutoChips). Gross profit grew 16.9% YoYto RMB625.1m in 1H17with a stable 75.0% gross margin. The 4.3% marginexpansion in navigation segment and 5.6% margin expansion in Internet ofVehicles (IoVs) were offset by the inclusion of lower margin Jiefa business (60.4%in 1H17). Together with 3.8ppt drop in SG&A expenses ratio, but partially offsetby a 1.3x jump in finance costs, 1H17net profit increased by 54.9% YoY toRMB121.3m (38% of FY17DBe and 32% of consensus). Excluding non-recurringitems (mainly RMB5.7m government subsidy and RMB3.8m investment gains),1H17core net profit grew 61.6% YoY to RMB114.2m, with 3.8ppt improvementin core net margin.On a quarterly basis, 2Q17revenue grew 27.1% QoQ and 19.7% YoY. Grossmargin deteriorated 7.1ppt QoQ (0.9ppt YoY) to 71.8%. 2Q17net profit increasedby 42.1% QoQ (57.4% YoY) to RMB71.2m.    Deutsche Bank view - slower ramp-up of auto chips business; maintaining Sell    We consider 1H17net profit a miss due to lower revenue contribution fromInternet of Vehicles and Jiefa Technology. Gross profit margin was better thanexpected while net profit margin was in-line. Maintain Sell on worse-thanexpectedrevenue and net profit contribution from Jiefa Technology/IoVs andexcessive valuation.    We cut our FY17-19E revenue by 13.7-14.7% to reflect weaker revenue growthof Jiefa and FY17-19E net profit by 11.1-12.6% to factor in Jiefa's weaker-thanexpectedgross margin, partly offset by further margin expansion at navigationand IoVs segments. We expect NavInfo to deliver 15.9% FY16-19revenue CAGR,driven mainly by acquisition of Jiefa. Our TP is set at 45x FY18E P/E (unchanged),c.60% below its mid-cycle P/E of 108x. This is justified, in our view, since weexpect the company to deliver a 43.1% net profit CAGR in FY16-19. Key upsiderisks: 1) less-than-expected competition in in-dash navigation market; 2) strongerthan-expected auto sales volume; 3) faster-than-expected development in theIoVs and ADAS businesses; and 4) a more efficient consolidation of Jiefa Tech.

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