Maintain "Buy" but lower TP to HK$4.00. Considering that 1) the recovery in North America is still lower than expected; 2) the business in Brazil in South America was affected by flood disasters; 3) the adverse foreign exchange impact has improved; and 4) China's NEV business is booming, we fine-tuned Nexteer's (the "Company") 2024-2026F EPS forecast to US$0.044 (-0.002)/ US$0.050 (-0.006)/ US$0.073 (-0.008). We lower the Company's TP to HK$4.00, corresponding to 11.7x 2024 PER, but, we maintain "Buy" investment rating.
1H2024 results were in-line overall, with a recovery in GPM. The Company recorded total revenue of US$2.1 bn in 1H2024, -down 0.1% yoy. Due to the slowdown in the recovery of the Company's North American business, the revenue in the region decreased by 6.3% yoy. The South American business was affected by flood disasters, which also had a great impact on the Company's business. The revenue of rest of EMEAS (excluding Poland) fell by 9.6% yoy, which was worse than market expectations. The Company's APAC regional revenue increased by 9.3% yoy, slightly missing market expectations, but revenue in the Chinese market grew rapidly, with a yoy increase of 12.9%. The Company’s GPM increased by 1.0 ppt yoy to 10.0%, thanks to material, manufacturing and fixed cost reductions. The Company recorded a significant yoy decline in net profit to shareholders, mainly due to the cancellation of provisions for specific items and the impact of income tax, which increased by 111.1% yoy to US$17.7 mn. We have high conviction that the Company will continue to achieve high growth in the APAC region in the next few years.
Nexteer recorded strong bookings in 2Q2024 as the business in the Chinese market continued to maintain high growth. The Company's new bookings in 2Q2024 reached US$2.0 bn, on track to meet the annual target of US$6.0 bn. The Company continues to reap the fruits of cooperation with Chinese new energy OEMs. Most of China's new energy OEMs are customers of the Company, including Li Auto, BYD, Geely Auto, Changan Auto, Great Wall Motor, etc. The Company maintains its leading position in the steering system supply chain in the Chinese market, and the performance in 2H2024 is expected to exceed market expectations.
The cooperation with other OEMs on the SbW system is progressing well, and Nexteer expects that in 2025, Chinese new energy OEMs will be the first to adopt the SbW system. Nexteer continues to develop cooperation projects on its SbW system with multiple OEMs. The Company still maintains its industry-leading position in the SbW business and continues to lead the SbW market. The Company prioritizes resource allocation to SbW business opportunities. With the steady progress of advanced autonomous driving, 2025 will be a big year for advanced autonomous driving in the automotive industry. The Company believes that SbW is likely to be adopted first by Chinese OEMs, and the Company's SbW system with industry-leading technology is expected to bring synergies to the Company in the next few years.
Risks: 1) APAC region growth may be slower than expected; 2) the application of L3 and above advanced autonomous driving may be lower than expected.