In 2024, Nexteer’s revenue edged up 1.6%YoY to RMB4.3bn, outpacing the global vehicle industry growth, mainly driven by growth in APAC region, whereas both revenues from NA and EMEASA regions declined slightly last year. The gross margin recovery helped full-year net income recover to US$62m, yet slightly below our estimate on higher tax expenses and product development costs. In 2024, Nexteer recognised new bookings of US$6.0bn, consistent with original guidance. In particular, the company obtained two SbW project wins from a reputable NEV titan in North America and a leading Chinese NEV start-up. Yet during the earnings call, the mgmt. guided that the SbW products may account for 5% in total revenue by 2030, which seems a bit conservative in our view. We maintain net income forecasts for 225- 26E largely intact. While we deem the company is poised to benefit from the revolution of vehicle automation via its well-established technology in steering system and remarkable project wins for SbW, we believe the company’s earnings recovery process may be slow given its large exposure to conventional steering business in NA and European market, and it may take time for the wide adoption of new technology of SbW to translate into earnings release. Hence, maintain HOLD with unchanged TP of HK$5.30, equivalent to 16x 2025E P/E.
　　Key Factors for Rating
　　2024 revenue in line with robust APAC sales growth against demand
　　disruptions in NA and EMEASA region. Nexteer’s total revenue in 2024 slightly increased 1.6% YoY to US$4,276m, outpacing the global OEM production volume growth of -1.1%. If excluding the FX translation loss on stronger US dollar against RMB and Euro by approximately US$26.5m and increase in commodity recoveries of US$7m, the company’s adjusted revenue rose by 2.5% YoY to US$4,310m in 2024. By region, the revenue of APAC advanced 10.1% YoY to US$1,338m driven by the robust demand in China market. Revenue of NA region dipped 2.9% YoY in 2024 dragged by softening demand from the second largest customer Stellantis, while EMEASA region reported revenue of US$717m with a YoY decline of 1.2% amid unfavourable macro dynamics.
　　Full-year gross margin recovered driven by improving profitability in NA and APAC region. In 2H24, the gross margin of 10.9% came in line with our initial estimate with continuing HoH recovery (by c.1ppt), mostly supported by the improving GPM for NA business and escalated Asia Pacific sales mix with richer gross margin. By region, the adjusted EBITDA margin of North America/EMEASA region came at 8.1%/5.0% in 2024, recovering from 7.8%/2.0% in 1H24 thanks to the cost savings from on-going restructuring scheme and lower base. The adjusted EBITDA margin of APAC arrived at 17.2% in 2024, up from 16.6% in 2023.
　　New business bookings. In 2024, Nexteer recognised new bookings of US$6.0bn, consistent with original guidance. In terms of breakdown, the new conquest orders accounted for 31%, while Chinese OEMs contributed 28% in total bookings. For SbW, the strong bookings of US$6.0b meaningfully contain two SbW project wins from a reputable NEV titan in North America that enables L4 and MaaS business (which we est. to be Tesla Cybercab) and a leading Chinese NEV start-up (Li Auto) which is expected to start mass production from 2026 alongside its redesigned L-series platform. During the earnings call, the mgmt. guided that the SbW products may account for 5% in total revenue by 2030, which seems slower than market expectations given the consecutive delays of previously signed SbW programmes for global OEMs amid the slower electric migration in overseas market. Overall speaking, we deem Nexteer set to mostly benefit from the prevailing adoption of SbW products in China smart vehicle industry over the coming years, whereas it may take longer time to monetise the SbW techs in the overseas order backlogs due to the demand uncertainties and cloudy macros. For RWS (rear-wheel steering), it secured first project win with Chinese NEV nascent player (which we est. XPeng), yet we see relatively limited growth potential given the thinner market size.
　　2025 Outlook: top-line growth mainly counts on APAC region, while
　　NA may continue to see margin recovery trend despite stagnating revenue growth. For 2025, the mgmt. expected the full-year revenue growth to outperform overall industry by 2-3ppts. For China market, we expect the capacity addition of Nexteer’s Changshu campus to somewhat relieve current capacity bottleneck whereas the tight supply may persist throughout the entire 2025. Beyond 2025, the company will continue to ramp up the production output in Changshu campus towards full-capacity of 2m steering system units with accumulative 40-50% incremental volume contribution on top of current capacity. For NA market, we see near-term demand uncertainties amid the U.S. tariff threats. Instead, the sequential margin improvement helped by on- going restructuring scheme remains the key focus in 2025. For Europe market, the continued demand weakness and deteriorated customer structure for Nexteer during the electric migration stage might temper the growth outlook in coming 1-2 years. Beyond that, we expect the European business to return to growth in 2028 driven by mass deliveries of SbW products.
　　Valuation
　　We largely maintained our net profit forecasts for 2025-26E intact at US$105m/132m. YTD, its share prices surged by 60% and significantly outperformed overall auto sector and HK-listed auto parts suppliers, mostly related to the recent sector-wide smart-driving hype and investors’ interest in SbW’s penetration.
　　Fundamentally, we acknowledge the company set to become one of the largest beneficiaries during the revolution of vehicle automation with well-established know-how in steering system and remarkable project wins for innovative steering products (i.e. SbW, RWS). However, we believe the company’s earnings recovery process might be slow given its large exposure to conventional steering business in NA and European market, both of which lack clear growth driver. Separately for SbW technology, we render it still take time for the wide adoption of new technology to translate into earnings release. Hence, maintain HOLD with unchanged TP of HK$5.30, equivalent to 16x 2025E P/E and 13x 2026E P/E.