We expect 1H25 revenue to rise by 7-8% YoY to US$2.25bn mainly driven by surging Asia Pacific sales and softer-than-feared demand disruptions in non-Asia Pacific segments, and net profit projected at US$40-50m in 1H25. In May 2025, the second largest shareholder E- town decreased its stakes by 49m shares at above HK$6.00 per share. Considering E-town’s strategical action to optimise resource allocation and secure financial returns, we anticipate it may continue to reduce its shareholding at an appropriate time in future. Fundamentally, we expect Nexteer to solidify its leading position in global steering industry with the broader motion-by-wire product offerings and enhanced chassis-by-wire integration capacities. Yet, it still takes time to see material profit release due to the early penetration of new techs and demand uncertainties in NA market amid tariff headwinds. With fair valuation at present, we maintain HOLD.
　　Key Factors for Rating
　　Strong shipment growth in Asia pacific may drive better-than- expected revenue in 1H25. Given the robust growth of China PV sales, coupled with stronger sales performance of primary Chinese NEV customers Xiaomi and BYD, we expect 1H25 revenue of Asia Pacific segment to surge around 20% YoY. The demand disruption in non-Asia Pacific segments might be softer than feared, mainly helped by the front-loaded demand in North America segment ahead of potential tariff hikes, as well as the moderate demand recovery in EMEASA market on low base. All together, we expect 1H25 topline to exceed US$2.25bn with a 7-8% YoY increase.
　　Mixed margin picture across the region in 1H25. Despite the strong revenue growth, we expect gross margin pressures of Asia Pacific unit may persist due to the stiffened competition and significant annual price reductions in China, whereas the non-Asia Pacific segments are set to sustain GPM improvements through continuing cost-cut benefits. Overall, we estimate net profit at US$40-50m in 1H25, representing strong growth YoY on low base in 1H24 at US$16m, while largely flattening versus US$46m in 2H24.
　　Product line-up expansion into Motion-by-Wire portfolio. For Rear- wheel steering, Nexteer has secured two RWS contracts with a leading Chinese OEM, with mass production expected to start in 2026. For Electro-Mechanical Brake(EMB), the company aims to secure its first brake-by-wire contract by year- end, with mass production and scaling order intake expected over 2026-2027, market rollout of which advancing more quickly than expected. For SbW, we anticipate the company will supply road-wheel actuator (RWA) for robotaxi of a leading global player, with production starting from 2026. Additionally, Nexteer has forged strong partnership with Xiaomi Auto, serving as the latter’s exclusive supplier of steering system and upcoming potential SbW products.
　　Potential further stake reductions of the second largest shareholder may create stock price volatility. In May 2025, Nexteer’s second largest shareholder Beijing E-town decreased its stakes by 49m shares at above HK$6.00 per share. In fact, before September 2022, Beijing E-town indirectly held Nexteer’s shareholding via PCM China, which is jointly held by E-town and AVIC. But in September 2022, E-town entered into an agreement with AVIC and PCM China, pursuant to which Nexteer’s direct shareholder Nexteer HK transferred 525,000,000 shares in the listed corporation to E-town at non-cash consideration of RMB6.25 per share. Since then, E-town has become the second-largest direct shareholder of Nexteer. Although both Nexteer and E- town has yet to explain the intention behind the action of share sales, we tend to interpret the stake reduction of E-town as: i). the strategical action to optimise government-sponsored resource allocation with the intendancy to support intelligent driving, robotics and regional key NEV carmakers as industry norms among government-sponsored funds; ii) the initiatives to secure financial returns from Nexteer’s investment which it has held for more than a decade. Therefore, we anticipate E-town may continue to sell its shareholding in Nexteer at appropriate time in the foreseeable future.
　　Valuation
We slightly revised up revenue forecast for 2025-26E by 1-2% to US$4.5bn/4.9bn, but trimmed our net income forecast for 2025E by 2% to US$103m, whereas maintained the 2026E net profit projection largely intact at US$132m.
Over the past two months, the stock prices witnessed a significant volatility as the excitement around BbW product debut in April and enhanced chassis-by- wire integration capacities fuelled a strong rebound in stock price over Apr-May, ensued by a notable pullback since late May due to the consecutive stake reductions of E-town.
Fundamentally, we acknowledge the company is set to benefit from the revolution of vehicle automation via its well-established know-how in steering system and remarkable project wins for innovative steering products. By diversifying the chassis-by-wire components offerings, we expect Nexteer to continuously solidify the position as global leading tier-1 steering system supplier. Yet, given its large exposure to legacy ICE business, we believe its earnings recovery pace may be slowed by NA market amid the tariff uncertainties. Moreover, we deem any further stake reductions of E-town may continue to weigh on the stock price swings in the foreseeable future. With fair valuation at present, we leave our HOLD with but slightly raise our TP to HK$5.50 from HK$5.30, equivalent to 17x 2025E P/E and 13x 2026E P/E.