In 1H25, Nexteer’s revenue rose by 6.8% YoY, largely in line and outstripping the global vehicle industry output growth of 3.1% YoY. Net income sequentially recovered from US$46m in 2H24 and US$16m in 1H24 to US$63m in 1H25, well above our prior anticipation of US$50m, largely attributable to more effective pass-through of tariff costs to global OEM customers and improved operational efficiency. Given the stronger-than-anticipated 1H25 profitability, we revise up 2025/26 net income forecasts by 13%-21% to US$125m/149m. We deem the week- long strong rally of Nexteer’s stock prices may have reflected the escalated bullish sentiment fueled by upward revisions in street’s consensus earnings forecasts. With fair valuation (17.7x 2025E P/E and 14.8x 2026E P/E) at present, we leave our HOLD with higher TP of HK$7.00 based on 15x 2026E P/E.
　　Key Factors for Rating
　　1H25 revenue quickened YoY growth driven by strong demand in Asia Pacific and steady recovery of non-Asia sales. Nexteer’s 1H25 total revenue rose by 6.8% YoY to US$2,242m, outstripping the global OEM production volume growth of 3.1%. Adjusting for unfavourable foreign currency translation and a decrease in commodity recovery, total revenue grew by 7.6% YoY. By region, the revenue of Asia Pacific advanced 15.5% YoY to US$687m fueled by continued demand growth in China market. Revenue of NA region added 1.7% YoY to US$1,138m, mainly thanks to the outperformance of major customers. Revenue of EMEASA region delivered faster YoY growth of 9.4%, primarily attributed to the demand upsurge in Latin America market and lower comparative base in 1H24 due to Brazil flood.
　　Gross margin well above anticipation helped by stronger margin in EMEASA market. In 1H25, the gross margin expanded 1.5ppts/0.6ppt YoY/HoH to 11.5%, well above our prior anticipation mostly thanks to stronger profitability of EMEASA segment. By region, the adjusted EBITDA margin of North America roughly stayed flat YoY but moderately declined by 1ppt HoH to 7.6%, adversely impacted by net tariff impacts by US$2m and troubled supplier costs by US$7m. The adjusted EBITDA margin of Asia Pacific segment dipped 0.7ppt to 16.9%, mainly owing to notable customer price reduction, whereas that of EMEASA region significantly recovered from 2% in 1H24 to 8.8% in 1H25, driven by improved efficiency and better scale effect. During the conference call, the mgmt. conveyed confidence to continue the margin improvement trends in 2H25. Separately, it aims to realise full-year tariff cost neutrality through supply chain coordination (to achieve USMCA compliance) and customer recoveries, which might aid to NA segment profitability improvement.
　　New business bookings. In 1H25, Nexteer recognised new bookings of US$1.5bn, slightly behind schedule to achieve full-year order intake target of US$5.0bn due to the timing of new order booking. In terms of breakdown, the new conquest orders accounted for 74%, while Chinese OEMs contributed 39% in total bookings. For rear-wheel steering, Nexteer secured first RWS order win in EMEASA in 1H25. For Electro-Mechanical Brake (EMB), the company aims to secure its first EMB contract targeted at a Chinese OEM later this year.
　　Valuation
　　We leave our revenue forecasts intact, but to reflect stronger profitability of EMEASA segment boosted by improved OPEX efficiency and larger delivery scale, we revise up net income forecasts for 2025-26 by 13%-21% to US$125m/149m, respectively.
　　Over the past week, Nexteer’s stock prices witnessed a strong rally, which we deem mainly driven by the escalated bullish sentiment backed by upward revisions in street’s consensus net income forecasts ahead of earnings release. Fundamentally, we acknowledge the company 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 a global leading tier-1 steering system supplier. Against this backdrop, any stronger-than-anticipated financial performance would further fuel the investor optimism.
　　However, given its large exposure to legacy ICE business and North America customers, we believe the slower product planning cycle and uncertain demand dynamics in North America market may weigh on the company’s profit growth trajectory. With fair valuation (17.7x 2025E P/E and 14.8x 2026E P/E) at present, we leave our HOLD with higher TP of HK$7.00 based on 15x 2026E P/E.