UOB Kay Hian
August 14, 2025

Nexteer Automotive Group Delivers Robust 1H25 Results: Earnings Beat, Margin Expansion, and Bullish Outlook Drive Upgrade to BUY

Overview: Strong Margin Gains Propel Nexteer Automotive’s Upward Trajectory

Nexteer Automotive Group, a key supplier of steering systems and drivelines to global automotive giants such as General Motors, Ford, Fiat-Chrysler, Peugeot SA, BMW, and Volkswagen, has delivered a standout first half of 2025. The company’s 1H25 earnings significantly surpassed expectations, primarily due to notable improvements in profit margins. This performance has prompted UOB Kay Hian to upgrade Nexteer’s rating from HOLD to BUY, sharply raising the target price to HK$10.00, representing a 44.5% upside from the current share price of HK$6.92.

Key Investment Highlights

• Share Price: HK\$6.92
• Target Price: HK\$10.00 (up from HK\$5.00)
• Market Cap: HK\$17,368 million (US\$2,241 million)
• Major Shareholder: Pacific Century Motors (67%)
• 2025F NAV/Share: HK\$4.25
• 2025F Net Cash/Share: HK\$0.83
• 52-week High/Low: HK\$6.13/HK\$2.29

1H25 Earnings Review: Margins Drive Outperformance

Nexteer’s net profit for the first half of 2025 reached US$63 million, a substantial year-on-year increase of 305% and 40% higher than the previous half. Adjusted net profit came in at US$62 million, up 332% year-on-year and 85% half-on-half, outperforming both UOBKH’s full-year estimate (US$107 million) and consensus estimate (US$119 million).

• Revenue: US\$2,242 million, up 6.8% year-on-year and 3.0% half-on-half, in line with expectations.
• Gross Profit: US\$259 million, up 22.7% year-on-year and 9.0% half-on-half.
• Gross Margin: 11.5%, up 1.5 percentage points year-on-year and 0.6 ppt half-on-half.
• EBITDA: US\$230 million, up 16.8% year-on-year.
• EBIT: US\$93 million, up 125.4% year-on-year and 26.8% half-on-half.
• Net Margin: 2.8%, up 2.1 percentage points year-on-year.
• Operating Cash Flow: US\$142 million, down 6.6% year-on-year, but free cash flow turned positive at US\$37 million.

Regional Performance: Asia Pacific Fuels Growth

• Asia Pacific: The primary growth engine, with 1H25 revenue up 15.5% year-on-year, now contributing 31% of total revenue. Growth is driven by new launches with Chinese OEMs and gains in electric vehicle (EV) platforms.
• North America: Remains the largest region, with US\$1,138 million in revenue (+1.7% year-on-year), accounting for 51% of total revenue.
• EMEASA: Solid performance with 9.4% year-on-year growth to US\$401 million (18% of total), buoyed by new program ramp-ups.

Key Financials Table (US\$ million unless otherwise stated)

Operational Highlights and Strategic Drivers

• Margin Expansion: Driven by cost optimization, manufacturing efficiency, and restructuring. Gross margin improved to 11.5% in 1H25. EBIT margin rose to 4.2%, while operating expenses as a percentage of revenue dropped to 7.5%.
• Free Cash Flow: Remained positive at US\$37 million in 1H25, despite a half-on-half decrease in operating cash flow.
• Revenue Outlook: Forecasts for 2025-2027 are maintained at US\$4.6 billion, US\$4.9 billion, and US\$5.2 billion, respectively—implying a three-year CAGR of 6.7%.
• Growth Anchors: Nexteer’s future growth is anchored by strong expansion in APAC, focusing on strategic programs with Chinese OEMs like the high-volume Aito YU7 EV. Electric Power Steering (EPS) systems, representing 69% of 1H25 order intake, remain the near-term driver. Steer-by-Wire and Brake-by-Wire technologies are expected to see accelerated adoption, especially in China and Europe, with recent wins from global EV leaders.
• Order Pipeline: Management is on track to achieve the US\$5 billion annual booking target. APAC accounts for 47% of bookings, supported by new manufacturing hubs in Changshu and Liuzhou.
• Software Opportunity: Nexteer’s Motion IQ software suite positions the company well as vehicle architectures evolve toward autonomous driving.

Upgraded Financial Assumptions and Earnings Outlook

• Gross Margin: 2025-2027 assumptions raised from 11.0% to 11.5%, reflecting ongoing cost improvements and operational gains.
• EBIT Margin: Upgraded to 4.1%/4.6%/5.1% for 2025-2027, on the back of restructuring and efficiency initiatives.
• Net Profit Forecasts: Upgraded for 2025/2026/2027 to US\$141 million, US\$164 million, and US\$193 million, respectively (previously US\$107m/US\$125m/US\$146m).

Valuation and Recommendation

• Rating Upgrade: From HOLD to BUY.
• Target Price: Increased to HK\$10.00, reflecting a roll-forward of target PE from 2025 to 2026, an increased target PE multiple from 15x to 20x (aligned with historical mean), and an upward revision in 2026F EPS.

Profit & Loss, Balance Sheet, and Cash Flow Summary

Key Metrics

• EBITDA Margin (%): 9.9 (2024), 11.0 (2025F), 11.3 (2026F), 11.5 (2027F)
• Net Margin (%): 1.1 (2024), 3.1 (2025F), 3.3 (2026F), 3.7 (2027F)
• ROE (%): 3.1 (2024), 6.9 (2025F), 7.6 (2026F), 8.3 (2027F)
• Net Debt/(Cash) to Equity (%): (18.9) (2024), (15.6) (2025F), (18.9) (2026F), (23.0) (2027F)

Conclusion: Nexteer Positioned for Sustainable Growth and Margin Expansion

Nexteer Automotive Group’s 1H25 results underscore a compelling transformation in operational efficiency, margin strength, and strategic positioning in high-growth markets like APAC and the EV segment. The company’s focus on cost optimization, advanced steering technology, and new business wins with global OEMs—especially in China—highlight a robust growth pipeline. With upgraded earnings forecasts and an attractive valuation, Nexteer stands out as a top BUY in the automotive supply sector. Investors should note the positive revisions in both margin and earnings outlook, supporting a bullish stance for the coming years.