BOCI Research: Downgrade NEXTEER (01316) to "Hold" rating, raise target price to HK$5.3.

Bank of China International has released a research report, stating that it has downgraded NEXTEER (01316) to "hold" from the previous rating, and raised the target price from HK$4.5 to HK$5.3. The bank mentioned that as the March performance period approaches, investors may return to rationality and focus on short-term fundamentals and profit prospects. Bank of China International pointed out that NEXTEER's first steer-by-wire project developed for China's leading new energy vehicle will start mass production in 2026, while the mass production timeline for steer-by-wire projects developed for two other global automotive giants has been delayed to 2028. Despite steer-by-wire having higher average prices and profit margins than EPS systems, the bank believes that the profit release of steer-by-wire products still requires time with the advancement of Level 3 and above autonomous driving technology. Regarding the recent tariff increase plan by Trump, around 40% to 45% of NEXTEER's revenue in North America comes from Mexican factories and will be affected by the tariff increase. The bank expects a slight revenue recovery in the second half of last year for the group, with total revenue of $4.25 billion likely to reach the previous revenue high guidance; however, the low single-digit growth may be weaker than the global automotive market growth rate. Thanks to the recovery in profit margins and the elimination of one-time drag factors in the second half of 2023 and the first half of 2024, it is expected that the net profit in the second half of last year will recover to $50 million. Looking ahead to 2025, it is expected that the Chinese market will continue to lead NEXTEER's revenue growth, while the North American and European businesses may continue to be under pressure due to overall weak demand and customer structure. Taking into account the lower-than-expected performance of the North American and European business, revenue forecasts for 2024 to 2026 have been reduced by 1% to 5%, and net profit forecasts for each year have been reduced by 4% to 15% to $66 million, $106 million, and $131 million respectively.