Revenue and Margin Improvement Expected in 2H, but Neutral Valuation View Maintained

Overview

This report summarizes key takeaways from Nexteer Automotive Group's 1H26 non-deal roadshow. The key message is that management maintains its target for revenue to outperform global auto production and expects continued improvement in revenue and margins in 2H. The report also notes that the company continues to face risks from pricing pressure in China, auto-market demand, and the timing of new project launches.

Core views

On revenue, Stellantis and BMW drove growth in 1H26, while higher EV penetration in China and Europe will support adoption of premium steering products and increased revenue per vehicle. On profits, insurance proceeds, customer compensation, and raw-material cost recoveries from non-Chinese automakers could provide incremental support in 2H26. Regarding capital returns, the company intends to further raise the 2026 dividend payout ratio from 45% in 2025.

Analysis framework

The report distills operating drivers, margin catalysts, and industry transmission effects from management's non-deal roadshow discussions, and values the company using the residual income method.

Methodology notes

• Valuation methodsResidual Income Method

  Measures enterprise value based on returns on equity in excess of the cost of equity.

  The base case uses an 8.1% cost of equity, assuming a beta of 1, an equity risk premium of 4%, a risk-free rate of 4%, and a terminal growth rate of 3%.

• RatingRelative Rating System

  The rating measures a stock's performance relative to the average return of the analyst's industry coverage universe.

  Equal-weight indicates that, on a risk-adjusted basis, total return over the next 12 to 18 months is expected to be broadly in line with the average of the analyst's industry coverage universe.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nexteer Automotive Group（1316.HK）

  Covered company

  Strengths

  Revenue target above global auto production; growth driven by Stellantis and BMW; higher EV penetration supports revenue per vehicle for premium steering products; potential compensation and cost recoveries support margins; dividend payout ratio is expected to rise.

  Weaknesses

  Pricing pressure in China may constrain revenue and earnings conversion.

  Comparison

  Relative to the industry coverage universe, the analyst assigns an Equal-weight rating, with risk-adjusted returns over the next 12 to 18 months expected to be broadly in line with the industry average.

  Risks

  Further deterioration in auto sales, delays in new project launches, and failure to realize potential compensation or cost recoveries.

Key data

• 2026 Revenue Growth Target2 to 3 percentage points above global auto production growthReiterated by management despite pricing pressure in China.
• Mexico Power Outage Insurance CompensationUS$5mnManagement expects full compensation may be received in 2H26.
• 2025 Dividend Payout Ratio45%Management plans to further raise the 2026 payout ratio.
• Target PriceHK$6.10Target price shown in the report.
• Closing PriceHK$4.48Closing price on August 12, 2026.
• Terminal Growth Rate3%Base-case assumption for the residual income method.
• Cost of Equity8.1%Includes assumptions of beta of 1, a 4% equity risk premium, and a 4% risk-free rate.

Impact & implications

If compensation and cost recoveries are realized in 2H, while EVs drive a product mix upgrade toward premium steering products, the company's revenue quality and margins could improve. For the industry, non-Chinese automakers are more likely to accept meaningful cost pass-throughs, while Chinese automakers may have more limited room for cost pass-through. Chinese parts suppliers exporting to Stellantis may face slower shipments as it destocks in 2H.

Risks

• Further deterioration in global or regional auto sales.
• Delays in new project launches or mass production.
• Intensifying pricing pressure in China.
• Compensation for cancelled EV projects, Mexico power outage insurance proceeds, or raw-material cost recoveries from non-Chinese automakers may not materialize as expected.
• Stellantis destocking in 2H could slow shipments across the related supply chain.

What to watch

• Whether 2026 revenue growth continues to outperform global auto production by 2 to 3 percentage points.
• Order and shipment trends at Stellantis and BMW.
• The contribution of EV penetration in China and Europe to revenue per vehicle for premium steering products.
• Progress in confirming the US$5mn Mexico power outage insurance compensation.
• Implementation of compensation for cancelled EV projects and cost recoveries from non-Chinese automakers.
• The extent of the increase in the 2026 dividend payout ratio.