20171122-中国银河国际证券-耐世特-01316.HK-A_global_leader_in_ADAS_and_autonomous_vehicle_technologies_8页_743kb

Nexteer Automotive Group Ltd Summary

Core Content

Nexteer Automotive Group Ltd (1316.HK) is a global leader in advanced steering and driveline systems, ADAS (Advanced Driver Assistance Systems), and autonomous vehicle technologies. The company has a strong focus on in-house development and integration of hardware, software, and electronics. It has a diverse customer base and has expanded its operations beyond the US market, particularly in China, where it has seen significant growth in revenue contribution.

Key Business Overview

• Main Products:

  • Steering systems (62% of sales): Electric Power Steering (EPS), Hydraulic Power Steering (HPS), Steering columns and intermediate shafts.
  • Driveline systems (17% of sales): Halfshaft, Intermediate drive shaft, Propeller shaft joint.
  • ADAS and autonomous driving (0% of sales in 2016): Nexteer Steering on Demand System, Nexteer Quiet Wheel Steering.

• Market Position:

  • The company is a pioneer in ADAS-focused EPS system development.
  • It started system integration with global OEMs in 2015.
  • Its ADAS business is still in early stages of development and is expected to take time to contribute meaningful revenue.

Revenue and Profit Growth

• Revenue Growth (2014–2018E):
  • 2014: US$2,978m
  • 2015: US$3,361m
  • 2016: US$3,842m
  • 2017E: US$4,037m
  • 2018E: US$4,421m
• Gross Profit Growth (2014–2018E):
  • 2014: US$420m
  • 2015: US$545m
  • 2016: US$662m
  • 2017E: US$730m
  • 2018E: US$816m
• Gross Margin (GPM):
  • 2014: 14.1%
  • 2015: 16.2%
  • 2016: 17.2%
  • 2017E: 18.1%
  • 2018E: 18.5%
• Operating Profit Growth (2014–2018E):
  • 2014: US$238m
  • 2015: US$322m
  • 2016: US$420m
  • 2017E: US$465m
  • 2018E: US$526m
• Operating Margin (OPM):
  • 2014: 8.0%
  • 2015: 9.6%
  • 2016: 10.9%
  • 2017E: 11.5%
  • 2018E: 11.9%
• Net Profit Growth (2014–2018E):
  • 2014: US$161m
  • 2015: US$205m
  • 2016: US$295m
  • 2017E: US$342m
  • 2018E: US$393m
• Net Margin:
  • 2014: 5.4%
  • 2015: 6.1%
  • 2016: 7.7%
  • 2017E: 8.5%
  • 2018E: 8.9%

Valuation and Market Performance

• Share Price Performance:
  • Rose 112% CYTD (as of November 2017).
  • Outperformed the Hang Seng Index (HSI) which rose 40%.
• Current Valuation:
  • Trades at 16.6x 2017E PER and 14.4x 2018E PER.
  • Historical average PER is 9.7x.
  • Valuation is near the high end of its international peers' range but not excessively high.
• Investor Outlook:
  • The stock may look attractive if there is a correction of more than 10%, given its ADAS potential.
  • Earnings growth in 2017–2018E is expected to be modest (5–10% revenue growth), with profit growth driven by margin expansion.

Market Demand Outlook

• China Auto Sales:
  • Passenger vehicle sales grew 2.5% YoY in 10M17 vs. 15.1% in 2016.
  • Weak growth is expected in 2017, with CAAM projecting 1–4% growth for 2017.
  • Tax incentives and EV subsidies are expected to expire in 2018, further constraining growth.
• US Auto Sales:
  • Light vehicle sales fell 1.7% YoY in 10M17.
  • SAAR reached 18.1m units, the second-strongest month in 2017.
  • Consensus estimates expect continued decline in 2017 and 2018 due to the gentle maturation of the auto industry cycle.

Customer Diversification

• Customer Base:
  • Revenue contribution from the NA market fell from 71% in 2013 to 65% in 2016.
  • Revenue from the China market increased from 11% to 22% in the same period.
  • GM's contribution to Nexteer's revenue dropped from 54% in 2013 to 42% in 2016.
  • Nexteer has expanded to other OEMs such as Fiat, Ford, PSA, BMW, and Chinese OEMs.
• Order Backlog:
  • As of 1H17, the backlog stood at US$24.0bn, with GM accounting for only 38% of it, down from over 70% in the past.

Strategic Position and Outlook

• ADAS Development:
  • Nexteer has been involved in ADAS-focused module R&D for 10 years.
  • It has a first-mover advantage in ADAS technology, which is expected to gain traction as demand for driverless cars increases.
• Investor Potential:
  • The company is well-positioned for long-term growth in ADAS and autonomous vehicle technologies.
  • Investors focusing on medium-term potential may find the stock attractive if there is a significant correction.

Analyst Certification and Disclaimer

• The analyst certifies that the views expressed reflect personal opinions and not necessarily those of China Galaxy International.
• The report is not directed at, or intended for distribution to, any person or entity in jurisdictions where such distribution would be illegal.
• The company may have financial interests in the subject companies, and the report does not constitute an offer or solicitation to buy or sell securities.