Highlights

• Nexteer's 1H26 net profit rose 35.2% yoy to US$85.8m, on a 3.9% yoy revenue growth and a 1.0ppt gain in adjusted EBITDA margin to 11.3%.
   
• Management has guided for the 2026 effective tax rate to be slightly below 25%, against the 33% assumed.
   
• We lift 2026-28 net profit forecasts by 20.6%/23.2%/22.0% respectively and roll the valuation base to 2027 at an unchanged 20x PE, taking our target price to HK$11.40 from HK$8.30.

Analysis

• Revenue rose 3.9% yoy to a record US$2,329m, with the Europe, Middle East and South America (EMEASA) segment up 11.6%, North America up
  2.7%, and Asia Pacific up 3.2%. Excluding currency and commodity passthroughs, growth was 0.8%, or 180bp above a global production market that was down about 1%; however, this is short of the 200-300bp guided in March, which management attributed to weaker volumes in China.

• Adjusted EBITDA rose 14.1% yoy to US$263m, with margin expanding 1.0ppt to 11.3%. EMEASA drove the increase, contributing EBITDA of
  US$55m (+56% yoy, +62% hoh) and a margin of 12.2% (+3.5ppt yoy, +3.7ppt hoh), underpinned by its regional margin enhancement programme.
  Asia Pacific held at 16.9% despite pricing pressure and higher commodity costs, while North America slipped to 7.3% (−0.3ppt yoy) on a plant outage and adverse currency, with an insurance recovery expected in 2H26.
   
• US$8m of 2025 tariff costs were recovered, though nothing has yet been booked on the North American electric vehicle cancellations that cost
  US$24m in 2H25. Depreciation and amortisation rose 6.1% yoy to US$146m, while the effective tax rate fell to 21.6% (-6.3ppt yoy), driven by stronger US profitability and tax planning. Minority interests accounted for 5.0% of profit (-3.0ppt yoy), and adjusted net profit increased 23.3% yoy to US$76m.
   
• Operating cash flow rose 84.2% yoy to US$262m and free cash flow reached US$109m (+197% yoy), lifting net cash to US$516m (+40.5% yoy) with total liquidity of US$968m. Capex and intangible additions rose 42.6% yoy to US$158m, so the improvement came from earnings and working capital, not underinvestment.
   
• Bookings reached US$3.3b (+120% yoy), tracking toward the reaffirmed fullyear target of US$6b, supported by 28 programme launches, 26 of which were for new or conquest business. First steer-by-wire production launches were achieved, though management does not expect the technology to contribute meaningfully to group revenue until after 2030. For 2H26, it flags price give-backs closer to 2% and no commodity escalation cover on Chinese