Citi Research maintained its target price for Nexteer Automotive Group (01316) at HK$7 unchanged but upgraded its rating to "neutral" from "sell".
The research house now factored in 2020 & 2021 EPS recovering by 5% and 10%, after a 38% decline in 2019. Citi's upgrade is premised on (1) Citi's belief that the recent share price pullback has captured most of the 2019 potential earnings downside risk, and (2) Citi's expectation that Nexteer's valuation would gradually recover with 8% net profit CAGR outlook.
After poor 1H results and new company guidance, Citi believes higher competition on pricing, stronger commitment on Capex and more pressure on fixed cost hike would hurt 2019-21 GPM. Citi cut its net profit forecast by 23-28% to US$236/247/271m.
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