Nexteer Automotive Group:More orders increase mid-term growth visibility;stay Buy,raise TP

What's changedNexteer reported on March 14 a backlog at US$25.6bn, expanded byUS$1.6bn since Sep 2016’s US$24bn. We also see solid progress onAdvanced Driver Assistance System (ADAS)/Autonomous Vehicle (AV)related technology capabilities. We expect Steering By Wire (SBW) is thenext generation steering technology. Improving ADAS capabilities,commercially viable by wire technology as well as Nexteer’s partnershipwith Continental on integrated motion control has set Nexteer in afavorable position to benefit from ASP/margin/market share expansionopportunities during 2018E-2020E along with the technology upgradecycle, in our view.

ImplicationsWe see strong backlog expansion and solid ADAS/AV progress to drivemid-term earnings growth during 2018-2020E to 20% as we see Nexteer: 1)capturing market share based on its enhanced technological capabilityand competitive advantage vs. peers, (2) expanding products’ASP/margin/share further on increased value creation (i.e., moresoftware/sensor/control). We see a relatively muted 2017E (7% yoy) onflattening US/China market growth and low new product contribution.

ValuationGiven the increasing visibility and conviction on the mid-termASP/margin/market share opportunities, we roll over our valuationmethodology to 2018E PB vs. avg. 2018-19E ROE from 2017E PB vs. avg.

2017-19E ROE, driving Nexteer’s new 12-m target price to HK$13.98 fromHK$12.51, implying 18% upside. Implied 2017E-18E PE is 13.4X/11.1X.

Nexteer is trading at 12.1X/10.1X 2017E-18E PE vs. global peers’ avg. at15.1X/13.8Xand its own historical median since IPO (Oct 2013) at 9.6X.

Key risksLower US/China vol./pricing; ADAS/AV commercializationexecution/delivery risks; competition and peers’ strategy; FX risks.