* Sales 1% above us, but EBIT 10% below on a softer gross margin
* Past the H2'25 trough, larger volume ramp to start in Q4'26
* We cut '26e-'28e EBIT by 9-4% on ramp timing and FX
Q2 results
Q2 sales were 1% above ABGSCe while EBIT was 10% below, at SEK 27.4m (31.1m) and SEK 7.4m (11.2m), respectively. Volumes were pre-announced in July's H1 update, although Q2 Engine Equivalents of 3.1m (3.4m) were slightly below the 3.2m implied there, likely due to rounding. Unusually high engineering service revenue of SEK 1.0 million (0.3 million) drove the sales beat. The EBIT margin of 27.1% (36.1%) was 3pp below our estimate on a gross margin of 69.4% (71.4%) against our 72.0%. We view this as a quarterly fluctuation in a lower-volume environment rather than something to extrapolate. Despite still constituting a negative y-o-y development, the recovery from the H2'25 trough was confirmed.
Estimate changes
We cut '26e/'27e/'28e EBIT by 9%/7%/4%, as we have pushed back the EE ramp somewhat based on management comments that higher production volumes are expected towards the end of H2'26 due to the recovery of the commercial vehicle sector and the ramp-up of new programmes. We now forecast EEs of 3.2m/3.8m in '26e/'27e, with '28e essentially unchanged at 4.5m. Updated FX takes a further ~2% off '27e-'28e sales.
Outlook and valuation
The expected recovery looks broadly intact to us: H1 EEs were 15% above H2'25, and the company points to global commercial vehicle orders up ~30% y-o-y and ~140% in North America on fleet renewal and the EPA 2027 pre-buy. Further evidence of an increase in volume comes from the new production programmes, some of which are already ramping up with more starting between '27 and '30. These programmes underpin the company's 6m ('29) and 8m ('31) EE milestones. We lower our fair value range to SEK 90-120 (95-125) on our reduced estimates. The share is trading at 26x/15x '26e/'28e P/E vs. its historical median of 22x/14x.