The stock of Envic, a leading billion-dollar liquid cooling company, saw its market value evaporate by 11.8 billion yuan in a single day, dropping from a record high on April 20 to a limit-down opening the next day. This sharp reversal in the capital market is likely tied to the company's first-quarter earnings report released on the evening of April 20. The report showed that while revenue grew 26.03% year-over-year to 1.175 billion yuan, net profit attributable to shareholders plummeted 81.97% to just 9 million yuan.
Envic provided multiple explanations for this performance: a significant increase in financial expenses, rising credit impairment losses, a decline in gross margin due to changes in revenue structure, and strong order intake that failed to translate into higher shipments and revenue recognition. Despite its reputation as a top liquid cooling firm, a Citibank report noted that market consensus on Envic's earnings was overly optimistic. The market has focused on its supply of liquid cooling solutions for Ategrity Specialty Holdings (ASIC) clients but overlooked risks such as limited business exposure, intensifying domestic price competition, and pressure from new entrants.
It is worth mentioning that Qi Yong, the figure behind Envic, was listed on the 2026 Hurun Global Rich List with a fortune of 22.5 billion yuan.
The first-quarter report revealed an increase in revenue but not in profit, leading to extreme volatility in the stock price. Revenue for the quarter reached 1.175 billion yuan, up 26.03% from 933 million yuan in the same period last year. However, net profit attributable to shareholders was only 9 million yuan, a sharp decline of 81.97% year-over-year, with non-GAAP net profit dropping 87.1%. Sequentially, the profit contraction was even more pronounced, falling about 93% from the 123 million yuan net profit in the fourth quarter of last year.
In fact, Envic's performance had already shown a pattern of revenue growth without profit growth in the same period last year. For the full year 2025, the company's performance remained on a positive growth trajectory, with revenue increasing 32.23% to 6.068 billion yuan and net profit rising 15.3% to 522 million yuan. By business segment, revenue from core data center temperature control and energy-saving products grew 41.28% to 3.448 billion yuan in 2025, accounting for 56.83% of total revenue. Cabinet temperature control products brought in 1.977 billion yuan, up 15.3%, representing 32.59% of revenue.
The company's gross margin has been on a continuous decline, falling from 32.35% in 2023 to 27.86% in 2025, and further dropping to 24.29% in the first quarter of this year. Envic attributed the margin compression mainly to product mix adjustments.
Listed on the Shenzhen Stock Exchange in 2016, Envic saw its stock price swing dramatically over two trading sessions following the earnings release. On April 20, before the report was issued, the stock hit an all-time high of 121.74 yuan per share, closing up 9.41% with a market cap peaking at 118.3 billion yuan. The next day, it opened limit-down at 108.97 yuan, wiping out approximately 11.8 billion yuan in market value. On April 22, the stock fell another 4.38% to close at 104.2 yuan. Despite the recent drop, the stock is still up more than 250% since the beginning of last year.
Analysts suggest that Envic's high valuation is supported by market expectations for its role as a key supplier to Ategrity Specialty Holdings and the explosive growth of the liquid cooling industry. However, Citibank's report emphasized that Envic has underperformed earnings expectations for three consecutive quarters, indicating that consensus is too optimistic. The bank reiterated its "Sell" rating while raising the target price from 50 yuan to 60 yuan.
During an analyst meeting on April 21, Envic detailed reasons for the low net profit margin in the first quarter. First, financial expenses increased due to exchange losses from overseas business settled in local currencies amid RMB appreciation, as well as higher interest expenses from increased borrowing. Second, credit impairment losses rose year-over-year, mainly because slower domestic IDC construction extended project cycles, delaying settlements and repayments, leading to higher bad debt provisions. Third, gross margin fell 2.16 percentage points due to changes in the revenue mix. Additionally, although order intake was strong, the company was unable to achieve higher shipment volumes and revenue recognition.
These factors were reflected in the financial data. Financial expenses shifted from -26,000 yuan a year ago to 20.06 million yuan in the first quarter, due to reduced exchange gains and higher interest costs. Meanwhile, sales, research, and administrative expenses all increased: sales expenses rose 16.25%, R&D expenses grew 10.76%, and administrative expenses climbed 21.96%. Credit impairment losses were -30.1572 million yuan, compared to -7.5269 million yuan in the prior-year period.
As of the end of the first quarter, accounts receivable stood at 3.061 billion yuan, up 35.95% year-over-year. Short-term borrowings reached 939 million yuan, nearly 30% higher than at the end of 2025, while inventory increased about 20% to 1.182 billion yuan. The debt-to-asset ratio was 55.11%, slightly down from 55.3% at the end of 2025 but still at a relatively high level in recent years. Net cash flow from operating activities was -386 million yuan, compared to -171 million yuan a year earlier. Envic explained that this was mainly due to payments to suppliers and increased employee compensation.
Some institutional analysts noted that Envic may be boosting financing to expand capacity rapidly, leading to higher interest expenses. At the same time, changes in customer structure, with a significant rise in overseas clients, may have extended payment terms, increasing accounts receivable and raising bad debt risks. Kaiyuan Securities analysis suggested that the surge in liquid cooling business likely drove substantial capacity expansion and inventory buildup, leading to significant cost increases. If capacity is successfully converted into product deliveries in coming quarters, profits could rebound.
Despite operating in a high-growth sector, liquid cooling business has not yet become a pillar for Envic. As a leading provider of precision temperature control and energy-saving solutions, the company serves data centers, computing equipment, energy storage systems, communications networks, and other fields. The liquid cooling segment is developing rapidly, driven by exponential growth in AI computing power, which is revolutionizing data center cooling. Liquid cooling technology has become the preferred solution for high-density, high-power data centers.
Jiang Han, a senior researcher at Pangu Think Tank, stated that China's liquid cooling server industry is at a critical inflection point, transitioning from policy-driven to market-driven demand, with industry vitality surging. J.P. Morgan data indicates that the global market for AI server liquid cooling systems will soar from $8.9 billion in 2025 to over $17 billion in 2026. The China Commerce Industry Research Institute predicts that penetration of liquid cooling servers in China will jump from 20% in 2025 to 37%, reaching 82% by 2030. IDC forecasts China's liquid cooling market will hit $3.39 billion in 2025, with a compound annual growth rate of 48% from 2025 to 2029.
However, the industry's high growth has not yet significantly boosted Envic's performance. Citibank's report highlighted that the market has overlooked the company's small business exposure, fierce domestic price competition, and pressure from new entrants. Tang Rulin, dean of Huaxin Consulting's AI Integration Research Institute, analyzed that the drop in Envic's net profit signals increased competition in the liquid cooling market, with new players entering and expanding competitive pressure, potentially impacting market share.
Notably, Envic mentioned in its 2025 interim report that liquid cooling-related revenue for computing equipment and data centers exceeded 200 million yuan in the first half of last year. During the analyst meeting, the company revealed that liquid cooling-related revenue continues to grow rapidly, driven mainly by demand from domestic and Southeast Asian markets. The company is actively tracking additional overseas client demand, which may concentrate starting in the third quarter of this year, though final outcomes could be affected by various factors.
According to the 2025 annual report, Envic's smaller segments, such as rail transit train air conditioning and bus air conditioning, performed poorly last year. The company noted that due to macroeconomic controls and local government investment trends, the subway and rail industry has been in a construction trough in recent years, with slowed implementation of approved projects. Revenue from rail transit train air conditioning services declined significantly in 2025. Similarly, revenue from bus air conditioning business fell year-over-year. Nevertheless, Envic stated that its business team is actively exploring new product opportunities in the vehicle sector to seek fresh growth prospects.
Further developments regarding Envic will continue to be monitored.
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