CICC has released a research report maintaining an "Outperform" rating on Zhejiang Sanhua Intelligent Controls Co.,Ltd. (SANHUA) for both its A-shares and H-shares, while trimming the H-share target price by 12.5% from HK$40 to HK$35.
Due to slowing growth in the automotive business segment, the investment bank has revised down its earnings forecasts for SANHUA for 2026 and 2027 by 8.7% and 4.0%, respectively, to RMB 4.397 billion and RMB 5.422 billion. At current prices, the A-shares trade at 34.6 times and 28 times forward price-to-earnings ratios for 2026 and 2027, respectively, while the H-shares trade at 21.6 times and 17 times forward P/E ratios for the same periods.
CICC noted that SANHUA's revenue for the first half of 2026 reached RMB 16.9 billion, up 4% year-on-year, while net profit attributable to shareholders stood at RMB 2.044 billion, a decline of 3% year-on-year. In the second quarter alone, revenue came in at RMB 9.126 billion, up 6% year-on-year and 17% quarter-on-quarter, while net profit attributable to shareholders was RMB 1.116 billion, down 7% year-on-year but up 20% sequentially. The company's second-quarter results met market expectations.
On the business front, SANHUA delivered steady revenue growth in the first half of 2026, driven primarily by product structure upgrades in its refrigeration components segment and active expansion into emerging areas such as data center liquid cooling. Meanwhile, the wave of new energy vehicle exports boosted demand for thermal management solutions, lifting the automotive components business revenue by 9.9% year-on-year to RMB 6.46 billion.
In the data center sector, the company has extended its product offerings to include primary-side equipment, coolant distribution units (CDUs), and server racks. In the bionic robotics field, its electromechanical actuator products have entered the batch delivery stage, with production line ramp-up progressing smoothly. CICC holds a positive view on the company's gradually forming multi-faceted growth curve, which is expected to jointly drive future revenue expansion.
Regarding profitability, SANHUA's gross margin for the first half of 2026 was 28.1%, a slight decline of 0.1 percentage points year-on-year. The second-quarter gross margin stood at 28.3%, down 1.0 percentage point year-on-year but up 0.5 percentage points sequentially. Combined selling, administrative, and R&D expense ratio in the second quarter was 11.0%, down 0.1 percentage points year-on-year and 0.7 percentage points quarter-on-quarter.
Net profit performance was dragged down by exchange losses, with the company recording RMB 293 million in exchange losses in the first half, which weighed on net profit attributable to shareholders. Excluding these related impacts, net profit after deducting non-recurring gains and losses rose 7% year-on-year to RMB 2.15 billion, reflecting solid profitability in its core operations. Additionally, operating cash flow in the second quarter reached RMB 1.39 billion, up 73% year-on-year and 26% quarter-on-quarter, showcasing impressive cash flow performance.
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