JP Morgan: Reiterates "Overweight" rating for Zhejiang Sanhua Intelligent Controls (02050), target price lowered to HKD 38.

JPMorgan released a research report updating the model forecast for Zhejiang Sanhua Intelligent Controls (02050), stating that the market is overly pessimistic about the visibility of its new business and capacity expansion. The bank pointed out that the demand for liquid cooling driven by global warming and artificial intelligence, along with Siasun Robot & Automation's transition from technological validation to commercialization, will become a structural growth driver for the company in the coming years. It reiterated the "Overweight" rating on its H-shares and A-shares, lowering the H-share target price from HKD 42 to HKD 38, and the A-share target price from RMB 60 to RMB 51. The report mentioned that Zhejiang Sanhua Intelligent Controls' management is positioning Siasun Robot & Automation as its third growth curve. Currently, U.S. clients are pushing for faster delivery, capacity construction has commenced, and positive feedback has been received from core customers. The liquid cooling business is also ramping up; in the first half of this year, revenues from data center liquid cooling increased by over 50% year-on-year, with sales of approximately RMB 1 billion, accounting for about 10% of the revenue from the refrigeration component business. Bulk deliveries have been made to North American, mainland Chinese cloud service providers, and top-tier clients in Taiwan. The product portfolio includes valves, pumps, sensors, and cold plates, with some products valued at RMB 50,000 to RMB 100,000 per unit. The bank forecasts that Zhejiang Sanhua Intelligent Controls will see approximately a 25% growth in profits next year, with an estimated compound annual growth rate of about 20% in profits from 2026 to 2028. In terms of the core automotive business, revenue in the first half of this year reached RMB 6.5 billion, a year-on-year increase of 10%, covering around 70% of the market for new energy vehicles, with a segment net profit margin maintained at about 14%. The home appliance and refrigeration business reported a revenue of RMB 10.5 billion in the first half of the year, a year-on-year growth of 0.5%, with a gross margin maintained at around 28%. Management emphasized that overseas sales account for over 40% of total revenue and are addressing commodity price fluctuations through pricing linked to copper prices and material substitution.