CICC: Downgrades the target price of Zhejiang Sanhua Intelligent Controls (02050) by 12.5% to HKD 35, maintaining an "Outperform Industry" rating for A and H shares.

CICC has released a research report maintaining its "outperform industry" rating on Zhejiang Sanhua Intelligent Controls (02050) A/H shares, with the target price for H shares reduced by 12.5% from HKD 40 to HKD 35. The downgrade in earnings forecasts for Zhejiang Sanhua Intelligent Controls for 2026 and 2027 is due to the slowdown in the automotive business, with projections reduced by 8.7% and 4.0% to RMB 4.397 billion and RMB 5.422 billion, respectively. Currently, the A-shares are priced at 34.6 times and 28 times the earnings for 2026 and 2027; while the H-shares are at 21.6 times and 17 times. CICC pointed out that in the first half of 2026, Zhejiang Sanhua Intelligent Controls achieved revenues of RMB 16.9 billion, representing a year-on-year increase of 4%; the net profit attributable to shareholders was RMB 2.044 billion, down 3% year-on-year. In the second quarter, revenues were RMB 9.126 billion, a year-on-year growth of 6% and a quarter-on-quarter increase of 17%; the net profit attributable to shareholders was RMB 1.116 billion, down 7% year-on-year but up 20% quarter-on-quarter. The company's second-quarter results were in line with market expectations. In terms of business performance, in the first half of 2026, the companys operating income grew steadily, mainly benefiting from the upgrade of refrigeration component product structure and actively expanding into emerging fields such as liquid cooling for data centers. Simultaneously, the demand for thermal management driven by new energy vehicles overseas pushed the revenue from automotive components up by 9.9% year-on-year to RMB 6.46 billion. In the data center sector, products have expanded into applications such as front-end equipment, CDU (Cooling Distribution Unit), and server cabinets; in the bionic Siasun Robot & Automation field, the electromechanical actuator products have entered the mass delivery phase, with production line ramp-up progressing smoothly. CICC remains optimistic about the company's diversified growth trajectory gradually taking shape, which will jointly promote future revenue growth. Regarding profitability, in the first half of 2026, the companys gross margin was 28.1%, a slight year-on-year decrease of 0.1 percentage points; the gross margin for the second quarter was 28.3%, down 1.0 percentage points year-on-year, but up 0.5 percentage points quarter-on-quarter. The combined ratio of sales, management, and R&D expenses was 11.0% in the second quarter, down 0.1 and 0.7 percentage points year-on-year and quarter-on-quarter, respectively. The net profit performance was adversely affected by foreign exchange losses, which amounted to RMB 293 million in the first half, leading to a decline in net profit attributable to shareholders. Excluding these impacts, the net profit after deducting non-recurring gains and losses grew by 7% year-on-year to RMB 2.15 billion, reflecting stable performance in the main business. Additionally, the net operational cash flow for the second quarter reached RMB 1.39 billion, growing by 73% and 26% year-on-year and quarter-on-quarter, respectively, showcasing robust cash flow performance.