Why did revenue rise while net profit fell in the third quarter?

  • In the third quarter of 2026, Sanhua reported revenue of 8.374 billion yuan, up 8% year on year, and net profit of 1.023 billion yuan, down 10%. Revenue was broadly in line with Goldman Sachs’ expectations, while net profit was 12% below its forecast.
  • Goldman Sachs said core operations were broadly in line with expectations. Net profit fell short mainly because of a one-off foreign exchange loss of 83 million yuan and an investment fair-value loss of approximately 15 million yuan. For the first three quarters, the two losses amounted to 380 million yuan and approximately 200 million yuan, respectively.
  • Following the results, Goldman Sachs lowered its earnings forecasts for 2026–2030 by 2%–6%.

How did the traditional businesses outperform their end markets?

  • Third-quarter revenue from HVAC control components was 4.881 billion yuan, up 6.5% year on year, while Chinese air-conditioner production fell 16% over the same period. Goldman Sachs attributed the resilience to liquid-cooling growth, domestic household business performance and overseas sales: North American revenue rose 20%, while Japan and Southeast Asia benefited from air-conditioner energy-efficiency upgrades.
  • Automotive thermal management revenue was 3.493 billion yuan in the third quarter, up 9.6% year on year. Management expects exports could be strong in the fourth quarter of 2026 and the first quarter of 2027, ahead of changes to relevant European policies and export tax rebates.
  • Third-quarter gross margins for both businesses rose 0.9 percentage points year on year, reaching 29% and 28.8%, respectively. Their respective net margins, however, fell to 11.2% and 13.6%, down 2 and 3 percentage points year on year.

What is driving liquid-cooling growth, and how much room is there to increase product value?

  • Liquid-cooling sales were approximately 1.8 billion–2.1 billion yuan in the first three quarters of 2026, of which data centers contributed 1.2 billion–1.4 billion yuan and energy storage contributed 600 million–700 million yuan. The company’s liquid-cooling revenue was 2 billion yuan in 2025. Management believes full-year growth of more than 50% is achievable in 2026, with a further 50%–100% increase possible in 2027.
  • The company currently supplies primary-side products ranging from coolant distribution units (CDUs) to outdoor equipment. Its share of microchannel products at some key customers exceeds 50%, and some orders are secured through 2027. Flow-control valves and sensors used in liquid-cooling systems for North American cloud providers’ in-house chips entered mass production in the third quarter.
  • The company is also expanding on the secondary side, from servers and chips to CDUs: volume deliveries of brazed plate heat exchangers to a Taiwanese CDU manufacturer began in the third quarter. Based on an estimated system value of 5000–6000 yuan per kilowatt, the company’s existing products account for approximately 20%–30%; that share could rise to 40%–60% if products such as quick connectors achieve substantial sales.
  • Goldman Sachs said primary-side liquid-cooling products supplied to North American customers have gross margins above the company average. Secondary-side products are also more profitable than existing commercial products amid tight supply and customers’ emphasis on delivery speed.

How do robotics developments relate to Goldman Sachs’ ratings?

  • Robotics products remain at different stages: body-joint actuators are in engineering development and ramp-up; some finger-joint module projects with domestic dexterous-hand manufacturers have entered mass production; and robotics thermal management projects may reach the mass-production milestone between the fourth quarter and year-end.
  • Goldman Sachs is positive on the long-term potential of robotics actuators but believes market expectations for humanoid robots are too optimistic, particularly given delays to the timing of Optimus mass production. The bank maintains a buy rating on the H shares and a neutral rating on the A shares, with respective 12-month price targets of 37.7 Hong Kong dollars and 36.4 yuan.