J.P. Morgan: Sanhua’s third-quarter gross margin rose against the trend, while net profit attributable to shareholders fell 10%

Why did growth and pressure on profits occur at the same time in the third quarter?

In the third quarter of 2026, Sanhua’s revenue was 8.374 billion yuan, up 8% year on year; recurring net profit was approximately 1.1 billion yuan, up 12%. During the same period, domestic new-energy vehicle sales fell 20% year on year, while renminbi exchange-rate fluctuations and rising raw material prices also posed challenges.
However, according to the financial statements, third-quarter net profit attributable to shareholders was 1.023 billion yuan, down 10% year on year; earnings before interest and taxes fell 3%. Operating expenses rose 21% year on year in the quarter, and the net financial item shifted from income of 17 million yuan a year earlier to an expense of 60 million yuan. Profit performance was weaker than gross profit performance.
Revenue for the first three quarters rose 5% to 25.274 billion yuan, and recurring net profit rose 3% to approximately 3.2 billion yuan; net profit attributable to shareholders fell 5% to 3.067 billion yuan.

Third-quarter gross margin was 28.9%, up 0.9 percentage points year on year, even as cost of sales rose 7%. JPMorgan attributed the improvement to product miniaturization, modularization and lightweighting, as well as cost reductions from in-house equipment and value-chain optimization; raw-material price linkage and hedging also mitigated cost volatility.
Operating cash flow for the first three quarters was 3.749 billion yuan, up 23% year on year, outpacing profit growth over the same period; JPMorgan attributed this to improved working-capital management and increased cash collection from sales. Capital expenditure over the same period was 1.903 billion yuan, down 8%. However, third-quarter operating cash flow alone was 1.249 billion yuan, down 30% year on year.
In traditional businesses, overseas automotive sales growth offset some domestic weakness, while new products and energy-efficiency upgrades supported home-appliance demand. Approximately 40% of the company’s sales come from overseas, and renminbi appreciation could depress the reported performance of overseas operations in renminbi terms.

Data-center cooling systems have contributed incremental sales growth each quarter and, together with the stable refrigeration-components business, cushioned weak demand for automotive components; the report has not provided a separate revenue figure for the business.
Robotics sales remain in the early stages of ramp-up, with a limited near-term contribution. Sanhua, as an actuator supplier, is moving from laboratory trials to small-batch production with a leading US customer; subsequent growth depends on broader robotics adoption and increased production volumes.
JPMorgan maintained its Overweight ratings on the A-shares and H-shares, with price targets for December 2027 of 51 yuan and 38 Hong Kong dollars, respectively. The bank sees global electric-vehicle demand, competition in the automotive business, the macroeconomic environment and the pace of progress in humanoid robotics as key constraints.