Why did net profit fall despite revenue growth?

  • Sanhua’s third-quarter 2026 revenue was 8.374 billion yuan, up 8% year on year; operating profit was 1.261 billion yuan, up 7%, and net profit was 1.023 billion yuan, down 10%. Revenue was broadly in line with Goldman Sachs’ expectations, while operating profit and net profit were 7% and 12% below its forecasts, respectively.
  • Goldman Sachs believes core operations were broadly in line with expectations, while net profit missed mainly because of one-off foreign-exchange losses and investment fair-value losses, which amounted to 83 million yuan and approximately 15 million yuan, respectively, in the third quarter. The company’s overall net margin fell 2 percentage points year on year to 12%.
  • Goldman Sachs consequently lowered its 2026–2030 earnings forecasts by 2%–6% and maintained its Buy rating on the H-shares and Neutral rating on the A-shares, with target prices of 37.7 Hong Kong dollars and 36.4 yuan, respectively.

How did the core business outperform weak air-conditioning demand?

  • Goldman Sachs estimates that third-quarter revenue from HVAC control components was 4.881 billion yuan, up 6.5% year on year. Over the same period, Chinese air-conditioner production fell 16% year on year, with domestic sales down 28% and exports up 4%.
  • Goldman Sachs attributes the company’s relatively strong performance to liquid-cooling revenue still growing by more than 50%, domestic residential business outperforming air-conditioning industry trends, and strong overseas sales: North American business grew 20% year on year, while Japan and Southeast Asia saw demand for air-conditioning energy-efficiency upgrades.
  • Third-quarter automotive thermal-management revenue was 3.493 billion yuan, 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 EU policies and export tax rebates.
  • Gross margins in both businesses rose 0.9 percentage points year on year, to 29% for HVAC and 28.8% for automotive thermal management; net margins, however, fell 2 and 3 percentage points, respectively, to 11.2% and 13.6%.

Where else can liquid-cooling growth come from?

  • Liquid-cooling revenue was approximately 1.8 billion–2.1 billion yuan in the first three quarters of 2026, with data centers contributing 1.2 billion–1.4 billion yuan and energy storage 600 million–700 million yuan; full-year 2025 liquid-cooling revenue was 2 billion yuan. Management believes full-year growth of more than 50% remains achievable in 2026, with a further 50%–100% increase possible in 2027.
  • The company’s existing products primarily serve the primary side, from the coolant distribution unit (CDU) to outdoor equipment. Its microchannel products have a share of more than 50% at several key customers, and some orders are secured through 2027; flow-control valves and sensors for liquid-cooling systems used with chips developed in-house by North American cloud providers entered volume production in the third quarter.
  • The secondary side, from servers or chips to the CDU, is a new area of expansion. Brazed plate heat exchangers were delivered in volume to a Taiwanese CDU manufacturer in the third quarter. Based on 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 shipments.
  • Goldman Sachs says primary-side liquid-cooling products 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 far have robotics components progressed?

  • The company is developing body joint actuators, finger-joint modules, thermal-management products and sensors. Body joint actuators remain in engineering development and ramp-up, while some finger-joint projects for leading domestic dexterous-hand manufacturers have entered volume production.
  • Thermal-management projects with domestic and overseas robotics manufacturers could reach the mass-production milestone between the fourth quarter and year-end. Goldman Sachs is positive on the long-term potential of humanoid robot actuators, but considers market expectations for humanoid robots overly optimistic given Optimus’s later production timetable.