Nomura: Liquid cooling growth accelerates, but core businesses remain sluggish: Nomura cuts Sanhua price target

Why did net profit fall despite growth in both revenue and gross margin?

In the first three quarters of 2026, the company’s revenue was 25.3 billion yuan, up 5.2% year on year; its overall gross margin rose 0.25 percentage points to 28.3%. Net profit for the same period was 3.067 billion yuan, down 5.4% year on year, mainly weighed down by foreign exchange losses of 383 million yuan and a year-on-year decline of 324 million yuan in fair value gains caused by investment losses.
Refrigeration revenue was 15.3 billion yuan, up 2.4% year on year. Management said growth in liquid cooling and overseas markets including North America, Japan and Southeast Asia offset weak domestic appliance demand; cost reductions and a higher share of high-margin expansion valves raised the refrigeration business’s gross margin by about 0.5 percentage points to 28.2%.
Automotive parts revenue was 9.9 billion yuan, up 9.8% year on year, but exchange rates and the ramp-up of the Thailand plant contributed to a year-on-year decline of 0.11 percentage points in gross margin to 28.6%.

Liquid cooling is currently the clearest growth driver. In the first nine months of 2026, liquid cooling sales were 1.8 billion–2.1 billion yuan, of which data centers contributed 1.2 billion–1.4 billion yuan and energy storage contributed 600 million–700 million yuan.
Management reiterated its target for liquid cooling sales to grow 50% year on year in 2026 and expects growth of 50%–100% in 2027. Management also expects the share of system products to rise from 20%–30% to 40%–60%, with system product value of 5000–6000 yuan per kilowatt.

Management expects the overseas refrigeration business to maintain its growth momentum in the fourth quarter of 2026; ahead of tighter EU policy and a reduction in China’s export tax rebate rate for new energy vehicles from 13% to 9%, automotive exports may be brought forward to the fourth quarter of 2026 and the first quarter of 2027. Nomura therefore believes demand for automotive exports may weaken after April 2027.
For the robotics business, management estimates that the company’s products cover 50%–60% of the hardware value of a humanoid robot and expects the business’s revenue to increase severalfold in 2027. Nomura believes the robotics and liquid cooling businesses are currently too small to offset slowing growth in the core businesses.

Considering that automotive parts growth may remain sluggish, Nomura maintained its neutral rating and lowered its price target from 49 yuan to 35 yuan. The new target implies a price-to-earnings ratio of 30 times forecast 2027 earnings per share of 1.16 yuan; the previous valuation was based on 38 times forecast 2026 earnings.
In light of the first three quarters’ results, Nomura lowered its earnings per share forecasts for 2026 and 2027 from 1.30 yuan and 1.48 yuan to 1.00 yuan and 1.16 yuan, respectively.