Why did revenue growth not translate into profit growth?

  • In the third quarter of 2026, Invik’s revenue was 1.933 billion yuan, up 33% year over year and 1% below Goldman Sachs’ forecast. Net profit was 184 million yuan, unchanged year over year and 13% and 30% below the forecasts of Goldman Sachs and the Visible Alpha consensus, respectively. Revenue was also 21% below consensus.
  • Data center facility cooling and server cooling drove revenue growth. A higher share of overseas sales lifted the company’s overall gross margin by 2.5 percentage points quarter over quarter to 27.8%; however, increased research and development expenses, foreign-exchange losses of 17 million yuan and higher minority interests reduced the net margin by 3.1 percentage points year over year to 9.5%.
  • The increase in minority interests was mainly related to improved performance at Invik Zhilian, in which the company holds a 55% stake. The subsidiary produces quick connectors, piping and other products.

Why do orders and inventory point to subsequent revenue growth?

  • At the end of the third quarter, contract liabilities, or customer prepayments, reached a record 665 million yuan, up 104% year over year and 106% quarter over quarter. Inventory reached 2.507 billion yuan, up 103% year over year and 62% quarter over quarter. The company said order growth accelerated during the quarter, and Goldman Sachs accordingly expects revenue recognition to remain strong over the next one to two quarters.
  • Inventory includes raw materials, work in progress and goods shipped for which revenue has not yet been recognized. Management said the last category typically accounts for about 40% of inventory and comes mainly from data center facility cooling projects that require on-site installation and customer acceptance. Revenue recognition usually lags shipment by one quarter or longer.
  • Management has not identified serious supply-chain or production bottlenecks at present, but the timing of product shipments and revenue recognition remains dependent on changes in customer demand and the pace of product rollout.

What changes are energy storage cooling and capacity expansion bringing?

  • Revenue from energy storage cooling maintained steady growth in the third quarter, but the business’s gross margin was under pressure: integrated solutions sold in overseas markets had a higher value but lower gross margins, while competition in the Chinese market was intense. The company said it remains selective about domestic projects, focusing on those with better profitability.
  • Third-quarter capital expenditure was 114 million yuan, up 15% year over year and 23% quarter over quarter. The company continued to expand liquid-cooling capacity; its new Zhongshan facility was expected to begin production between the end of the third quarter and the beginning of the fourth quarter, and production processes were being optimized in line with customer demand.
  • Cash flow improved: third-quarter operating cash flow was a net inflow of 152 million yuan, compared with a net outflow of 85 million yuan a year earlier. For the first three quarters of 2026, the net inflow was 214 million yuan, compared with a net outflow of 319 million yuan a year earlier. Goldman Sachs believes the improvement was associated with a higher share of overseas business.

How does Goldman Sachs view future growth and valuation?

  • Goldman Sachs believes investment in generative AI will drive adoption of liquid cooling and growth in Invik’s data center facility cooling and server cooling revenue. Business progress at key customers, competition in liquid cooling and changes in energy storage demand will affect growth and margins.
  • Goldman Sachs maintained its buy rating and 12-month price target of 79 yuan, 83.8% above the 42.97 yuan share price listed in the report. The target is based on a forecast price-to-earnings ratio of 42 times for 2028, discounted to 2027 at a cost of equity of 10%.