Core operations remained resilient in the second quarter, with liquid cooling emerging as a highlight, but FX and equity investment losses weighed on net profit

Overview

The report reviews Sanhua Intelligent Controls' 2Q26 results and separately analyzes its HVAC components, automotive thermal management, liquid cooling, and humanoid-robot businesses. Goldman Sachs believes that core operations and underlying profitability were broadly in line with expectations, with the net-profit shortfall mainly attributable to FX and equity investment losses. Liquid cooling is the most prominent near-term growth highlight, but the A-shares embed relatively high valuation expectations for the robotics business, resulting in differentiated ratings for the A-shares and H-shares.

Core views

Sanhua Intelligent Controls' 2Q26 revenue, gross profit, operating profit, and net profit were Rmb9.126bn, Rmb2.582bn, Rmb1.496bn, and Rmb1.116bn, respectively, representing yoy growth of 6%, 3%, 3%, and a decline of 7%; relative to Goldman Sachs' forecasts, these were in line, 1% below, 5% above, and 15% below, respectively. Goldman Sachs therefore concludes that the core businesses and underlying profitability were broadly in line with expectations. The net-profit miss was not primarily caused by deterioration in day-to-day operations, but rather by FX losses and fair-value losses on equity investments. The HVAC components business generated 2Q26 revenue of Rmb5.783bn, up 6.5% yoy; gross margin was 28.8%, down 0.7 percentage points yoy; and net profit was Rmb675mn, corresponding to a net margin of 11.7%, down 2.2 percentage points yoy. Against a backdrop of industry production declining by approximately 7% yoy, the business still delivered revenue growth. Goldman Sachs attributes this resilience to four factors: premiumization and increasingly intelligent air-conditioning and refrigeration systems raising component value per unit; overseas growth supported by extreme weather and still-low air-conditioning penetration in Europe and Southeast Asia; applications expanding from traditional HVAC into commercial refrigeration, cold chains, and kitchen appliances; and an increasing contribution from liquid cooling. Liquid cooling is the near-term highlight emphasized in the report. 1H26 data-center liquid-cooling revenue grew by more than 50% yoy. The company is advancing projects with North American hyperscale cloud-service providers, domestic cloud customers, and customers in Taiwan, China, with products covering electric ball valves, proportional valves, vent valves, cold plates, sensors, connectors, and manifolds. As the power density of racks and coolant distribution units increases, product technical requirements and value content are rising in tandem, with some individual products worth Rmb50,000 to Rmb100,000. Goldman Sachs notes that the liquid-cooling business has recently been constrained more by supply capacity than demand, and the company is urgently adding equipment. Sanhua currently positions itself as a component supplier and may consider expanding into the system level over the long term. Management targets double-digit revenue growth for the segment and expects liquid cooling and other new applications to potentially accelerate 2H26E growth. The automotive thermal management business generated 2Q26 revenue of Rmb3.354bn, up 5.7% yoy; gross margin was 27.4%, down 1.4 percentage points yoy; and net profit was Rmb441mn, corresponding to a net margin of 13.2%, down 1.0 percentage points yoy. Revenue growth was lower than the 18% yoy growth in China's NEV production and the approximately 25% yoy growth in Tesla deliveries over the same period. Goldman Sachs believes gross-margin pressure may have stemmed from intensifying competition among automakers, annual price-reduction requirements, and FX headwinds. However, the decline in net margin was smaller than the decline in gross margin, reflecting a buffer from improved internal operating efficiency and selling and administrative expense leverage. Management continues to target double-digit growth for the automotive business, while higher integration and stricter thermal-management standards are expected to support future value per vehicle. Non-operating items are the main reason for the earnings forecast revisions. The company recorded Rmb279mn of FX losses in 1H26, and management plans to adopt additional hedging measures in 2H26E to reduce FX risk. The company's original investment in Seres H-shares was Rmb431mn, and Goldman Sachs estimates that it generated an equity investment loss of Rmb191mn in 1H26. Goldman Sachs therefore cut its 2026E EPS forecast by 7%, while reducing its 2027—2030E EPS forecasts by only 2%—3%, indicating that the near-term forecast revisions mainly reflect these losses rather than a significant change in the long-term core business thesis. Over the long term, Goldman Sachs expects Sanhua Intelligent Controls' revenue and net profit to achieve CAGRs of 16% and 17%, respectively, over 2025—2030E. Growth in HVAC components is expected to be driven by market-share gains in commercial HVAC and increasing sensor-product volumes; automotive thermal management is supported by rising global NEV penetration and moderate growth in value per vehicle; and humanoid robots are viewed as an important long-term technology trend, with the company potentially entering key supply chains through its relatively high-certainty role as an actuator assembler. Related catalysts include technological advances in humanoid-robot functionality, mass production by major customers, and a further increase in European NEV penetration. However, Goldman Sachs believes market expectations for humanoid robots remain overly optimistic given delays to the Optimus mass-production timeline. Regarding valuation and ratings, Goldman Sachs cut the 12-month target prices for Sanhua's A-shares and H-shares by approximately 3%, to Rmb38.6 and HK$40.0, respectively. The target prices are based on 2030E P/E multiples of 25X and 23X, discounted back to 2027E using a 9.5% cost of equity. Based on the report's cited prices of Rmb36.14 for the A-shares and HK$26.16 for the H-shares, the implied upside is 6.8% and 52.9%, respectively. The H-shares trade at a 38% discount to the A-shares, which Goldman Sachs believes indicates that the H-share valuation assigns limited premium to the optional growth opportunity from humanoid-robot actuators. It therefore maintains Buy on the H-shares and Neutral on the A-shares.

Analysis framework

The report first compares 2Q26 revenue, profits, and margins item by item with the prior-year period and Goldman Sachs' forecasts, then breaks down growth and profitability changes across the HVAC components and automotive thermal management segments. It subsequently separates core operations from non-operating gains and losses such as FX and equity investments and revises EPS forecasts. Finally, it combines the long-term growth theses for liquid cooling, automotive thermal management, and humanoid robots with forward P/E multiples and cost-of-equity discounting to determine differentiated target prices and ratings for the A-shares and H-shares.

Methodology notes

• Valuation methodologyPE/PEG valuation

  Forward P/E valuation with discounting

  Goldman Sachs assigns 2030E P/E multiples of 25X and 23X to the A-shares and H-shares, respectively, and then discounts them back to 2027E using a 9.5% cost of equity to derive the 12-month target prices.

• Corporate fundamentals and financial framework

  Segment results, yoy changes, and comparisons with forecasts

  The report separately compares revenue, gross margin, net profit, and net margin for the company and its two major business segments, benchmarking actual results against both the prior-year period and Goldman Sachs' forecasts to identify core operating performance and the sources of earnings deviations.

• Corporate fundamentals and financial frameworkEarnings quality analysis

  Distinguishing core operating profit from non-operating gains and losses

  The report analyzes operating performance separately from FX losses and fair-value losses on equity investments to explain that the net-profit miss was mainly attributable to non-core items, thereby distinguishing near-term EPS revisions from changes in long-term fundamentals.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sanhua Intelligent Controls A-shares (002050.SZ)

  The domestically listed equity representing the core HVAC, automotive thermal management, liquid-cooling, and humanoid-robot businesses; Goldman Sachs maintains a Neutral rating.

  Strengths

  The core businesses hold global market-leading positions, liquid-cooling demand is strong, and the company may benefit over the long term from robot actuators, commercial HVAC market-share gains, and rising NEV penetration.

  Weaknesses

  Automotive thermal management growth is below some industry indicators, margins are pressured by automaker competition, annual price reductions, and FX factors, and the A-shares already price in relatively optimistic expectations for humanoid robots.

  Comparison

  The H-shares trade at a 38% discount to the A-shares; the A-share target price is Rmb38.6, versus the report price of Rmb36.14, implying 6.8% upside.

  Risks

  Humanoid-robot revenue contribution, global NEV sales, and home-appliance sales could all be better or weaker than expected.

• Sanhua Intelligent Controls H-shares (2050.HK)

  Representing the same company fundamentals as the A-shares but trading at a substantial valuation discount; Goldman Sachs maintains a Buy rating.

  Strengths

  The shares provide exposure to the company's growth opportunities in HVAC controls, automotive thermal management, liquid cooling, and robot actuators, while pricing in less of the optional growth from robotics.

  Weaknesses

  They face the same uncertainties regarding exchange rates, automotive business margins, and the robot mass-production timeline.

  Comparison

  Trading at a 38% discount to the A-shares; the H-share target price is HK$40.0, versus the report price of HK$26.16, implying 52.9% upside.

  Risks

  Humanoid-robot revenue contribution could be slower than expected, global NEV sales could be weaker than expected, or home-appliance sales could be weaker than expected.

Key data

• 2Q26 revenueRmb9,126mnUp 6% yoy and in line with Goldman Sachs' forecast
• 2Q26 gross profitRmb2,582mnUp 3% yoy and 1% below Goldman Sachs' forecast
• 2Q26 operating profitRmb1,496mnUp 3% yoy and 5% above Goldman Sachs' forecast
• 2Q26 net profitRmb1,116mnDown 7% yoy and 15% below Goldman Sachs' forecast
• HVAC components revenueRmb5,783mnUp 6.5% yoy in 2Q26, while industry production declined by approximately 7% over the same period
• HVAC components profitabilityGross margin 28.8%; net margin 11.7%Down 0.7 and 2.2 percentage points yoy, respectively
• Data-center liquid-cooling revenue growth>50% yoyGrew by more than 50% yoy in 1H26
• Automotive thermal management revenueRmb3,354mnUp 5.7% yoy in 2Q26
• Automotive thermal management profitabilityGross margin 27.4%; net margin 13.2%Down 1.4 and 1.0 percentage points yoy, respectively
• 1H26 FX lossesRmb279mnManagement plans to increase hedging measures in 2H26E
• Seres H-share investment lossRmb191mnGoldman Sachs' estimate of the 1H26 loss; the original investment was Rmb431mn
• EPS forecast revisions2026E cut by 7%; 2027—2030E cut by 2%—3%Mainly reflects FX and equity investment losses
• 2025—2030E CAGRRevenue 16%; net profit 17%Goldman Sachs' long-term forecasts
• A-share valuation and target price2030E P/E 25X; 12-month target price Rmb38.6Discounted back to 2027E using a 9.5% cost of equity; target price cut by approximately 3%
• H-share valuation and target price2030E P/E 23X; 12-month target price HK$40.0Discounted back to 2027E using a 9.5% cost of equity; target price cut by approximately 3%
• H-share discount to A-shares38%Goldman Sachs believes the H-shares receive limited valuation credit for the potential of humanoid-robot actuators

Impact & implications

Goldman Sachs believes the weakness in 2Q26 net profit primarily reflects fluctuations in exchange rates and equity investments, while the core business growth thesis has not changed materially. Liquid cooling may accelerate second-half growth amid robust demand and supply constraints, while HVAC product upgrades, market-share gains in commercial applications, and greater integration in automotive thermal management support medium- to long-term growth. Humanoid robots offer long-term optionality, but a gap remains between market expectations and the actual mass-production timeline, which is also an important reason for the differentiated A-share and H-share ratings.

Risks

• Humanoid-robot revenue contribution could be faster or slower than expected, with delays in the mass-production timeline being a key uncertainty highlighted in the report.
• Global NEV sales could be better or weaker than expected, affecting growth in the automotive thermal management business.
• Home-appliance sales could be better or weaker than expected, affecting demand for HVAC components.
• Exchange-rate fluctuations could continue to cause losses, and uncertainty remains regarding the mitigating effect of hedging measures.
• Intensifying automaker competition and annual price-reduction pressure could continue to weigh on the gross margin of the automotive thermal management business.

What to watch

• Monitor whether data-center liquid-cooling revenue accelerates further in 2H26E and whether new equipment can alleviate current supply constraints.
• Monitor technological progress in humanoid-robot functionality and the mass-production timelines of major customers.
• Monitor further increases in European NEV penetration.
• Monitor whether FX losses ease after the company increases hedging in 2H26E.
• Monitor market-share gains in commercial HVAC and progress in ramping up sensor-product volumes.