Strongest Annual Report Followed by a Sudden Slowdown in Q1: Sanhua Maintains Profit Resilience as Liquid Cooling Volume Offsets Auto Parts Pressure

Source: Times Business Research Institute Authors: Hao Wenran, Han Xun

Image source: Tuchong Creative

Source: Times Business Research Institute

Authors: Hao Wenran, Han Xun

Editor: Han Xun

In 2025, Sanhua (002050.SZ), the leader in refrigeration control components and automotive thermal management, delivered its 'strongest annual report': revenue of 31.012 billion yuan, up 10.97% year-over-year; net profit attributable to shareholders of 4.063 billion yuan, up 31.10% year-over-year; net profit margin at 13.24%, hitting a 16-year high. However, the 'contrast' quickly followed, with the company's Q1 2026 report showing a sudden slowdown in growth, achieving revenue of 7.774 billion yuan and net profit attributable to shareholders of 928 million yuan, representing only 1.36% and 2.68% year-over-year growth respectively, marking a cliff-like decline compared to the annual report.

At the same time, Sanhua is at a crossroads of transitioning between old and new drivers. On the traditional business side, the refrigeration segment grew by 12.22% in 2025, remaining robust; however, the automotive parts revenue growth rate dropped from 14.86% to 9.14%. On the new business side, while the robotic electromechanical actuators are tied to Tesla, drawing significant market attention, revenue remained zero for 2025; meanwhile, data center liquid cooling quietly doubled, becoming the most certain new growth driver currently.

The two financial reports outline multiple challenges faced by a leading company at the juncture of an industrial cycle transition.

Net profit excluding non-recurring items still increased by over 15% in Q1, but revenue growth flashed a 'red light'

2025 will be a year of systematic improvement in profitability for Sanhua, with the company achieving full-year revenue of 31.012 billion yuan, a year-on-year increase of 10.97%, and net profit attributable to shareholders of 4.063 billion yuan, a significant year-on-year increase of 31.10%. The growth rate of profits is nearly three times that of revenue, indicating high-quality performance.

A closer look at key metrics reveals equally robust 'value'. In 2025, Sanhua achieved a gross sales margin of 28.78%, an increase of 1.31 percentage points year-on-year, while the period expense ratio dropped by about 1 percentage point. These two factors combined expanded the net profit margin to 13.24%, the highest level since 2009. Additionally, the company’s operating cash flow reached 5.091 billion yuan, a year-on-year increase of 16.58%, and its weighted average return on equity was 15.80%, with all indicators reaching their historical best range.

However, this peak moment did not last long. In the first quarter of 2026, Sanhua's revenue and net profit growth rates fell to 1.36% and 2.68%, respectively, sharply retreating from the annual growth rates of 10.97% and 31.10% in 2025. Based solely on the apparent data, the market could almost conclude that 'growth has peaked'.

Nevertheless, the sharp decline in profit growth in the first quarter was not due to deteriorating operations but rather the叠加impact of two non-recurring profit and loss items. First, there was a foreign exchange loss of approximately 150 million yuan, compared to a foreign exchange gain of 19 million yuan in the same period last year, resulting in a pre-tax drag of about 170 million yuan year-on-year. Second, there was a loss of approximately 102 million yuan from changes in the fair value of securities investments, also a non-cash item. Together, these amounted to a year-on-year drag of about 270 million yuan. Combined with the high base of other non-recurring gains from the same period last year, non-recurring profit and loss as a whole turned from positive to negative, pushing the growth rate of net profit attributable to shareholders down to 2.68%.

Excluding all non-recurring factors, the adjusted net profit attributable to shareholders was 986 million yuan, a year-on-year increase of 15.52%, which is basically in line with the full-year growth guidance of around 15%. This not only significantly outpaced the apparent growth rate but also aligns closely with management's guidance of approximately 15% pure profit growth for the full year of 2026. Cash flow performance also corroborates this view, with the company's net operating cash flow in the first quarter surging 137% year-on-year to 1.106 billion yuan.

Overall, Sanhua’s financial data for the first quarter of 2026 presents two distinct sides. On the optimistic side, the quality of profitability in core business operations has not deteriorated. A 15.52% adjusted growth rate remains above average in the current macroeconomic environment. Coupled with a substantial increase in operating cash flow, a 6% rise in contract liabilities from the beginning of the year, and a 4.9% decrease in accounts receivable from the start of the year, it can be inferred that Sanhua still possesses momentum for profit growth in the first quarter of 2026, without compromising on earnings quality in pursuit of scale.

On the pessimistic side, the sharp drop in revenue growth to 1.36% is a signal that cannot be easily ignored. Even if the profit side can be temporarily maintained through cost controls and mechanisms linked to raw material costs, if revenue continues to decelerate, profit levels will eventually become unsustainable.

The Times Business Research Institute believes that profits more directly reflect Sanhua’s operational quality, while revenue provides a clearer indication of the true state of downstream markets. Therefore, compared to profit growth rates, whether revenue can rebound in the second quarter will be the key indicator to assess whether structural issues are emerging on the demand side.

Refrigeration stabilityHealthy, Auto Parts ReductionGear down：The shift in offensive and defensive dynamics of the dual engines

Sanhua's revenue structure is composed of two main segments: refrigeration and automotive components. By 2025, these two segments showed divergent growth rates.

In 2025, the revenue from the refrigeration, air conditioning, and electrical components business reached 18.585 billion yuan, a year-on-year increase of 12.22%, with a gross profit margin of 28.77%, up 1.42 percentage points year-on-year, reaching a three-year high. Within this segment, commercial refrigeration, cold chain logistics, and commercial air conditioning applications provided continuous growth, demonstrating the steady foundation of the traditional business.

The automotive components business experienced a certain degree of 'stall,' with revenue for this segment reaching 12.427 billion yuan in 2025, growing by 9.14% year-on-year, a significant slowdown from the previous year's 14.86%. More notably, production and sales data—sales of new energy vehicle thermal management products in 2025 amounted to 63.7527 million units, a year-on-year decline of 8.30%, with production decreasing by 8.74% year-on-year. This marked the first time in recent years that the company’s sector experienced a year-on-year decline in production and sales.

This is closely related to the saturation of downstream passenger vehicle demand. According to the China Association of Automobile Manufacturers (CAAM), under the stimulus of the 'trade-in' policy in 2025, annual passenger vehicle sales reached 30.103 million units, a year-on-year increase of 9.2%, surpassing 30 million units for the first time and setting a new historical record. However, entering 2026, the policy’s pre-emptive effect began to show, with first-quarter passenger vehicle sales at 5.934 million units, turning from growth to a year-on-year decline of 7.6%; domestic passenger vehicle sales within China were 4.013 million units, plummeting by 23.4% year-on-year.

The phase-out of subsidies for new energy vehicles in China could further exacerbate the contraction in demand. CAAM forecasts that new energy vehicle sales will reach 19 million units in 2026, with penetration exceeding 50% for the first time, compounded by the reinstatement of a 5% purchase tax from full exemption, establishing a clear trend of systematic deceleration in industry growth.

As an upstream automotive components supplier, Sanhua will inevitably be affected. Although through optimizing its client structure and increasing overseas exports, the company is expected to maintain a leading position within the industry, it remains unlikely that automotive component revenue will return to nearly 50% CAGR seen from 2020–2024. The 9.14% growth rate in automotive components for the whole of 2025 might just be the beginning of a gear-down.

Currently, Sanhua’s automotive components account for about 40% of total revenue, while refrigeration accounts for approximately 60%. A rough calculation shows that for every 1 percentage point decrease in the growth rate of the automotive components segment, the refrigeration segment needs to contribute an additional 0.6 percentage points to compensate.

However, it is difficult for the cooling business to accelerate and fill the gap. From the perspective of industry space, according to Industry Online data, by 2025, the total domestic sales scale of China's HVAC valve industry will increase by only 1.0% year-on-year, indicating that the industry as a whole has entered a low-growth plateau; the global air conditioning market's annual growth rate is also only in the range of 4%-5.5%, with limited elasticity. In terms of its own market share, Sanhua already holds over 50% of the global market share in eight core products such as electronic expansion valves and four-way reversing valves, with some categories reaching over 55%, leaving very limited room to further squeeze competitors' shares.

This means that although the refrigeration segment can contribute stable cash flow to the company, expecting it to significantly accelerate to offset the decline in growth rates in the automotive parts segment is not realistic. The dual-engine structure that Sanhua relied on in the past is now facing a major test.

The robot 'option' remains uncertain, while liquid cooling takes the lead as the growth driver

Who will raise the new growth banner for Sanhua? The answer lies in robots and liquid cooling. The difference in the progress pace of these two narratives is determining the company's valuation logic for the next phase.

The robotics business is the more imaginative side. According to verified industrial information, Sanhua is indeed tied to Tesla’s Optimus humanoid robot, with the company providing actuators integrating core robot components like planetary roller screws and six-axis force sensors. Analysts estimate its market share to be between 50% and 70%.

However, it needs to be clarified that in the first half of 2025, Sanhua actually received only 28.25 million yuan worth of Tesla Optimus actuator orders. In October 2025, there were rumors in the market that Tesla had placed a 5 billion yuan order with Sanhua for Optimus linear actuators, but the company immediately issued a clarification that evening stating, “The rumor is untrue.” In the 2025 annual report, the description of the robotics business remained unchanged from six months prior: “Collaborating with customers on key product development, prototyping, iteration, and sample submission,” contributing zero revenue for the full year.

Sanhua management’s statements about robotics remain in a 'strictly confidential phase.' JPMorgan noted in a report that the company’s communication regarding Tesla’s robotics project has become more cautious, expanding from a single client to a broader customer base while independently developing core components such as actuators.

Based on East Wu Securities’ estimation that Tesla will achieve an annual production of 1 million units by 2030, with each actuator assembly priced at 50,000 yuan, a net profit margin of 10%, and Sanhua holding a 70% market share, this could contribute approximately 3.5 billion yuan in net profits in the long term. Compared to the 2025 net profit attributable to shareholders of 4.063 billion yuan, this would effectively double Sanhua’s profit volume. However, in Sanhua’s current valuation, the benefits of the robotics business have already been largely priced in. If mass production falls below expectations, it could instead become a source of valuation pressure.

In contrast, the liquid cooling business represents a more practical growth engine. According to public statements from Sanhua’s management, the combined sales of liquid cooling and energy storage businesses reached 2 billion yuan in 2025, with 1.4 billion yuan from data center liquid cooling and 600 million yuan from energy storage. The 2026 growth guidance is 50%-100%. The company is closely engaging with major U.S.-based AI clients, with multiple products currently in testing, validation, and direct designation stages. Leveraging its core components such as valves, pumps, and heat exchangers from its refrigeration business, Sanhua quickly entered the liquid cooling sector, sharing the same technical platform with its original core business, achieving high self-sufficiency and relatively mature products.

In comparing the two, the balance at Sanhua is undergoing subtle changes. Robotics resemble a long-term option, offering vast potential but with unclear scale and realization timelines, and high uncertainty. On the other hand, liquid cooling represents immediate incremental growth, having already been market-validated and contributing real revenue. Although the 1.4 billion yuan scale remains relatively small compared to the total revenue of 31 billion yuan, its solid foundation rooted in shared technology, doubling growth rates, and clear demand expansion prospects make it the most certain growth driver among current new businesses.

The weights of the two factors in short-term valuation may be undergoing a reshuffle. Whether Sanhua can maintain its revenue and profit growth rates from 2026 to 2027 will hinge on the scaling pace of its liquid cooling business, which is becoming a more critical variable.

Core view: Dual-engine momentum transition, with liquid cooling as the short-term certainty-driven growth driver

Sanhua is at a pivotal juncture of shifting growth dynamics. Over the past five years, the historic leap in new energy vehicle penetration drove an average annual compound growth rate of nearly 50% for its automotive components business, but this momentum is now waning. While the core refrigeration business remains stable, constraints from low industry growth and high market share make it difficult to fill the gap independently.

Of the two emerging growth engines, robotics remains a long-term option, with significant uncertainty regarding timing and scale. Liquid cooling, on the other hand, has demonstrated its certainty and growth potential with 1.4 billion yuan in revenue and a doubling growth rate, establishing itself as the most meaningful core growth contributor in the short term.

At this crossroads, whether the scaling trajectory of liquid cooling can outpace the deceleration of automotive components becomes particularly crucial. The timeline for robotics to transition from trial production to scaled revenue will determine whether earnings can reach the next level. The 2025 annual report highlighted the resilience of the company’s profitability, while the Q1 2026 report revealed vulnerabilities on the growth side. The data window in Q2 will be the key test for whether this logic shift holds.

(Full text: 3,496 words)

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