New Stock Outlook | Behind Zhejiang Sanhua Intelligent Controls' "A+H" Listings: Steady Growth in Revenue and Net Profit, Debt Size Exceeds One Hundred Billion Yuan.

On January 15, Zhejiang Sanhua Intelligent Controls (002050.SZ), a A-share listed company with a market value of over a billion, officially submitted its listing application to the main board of the Hong Kong Stock Exchange, with CICC and Huatai International as joint sponsors. Once it successfully lists in Hong Kong, it will mean that the "A+H" listed companies will have another member. Zhejiang Sanhua Intelligent Controls, as the world's largest manufacturer of refrigeration control components and a global leader in automotive thermal management system control components, has a long history of development. The company originated from Xinchang Refrigeration Parts Factory, founded in 1984, and was formerly known as Sanhua Fujikoki Machinery Co., Ltd., a Sino-Japanese joint venture established in 1994. It underwent a shareholding reform in 2001 and was listed on the Shenzhen Stock Exchange in 2005. As of the close of trading on January 16, its stock price was reported at 28.20 yuan, with a total market value of 105.25 billion yuan, making it one of the giant A-share companies with a market capitalization of over a billion. According to the prospectus, the funds raised by Zhejiang Sanhua Intelligent Controls through its Hong Kong listing are planned to be used for global technology research and development, expanding and establishing new factories in China and overseas, among other things. The company's original plan for GDR fundraising was similar, with funds intended for the production of automotive thermal management components in China, Mexico, and Thailand, establishing an automotive components production line in Poland, developing Siasun Robot & Automation actuators, and establishing a technology center in Europe. From the planned used of GDR fundraising to the current use of funds raised in the Hong Kong market, the strategic outlook of the globalization of Zhejiang Sanhua Intelligent Controls' operations, to enhance the company's intelligent manufacturing, digitization, and informatization levels, is clearly evident. However, the question remains, as one of the A-share giants with a market capitalization of over a billion, why did Zhejiang Sanhua Intelligent Controls choose to seek additional funding through another listing? Is it due to current financial constraints or insufficient strength? Despite stable growth in revenue and net profit, its debt size exceeds a hundred billion. Zhejiang Sanhua Intelligent Controls is primarily engaged in the research, development, manufacturing, and sale of refrigeration and air conditioning electrical components as well as automotive components. The company focuses on the development and application of heat pump technology and thermal management systems, aiming to develop environmentally efficient heat exchange and temperature control solutions. In addition, the company is actively developing biomimetic Siasun Robot & Automation electromechanical actuators to seek further growth in this promising industry. According to the prospectus, the company is the world's largest manufacturer of refrigeration and air conditioning control components and a global leader in automotive thermal management system components, with a market share of 58.7% for its four-way valves, 58.1% for electronic expansion valves, 42.9% for microchannel heat exchangers, 37.0% for stop valves, and 52.6% for solenoid valves. According to sales data from 2023, Zhejiang Sanhua Intelligent Controls' automotive electronic expansion valves and integrated components rank first with market shares of 52.6% and 65.7% respectively. The company has achieved steady revenue growth from 2022 to the first half of 2024, with revenues of 21.348 billion yuan, 24.558 billion yuan, and 20.563 billion yuan respectively. During this period, the company's net profits were approximately 2.608 billion yuan, 2.934 billion yuan, and 2.32 billion yuan respectively, also showing continuous growth. However, it should be noted that despite the healthy growth in revenue and net profit, this billion-dollar market value giant still has a "thirst" for liquidity. According to the prospectus data, as of the end of the first nine months of 2022 to 2024, Zhejiang Sanhua Intelligent Controls' total liabilities were 14.842 billion yuan, 13.827 billion yuan, and 15.796 billion yuan respectively, while total assets were 27.961 billion yuan, 31.891 billion yuan, and 34.467 billion yuan respectively. The company's asset-liability ratio during this period was 53.1%, 43.4%, and 45.8%, revealing its relatively high level of debt. Furthermore, as of the end of September 2024, Zhejiang Sanhua Intelligent Controls' cash and cash equivalents were 2.443 billion yuan, a decrease from 2.601 billion yuan in the same period of 2023, further intensifying the company's liquidity pressure. Therefore, it is not difficult to understand the company's intention to list in Hong Kong despite being a billion-dollar market value giant. Card SiaIs "old track" growth running out of steam for Sun Robot&Automation?It is reported that since 2022, Zhejiang Sanhua Intelligent Controls has actively laid out the Siasun Robot & Automation industry, focusing on the electromechanical actuators of the bionic Siasun Robot & Automation. Electromechanical actuators are the core components of the bionic Siasun Robot & Automation, mainly composed of servo motors, reducers, and encoders. In a 2024 announcement, the company plans to invest in the construction of the Siasun Robot & Automation electromechanical actuators and domain controller research and production base project in the Qiantang district, with a planned total investment of no less than 3.8 billion yuan. With the current market's enthusiasm for humanoid Siasun Robot & Automation, the Siasun Robot & Automation track is undoubtedly a major "star-studded" track. Specifically, humanoid Siasun Robot & Automation is one of the important directions for future development, with a clear trend towards replacing humans with machines. According to Precedence Research data, the global market size of humanoid Siasun Robot & Automation is expected to reach 28.66 billion U.S. dollars in 2032, with a compound annual growth rate of 33.28% from 2022 to 2032. As a key component, assuming an annual production of 1 million units of humanoid Siasun Robot & Automation, the market space for actuators is expected to reach a billion-yuan level. Siasun Robot & Automation electromechanical actuators and motor control technology are closely related to the company's existing valve and pump products in terms of motor and control technology. With deep technological accumulation and high-quality customer resources, Zhejiang Sanhua Intelligent Controls has a clear advantage, and the Siasun Robot & Automation actuator business is expected to become a new growth point for the company in the future. However, on the other hand, concerns arise regarding the growth prospects for the air conditioning components and automotive thermal management tracks of Sanhua. On one hand, the air conditioning market faces the risk of saturation, and the air conditioning components industry in which the company operates may face the problem of slowing growth. China, as one of the world's largest producers and consumers of household air conditioners, the domestic market is gradually saturating, transitioning from an incremental market to a stock market, and lacks growth momentum. In this context, according to Frost & Sullivan reports, the global market size of key refrigeration air conditioning control components is expected to grow at a compounded annual rate of 3.9% from 2019 to 2023, with industry growth at a relatively low level. Although the air conditioning market is becoming saturated, energy efficiency requirements and overseas demand growth are expected to drive the global refrigeration air conditioning appliance market. This is still good news for Zhejiang Sanhua Intelligent Controls, but whether the company can seize this growth opportunity remains to be seen. On the other hand, with the rapid development of the new energy vehicle market, the competition in the thermal management industry will intensify, potentially limiting the long-term growth of the company's thermal management business. According to industry data, as the penetration rate of new energy vehicles continues to increase, the demand for automotive thermal management systems is expected to continue growing. By 2025, the penetration rate of new energy vehicles in Shanxi Guoxin Energy Corporation is expected to approach 45%, with the global automotive thermal management system market capacity exceeding 110 billion yuan. Due to the complexity of the market landscape, international giants in thermal management such as DENSO and Valeo have a strong technological foundation and market share in both traditional internal combustion engine vehicles and new energy vehicles. In addition, the company may also face pressure from both upstream and downstream, with price wars among downstream automakers leading to cost pressures upstream, while competition in the upstream automotive components track is fierce, with numerous domestic and foreign companies such as Zhejiang Yinlun Machinery, Ningbo Tuopu Group, and Zhejiang Dun'an Artificial Environment. Zhejiang Sanhua Intelligent Controls faces the risk of market share and profit margin squeeze. In summary, as one of the A-share giants with a market value of hundreds of billions, the journey of Zhejiang Sanhua Intelligent Controls to go public in Hong Kong will undoubtedly attract a lot of attention and add significant value to the company. However, as the company's Hong Kong listing progresses, some growth concerns about Zhejiang Sanhua Intelligent Controls are gradually coming to light.