New Stock Analysis | Zhejiang Sanhua Intelligent Controls: Weak Growth in Refrigeration and Automotive Components Global Leader, Relying on Bionic Siasun Robot & Automation Track to Revitalize?

Since the beginning of this year, A-share companies going public in Hong Kong have been accelerating. Recently, Zhejiang Sanhua Intelligent Controls (002050.SZ), with a market value of nearly a trillion yuan on the A-share market, has passed the hearing at the Hong Kong Stock Exchange on June 4th, forming an "A+H" stock framework, with CICC and Huatai International as its joint sponsors. According to reports, Zhejiang Sanhua Intelligent Controls will distribute a total of 894 million and 900 million yuan in dividends in 2022 and 2023 respectively, and distribute 1.3 billion yuan in dividends in the first 9 months of 2024. Recently, Zhejiang Sanhua Intelligent Controls distributed a cash dividend of 2.5 yuan (tax included) per 10 shares to all shareholders based on a base of 3,730,997,314, without stock dividends. The prospectus shows that Zhejiang Sanhua Intelligent Controls is the world's largest manufacturer of refrigeration and air conditioning control components and a global leader in automotive thermal management system components. The company's business spans two major sectors: refrigeration and air conditioning electrical components and automotive components, and based on long-term technical accumulation and research and development innovation, it continues to expand its business into emerging areas such as Siasun Robot & Automation electromechanical actuators. According to Frost & Sullivan data, the company's market share in the global refrigeration and air conditioning control components market is approximately 45.5% based on 2024 revenue, and approximately 4.1% in the global automotive thermal management system component market, ranking fifth globally. With steady growth in performance, why is the industry leader worried? Zhejiang Sanhua Intelligent Controls was established in 1984 as Xinchang Refrigeration Parts Factory, and is a manufacturer of refrigeration and air conditioning control components and automotive thermal management system components. Since its establishment, thermal management has been the core technological focus of Zhejiang Sanhua Intelligent Controls. Before going public in 2005, its main products were mainly expansion valves, gradually expanding to include electronic expansion valves and solenoid valves for air conditioning. In order to expand the production capacity of electronic expansion valves and solenoid valves, the company went public and expanded its business to include four-way valves and microchannels, making refrigeration and air conditioning electrical components ("thermal management") its primary business. While maintaining its leading position in traditional business sectors, Zhejiang Sanhua Intelligent Controls began to expand its automotive components business ("auto parts"). Especially with the emergence of new energy vehicles replacing traditional fuel vehicles as the market's new favorite, this business has entered a fast growth lane. A staff member of the company's secretariat office stated that the CAGR (Compound Annual Growth Rate) set by the company for the rapid growth period exceeds 50%. After many years of development, Zhejiang Sanhua Intelligent Controls has established two mature business sectors: thermal management and automotive components. According to Frost & Sullivan data, in 2024, based on revenue, the company ranked first in the global refrigeration and air conditioning valve, heat exchanger, and pump market, and second in the refrigeration and air conditioning controller market. In terms of automotive components, Zhejiang Sanhua Intelligent Controls has become a key supplier of automotive thermal management system components in the global market. In addition, the company is actively developing products related to Siasun Robot & Automation electromechanical actuators to seek further growth in this promising industry. In terms of performance, Zhejiang Sanhua Intelligent Controls has shown a steady growth trend. In the reporting period from 2022 to 2024, Zhejiang Sanhua Intelligent Controls recorded revenues of approximately 21.348 billion, 24.558 billion, and 27.947 billion yuan respectively, and profits of approximately 2.608 billion, 2.934 billion, and 3.112 billion yuan during the same period. Looking at the individual business sectors, both refrigeration and air conditioning electrical components and automotive components contribute nearly equally to revenue. During the reporting period, revenue from refrigeration and air conditioning electrical components was 13.534 billion, 14.668 billion, and 16.561 billion yuan, accounting for 64.8%, 59.6%, and 59.3% of total revenue; revenue from automotive components was 7.514 billion, 9.914 billion, and 11.387 billion yuan, accounting for 35.2%, 40.4%, and 40.7% of total revenue. Despite the flourishing industry, industry leader Zhejiang Sanhua Intelligent Controls also faces challenges. Looking back at the policy information since 2021, various departments have issued policies to promote domestic appliance consumption, including both quantity-based consumption for appliances in rural areas and subsidies, as well as quality-based consumption for green and smart products. Cooling equipment such as air conditioners and refrigerators have seen positive effects, with typical main manufacturers such as Midea Group Co., Ltd (000333.SZ), HAIER SMARTHOME (600690.SH), and Gree Electric Appliances, Inc. of Zhuhai (000651.SZ) consistently performing well. However, for Zhejiang Sanhua Intelligent Controls, the business of refrigeration and air conditioning electrical components has not shown matching outstanding performance. From 2020 to 2024, the CAGR for this sector was 14%.48%; in 2024, the annual growth rate is 13.09%. The CAGR for the four years exceeds the annual growth rate, indicating that the explosive growth potential as the primary business has diminished.The same is true for the auto parts business. In recent years, although the production and sales volume of new energy vehicles has increased rapidly, the overall sales data of the automotive market has not always been on the rise. In this context, Zhejiang Sanhua Intelligent Controls has found it difficult to maintain the upward trend of this business. However, similar to the thermal management business, the auto parts business has also shown a situation where the CAGR (46.55%) in the past four years since 2020 is greater than the annual growth rate (14.86% in 2024). Entering the field of biomimetic Siasun Robot & Automation, can it spark new growth? "The industry cannot always be in a state of high-speed growth." Zhejiang Sanhua Intelligent Controls is fully prepared for the fact that the growth rate is slowing down. Employees stated that after years of development, the thermal management industry is gradually moving towards a saturated market, making it difficult to achieve breakthrough growth rates. During the rapid growth period of the auto parts business, Zhejiang Sanhua Intelligent Controls set a CAGR target of 50%, which has now been revised down to 20%. In this context, targeting the Siasun Robot & Automation field has become one of the ways for Zhejiang Sanhua Intelligent Controls to spark new growth. Since 2022, Zhejiang Sanhua Intelligent Controls has actively engaged in the Siasun Robot & Automation industry, focusing on the biomimetic Siasun Robot & Automation electromechanical actuator business. The electromechanical actuator is a core component of the biomimetic Siasun Robot & Automation, mainly composed of servo motors, reduction mechanisms, and encoders. In 2024, the company disclosed plans to invest in the construction of a Siasun Robot & Automation electromechanical actuator and field controller research and production base project in Qiantang District, with a total planned 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 huge opportunity. Public information shows that in 2023, the Ministry of Industry and Information Technology issued the "Guiding Opinions on the Innovation and Development of Humanoid Siasun Robot & Automation" and other support policies, proposing to achieve mass production of biomimetic Siasun Robot & Automation by 2025 and scale development by 2027. With leading industry participants accelerating production plans, breakthroughs in technology such as mechanical design, motion control, and artificial intelligence, improved performance of core components, and cost reduction, the biomimetic Siasun Robot & Automation industry is expected to achieve mass production in the near future. As biomimetic Siasun Robot & Automation technology becomes increasingly mature and achieves mass production, the demand for electromechanical actuators in the biomimetic Siasun Robot & Automation market is expected to increase significantly, driving rapid market growth. From 2020 to 2024, the global market size of biomimetic Siasun Robot & Automation electromechanical actuators increased from 9.39 billion yuan to 137.61 billion yuan, with a compound annual growth rate of 95.7%. As downstream demand continues to grow, it is estimated that by 2029, the global market size of biomimetic Siasun Robot & Automation electromechanical actuators will reach approximately 62.8 billion yuan, with a compound annual growth rate of 114.7% from 2024 to 2029. However, Zhejiang Sanhua Intelligent Controls' electromechanical actuators are still in the research and development stage. Large-scale commercialization requires a significant amount of investment, and the company's current liquidity is already a concern. According to the prospectus, the total liabilities of Zhejiang Sanhua Intelligent Controls were 14.842 billion yuan, 13.827 billion yuan, and 16.835 billion yuan during the reporting period, while the total assets were 27.961 billion yuan, 31.891 billion yuan, and 36.355 billion yuan, with asset-liability ratios of 53.1%, 43.4%, and 46.3% respectively. It is easy to see the company's relatively high level of debt. As of the end of 2024, Zhejiang Sanhua Intelligent Controls had cash and cash equivalents of 3.444 billion yuan, slightly lower than the 3.625 billion yuan in the same period of 2023. The company's research and development investment in 2024 reached a high of 1.352 billion yuan, indicating that cash flow seems to be somewhat tight. With such pressure on the company's liquidity, it is not difficult to understand the company's purpose in listing in Hong Kong.