Summary of Sanhua Intelligent Controls (002050.SZ) Conference Call Company Overview - **Company**: Sanhua Intelligent Controls (002050.SZ) - **Market Cap**: Rmb210.2 billion / $29.5 billion - **Enterprise Value**: Rmb201.5 billion / $28.3 billion - **Industry**: China Industrial Tech & Machinery Key Points and Arguments 1. **Rating Downgrade**: Sanhua A has been downgraded from Buy to Neutral due to recent stock outperformance, while Sanhua H remains at Buy. The stock prices have increased by +51% for Sanhua A and +31% for Sanhua H since Tesla's Masterplan IV announcement on September 2, 2025, indicating market optimism regarding humanoid robot actuator revenue opportunities [1][16][19]. 2. **Market Expectations**: Current valuations imply that Sanhua A could achieve 0.9 million to 2.0 million units of Tesla Optimus sales, which is deemed unlikely within the next 12 months, especially given Tesla's target of 1 million units by 2030 [1][16][19]. 3. **Earnings Growth Moderation**: Anticipated earnings growth for Sanhua is expected to moderate over the next 2-3 quarters due to a high base effect in both HVAC and EV component segments, compounded by tighter trade-in subsidies [1][20][21]. 4. **3Q25 Financial Performance**: Sanhua reported a strong 3Q25 performance, primarily driven by effective control of SG&A expenses, leading to a revision of 2025-2030 EPS estimates upward by 4-8% [2][25]. 5. **Target Price Adjustments**: The 12-month target prices for Sanhua A and H have been set at Rmb40.90 and HK$43.10, respectively, reflecting an 18% downside for Sanhua A and a 5% upside for Sanhua H [2][25]. 6. **Valuation Multiples**: The target multiple has been increased from a 2030E P/E of 21x to 25x, based on a sum-of-the-parts (SOTP) analysis of core and humanoid robot businesses [2][27]. 7. **Revenue Forecasts**: Revenue projections for 2025-2027 are as follows: - 2025: Rmb32,023.4 million - 2026: Rmb36,563.1 million - 2027: Rmb44,918.0 million This indicates a growth rate of 14.6% in 2025 and 14.2% in 2026 [4][13]. 8. **Segment Performance**: The HVAC component segment is expected to face growth pressure, with revenue growth forecasted to slow to -2% in 4Q25, while the EV thermal management segment is projected to see modest growth of 12% in the same period [20][21][23]. 9. **Market Valuation Context**: Sanhua A/H is currently trading at 47x/37x 12-month forward P/E, which is significantly above the historical average, indicating potential overvaluation [28]. 10. **Future Checkpoints**: The next significant assessment of Sanhua's opportunities will occur in February/March 2026, coinciding with the planned launch of Tesla's Gen 3 product [1][19]. Additional Important Information - **Cash Flow and Financial Health**: Sanhua's free cash flow is projected to improve, with net income expected to rise from Rmb3,099.2 million in 2024 to Rmb6,005.8 million by 2027 [13][25]. - **Dividend Policy**: The dividend payout ratio is expected to remain stable at around 30% [13]. This summary encapsulates the critical insights from the conference call, highlighting the company's current standing, market expectations, and future outlook.