We turn more bullish on Envicool capturing the surging global demand for GPU/ASIC AI server (liquid) cooling and raise TP to Rmb70.8 (maintain Buy). We expect Envicool to take 5% global server liquid cooling market share in 2027E and 10% by 2030E, as evidenced by (1) robust server cooling and others sales growth of 216% yoy in 1H25; (2) active recruitment and investment in SEA and US; and (3) key qualifications with NVIDIA/Intel in place. We now forecast 38%/47% sales/net income CAGRs in 2025E-30E (vs. 31%/ ...

Summary of Shenzhen Envicool Technology (002837.SZ) Conference Call Company Overview - **Company**: Shenzhen Envicool Technology - **Ticker**: 002837.SZ - **Industry**: Precision cooling technology for data centers and energy storage systems (ESS) Key Financial Highlights - **2Q25 Results**: - Revenue: Rmb1,641 million (+70% YoY) - Gross Profit: Rmb426 million (+37% YoY) - EBIT: Rmb197 million (+64% YoY) - Net Income: Rmb168 million (+38% YoY) - Gross Profit Margin (GPM): 26% (-4pp YoY) - Operating Profit Margin (OPM): 12% (stable YoY) - Net Profit Margin (NPM): 10% (-2pp YoY) [1][10][12] Core Business Insights - **Data Center Cooling**: - Sales grew by 58% YoY to Rmb1,351 million in 1H25, indicating strong demand [1] - Contract liabilities increased by 109% YoY, suggesting a solid order backlog [1] - **Liquid Cooling Adoption**: - Recorded over Rmb200 million in liquid cooling revenue in 1H25, with products gaining traction among leading chipmakers [2] - **Energy Storage System (ESS) Cooling**: - Sales reached approximately Rmb800 million (+35% YoY) in 1H25, showing resilience despite global trade tensions [3] Margin Analysis - **Gross Profit Margin Decline**: - GPM decreased by 4 percentage points YoY due to regional and product mix changes and increased competition in the data center cooling market [4] - **Stable Operating Profit Margin**: - OPM remained stable at 12%, with SG&A expenses growing at a slower rate than sales [7] Operational Challenges - **Cash Flow Issues**: - Cash outflow from operations widened to Rmb234 million, attributed to higher receivable and inventory days [8] - **Capex Reduction**: - Capital expenditures declined by 19% YoY to Rmb141 million, below management's guidance [8] Investment Thesis - **Long-term Growth Drivers**: - The digital economy and carbon reduction initiatives are expected to drive demand for precision cooling technologies [12] - Increasing investment in generative AI is anticipated to boost liquid cooling adoption in data centers [12] - **Valuation**: - Current stock valuation is considered attractive with a 12-month target price of Rmb34.50, representing a potential downside of 50.9% from the current price of Rmb70.20 [14][15] Risks - **Competitive Landscape**: - Risks include tougher competition in cooling technology and slower-than-expected adoption of liquid cooling solutions [14] Conclusion Shenzhen Envicool Technology has demonstrated strong revenue growth in its core segments, particularly in data center and ESS cooling. However, challenges such as margin pressure, cash flow issues, and competitive risks need to be addressed to sustain growth and improve profitability. The long-term outlook remains positive, driven by global trends in digitalization and energy efficiency.