Zhejiang Sanhua Intelligent Controls (.SZ)_ What's New from 2024 Citi China Conference_ Impact of PHEV Mix Spike and Update on US Refrigerant Switch

Summary of Zhejiang Sanhua Intelligent Controls (002050.SZ) Conference Call Company Overview - Company: Zhejiang Sanhua Intelligent Controls - Ticker: 002050.SZ - Industry: Auto Parts, Refrigeration, Robotics Key Points Financial Performance - The company secured Rmb21 billion in new orders during the first nine months of 2024, with a total order backlog of Rmb120 billion [4] - Estimated revenues are projected at Rmb14 billion for FY2024, Rmb20 billion for 2025, and Rmb25 billion for 2026 based on the order backlog [4] - Revenue from key customers: US NEV leader (30-40% of 9M24 revenue), BYD (10%), and Huawei (single-digit percentage) [4] - Revenue from BYD decreased due to a shift towards PHEVs, which have lower dollar content compared to BEVs [4] - Margins are expected to remain stable at 27-28%, with limited room for improvement due to customer pressure [4] Market Dynamics - The dollar content for a BEV is Rmb7000-8000 per vehicle, significantly higher than PHEV and ICE vehicles [3] - 70% of NEV models globally utilize some Sanhua HVAC components, although dollar content varies by model [11] - The company has a strong presence in the home appliance sector, with Midea and Haier accounting for 70% of revenue in that segment [13] Robotics and New Ventures - Sanhua has acquired a 16-acre land in Hangzhou for its robotics business, with a dedicated R&D team of 100 engineers [12] - The Optimus robot is expected to enter mass production in 1H25E [12] Refrigeration Segment - The commercial refrigeration segment is experiencing strong orders due to the transition to new refrigerant standards, although it remains a smaller portion of total revenue compared to home appliances [13] Geopolitical and Economic Risks - 20% of revenue comes from USD-denominated orders, exposing the company to currency and geopolitical risks [14] - Customers typically bear cost inflation for short periods, but there are instances where costs are shared [14] Valuation and Investment Strategy - The target price for Sanhua is set at Rmb30.0, representing a potential upside of 30.7% from the current price of Rmb22.950 [6] - The investment rating is Buy, supported by strong market share in home appliance refrigeration parts and expected growth in auto parts [18] Risks and Opportunities - Downside risks include a slowdown in China's economy, escalating trade disputes, and failure to gain market share [20] - Upside risks involve accelerated economic recovery and improved consumption leading to higher-than-expected growth [21] Financial Metrics - 2022 Net Profit: Rmb2,573 million - 2023 Net Profit: Rmb2,921 million - 2024E Net Profit: Rmb3,122 million - 2025E Net Profit: Rmb3,645 million [4] Conclusion Zhejiang Sanhua Intelligent Controls is positioned for growth in the auto parts and refrigeration sectors, with a strong order backlog and strategic investments in robotics. However, it faces challenges from market dynamics and geopolitical risks that could impact its performance.