Shenzhen Envicool Technology Co Ltd_ Our thoughts on the recent stock price correction

Summary of Shenzhen Envicool Technology Co Ltd Conference Call Company Overview - Company: Shenzhen Envicool Technology Co Ltd - Ticker: 002837.SZ - Market Cap: Rmb27,482.5 million - Current Share Price: Rmb37.16 (as of February 5, 2025) - 52-Week Range: Rmb46.68 - Rmb13.16 - Analyst Rating: Overweight - Price Target: Rmb33.00 Key Industry Insights - Industry: China Industrials, specifically focusing on cooling technology and high-performance GPUs - Market Trends: - Recent stock price correction of Envicool by 18% over two trading days, compared to CSI300's decline of 1% [2] - Concerns regarding lower demand for high-performance GPUs and slower growth in liquid cooling penetration [1][7] - Anticipated 30% year-on-year growth in cloud capital expenditures to US$340 billion in 2025, down from ~50% in 2024 [7] Core Perspectives - Short-term Outlook: Slightly negative due to market corrections and demand concerns [3] - Long-term Outlook: Constructive, driven by the growth of AI applications and decreasing costs, which are expected to benefit Envicool [1][7] - Liquid Cooling Market: Lower expectations for total addressable market (TAM) and penetration rates due to reduced demand for high-performance chips [7] Financial Performance - Earnings Growth: Year-on-year growth slowdown noted in 4Q24 earnings compared to the first nine months of 2024 [7] - EPS Forecast: Projected 33% year-on-year EPS growth in 2025, with a valuation methodology applying a 35x P/E ratio [10] Risks and Opportunities - Risks: - Potential for lower-than-expected shipments of GB200 and slower adoption of liquid cooling technology, which may negatively impact volume and pricing in the near term [7] - Global economic slowdown and rising raw material prices could lead to margin contraction [12] - Opportunities: - Strong relationships with major companies like Huawei and Bytedance, with Bytedance maintaining a robust capex guidance of approximately Rmb160 billion for 2025 [7] - Positive outlook for overseas market exploration, particularly in Southeast Asia, leveraging competitive product offerings and project experience [7] Conclusion - The recent stock price correction of Shenzhen Envicool Technology Co Ltd presents a potential entry opportunity for investors, with a long-term positive outlook supported by the growth of AI applications and strategic partnerships [7]