Key takeaway

In 1H26, the company's revenue from rack and data center temperature-control products grew moderately; overseas revenue increased as a share of total revenue, mainly driven by a substantial YoY increase in overseas revenue from energyefficient data center temperature-control equipment, although the overall revenue scale remained relatively small. Gross margin declined YoY in 1H26 but is expected to improve as the overseas business ramps up. The company continued to invest in R&D and market expansion for new products and businesses, with expenses also increasing in 1H26. In recent years, the company has vigorously expanded into the overseas computing power market, continuously broadening and deepening its overseas customer base. We believe that 2026 the company's overseas liquid-cooling business is expected to ramp up significantly from 2H26 onward. The global liquid-cooling market offers substantial potential. As the business continues to advance, the company has significant room for medium- to long-term growth.

Event

The company released its 1H 26 earnings report. In 1H26, the company recorded operating revenue of RMB3.017bn, up 17.24% YoY; net profit attributable to shareholders of the parent company was RMB185mn, down 14.32% YoY.

Quick Take

1. Healthy operations in 1H26, with a significant increase in inventory.

In 1H26, the company recorded operating revenue of RMB3.017bn, up 17.24% YoY; net profit attributable to shareholders of the parent company was RMB185mn, down 14.32% YoY; net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB175mn, down 13.22% YoY. Cash flow improved significantly, with net cash flow from operating activities reaching RMB6 1.87 mn in 1H26, versus RMB- 234 mn in the same period last year.

By product segment, energy-efficient temperature-control products for data centers and racks both recorded moderate growth. In 1H26, revenue from energy-efficient data center temperature-control products reached RMB1.700bn, up 25.84% YoY; revenue from energy-efficient rack temperature-control products reached RMB1.068bn, up 15.28% YoY; revenue from bus air conditioners reached RMB21.30mn, up 10.00% YoY; revenue from rail transit train air conditioners and related services reached RMB28.05mn, up 17.36% YoY; and other revenue reached RMB199mn, down 21.05% YoY.

By region, domestic revenue was RMB2.573bn, up 11.17% YoY; overseas revenue was RMB444mn, up 71.39% YoY, primarily driven by a substantial YoY increase in overseas revenue from data center thermal management and energy-saving equipment in 1H26.

In 2Q26, the company recorded operating revenue of RMB1.841bn, up 12.24% YoY; net profit attributable to shareholders of the parent company was RMB176mn, up 5.06% YoY; net profit attributable to shareholders of the parent company excluding non-recurring items was RMB170mn, up 6.00% YoY.

As of the end of June 2026, the company’s inventories stood at RMB1.552bn, an increase of RMB569mn from the end of 2025, with significant increases in raw materials, goods shipped, semi-finished goods, and contract fulfillment costs.

2. Gross margin faces short-term pressure but is expected to improve as overseas business scales up.

In 1H26, the company’s overall gross margin was 24.93%, down 1.22 pcts YoY. The company is actively expanding into overseas markets, and its gross margin is expected to improve as overseas business scales up. In 1H26, the company’s selling expense, administrative expense, and R&D expense totaled RMB470mn, up 17.5% YoY; financing expense was RMB41.30mn, compared with RMB1.95mn in the same period last year, mainly due to higher foreign exchange losses and interest expense.

3. Overseas liquid cooling business is expected to begin scaling up significantly in 2H26.

The company’s Cool Inside full-chain liquid cooling solution provides end-to-end product coverage, spanning cold plates, quick connectors, manifolds, coolant distribution units (CDUs), and racks, as well as SoluKing longlife liquid cooling fluids, piping, and cooling sources. Its products have gained recognition from mainstream computing chip vendors and leading manufacturers of computing and switching equipment and have begun to see large-scale adoption. The company continues to deepen its product portfolio and strengthen its competitiveness. The company’s cold plate products not only provide thermal management for CPUs, GPUs, computing ASICs, and switching ASICs, but are also being adapted for other heat-generating components inside servers or switches, including memory, SSDs, and optical transceivers. To address new requirements such as ultra-high localized chip heat flux, the company has developed new technologies and related products, including two-phase cold plates and jet impingement cold plates, based on its microchannel cold plates. The company has also launched products including five-in-one and six-in-one integrated liquid-cooled server testing equipment, the XSpace 6S liquid-cooled computing pod, fully prefabricated skid-mounted data centers, and pump-driven two-phase cold-plate liquid cooling systems, further extending its product and service capabilities.

The breadth and depth of the company’s overseas customer base continue to expand. We believe the company’s overseas liquid cooling business is poised for significant volume growth starting in 2H26. The company is the first partner in Intel China’s Data Center Liquid Cooling Innovation Accelerator Program. Its BHSAP platform cold plates, UQD 04 quick disconnects, manifolds, and rack-mounted liquid cooling CDUs have passed Intel’s testing and validation. During the 2024 OCP Global Summit, Nvidia published news on its official website about the development of its Blackwell GB200 system. The company was listed as an MGX ecosystem partner for its UQD products. During the 2025 OCP Global Summit, the company was listed as an Nvidia MGX ecosystem partner for its UQD and MQD products. During the 2025 OCP Global Summit, the company showcased a CDU product custom-developed for Google’s Deschutes 5.

4. Earnings forecast and investment recommendation.

We estimate the company’s revenue at RMB9.39bn/RMB14.69bn/RMB20.38bn and net profit attributable to shareholders of the parent company at RMB1.21bn/RMB2.37bn/RMB3.61bn for 2026–2028E, implying PE multiples of 66X/33X/22X, respectively. We maintain “buy” rating.

5. Risks: Slowdown in data center construction progress: If downstream industries such as AI, internet, and cloud computing grow below expectations, demand for data centers and related temperature control products may weaken. Slower-than-expected overseas progress: The company’s overseas data center liquid cooling business is still in an early stage, facing risks of slower customer or business development. Lower-than-expected energy storage demand: Although current demand remains robust, rising raw material or battery costs, or supply shortages, could dampen downstream demand. Intensified competition: Heightened competition could pressure product prices and margins. Changes in the international environment may affect the company’s business development.