Shenzhen Envicool Technology (002837.SZ): 4Q25/1Q26 result miss; Capacity expansion and server cooling readiness point to 2H26 acceleration; Cut TP but maintain Buy
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Goldman Sachs maintains a Buy rating on Shenzhen Envicool Technology but lowers the 12-month target price from Rmb118.60 to Rmb110.00 following disappointing 4Q25 and 1Q26 results. First-quarter revenue performance primarily reflected normal seasonality and temporary headwinds, including domestic chip shortages causing data center cooling deployment delays and accounting-driven credit impairments. Despite these short-term challenges, the company's underlying fundamentals and order backlog remain robust.
Management expressed strong confidence in a significant operational acceleration during the second half of 2026. This expected recovery is anchored by the scaling of overseas server cooling orders, the rollout of high-value integrated energy storage system cooling kits, and structural gross margin improvements driven by an increasing share of overseas revenue. Goldman Sachs forecasts server cooling sales of Rmb2.0 billion in 2026 and Rmb5.3 billion in 2027.
Envicool has successfully resolved previous production capacity bottlenecks by rapidly expanding its quick disconnect assembly lines. Technologically, the company is aggressively extending cold plate applications beyond CPUs and GPUs to memory, SSDs, and optical modules, while also developing advanced two-phase and jet impingement cold plate technologies to offer comprehensive lifecycle solutions.
The firm expects quarterly year-over-year sales growth to accelerate starting in 2Q26, projecting increases of 25%, 90%, and 82% for the second, third, and fourth quarters of 2026, respectively. While 2026 is viewed as a transitional year with modest first-half growth, the second half is poised for a dramatic breakout. With the stock trading at Rmb108.97, the new target implies 0.9% upside, pending large-scale order visibility, including the Google CDU project.