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On Friday, BofA Securities initiated coverage on Guangdong Shenling Environmental Systems (301018:CH), offering a favorable outlook with a Buy rating and setting a price target of RMB44.00. The initiation reflects a 26% upside potential from the current market price, based on an average of the 2025/26 estimated earnings per share (EPS).
Cheng Gao, an analyst at BofA Securities, highlighted Shenling’s strong market position and technological leadership in China’s cooling industry. The company’s revenue streams are notably robust, with data centers (DC) and specialized industries, particularly nuclear power, accounting for 51% and 23% of total revenue, respectively.
The price target is based on a 45x multiple of the 2025/26 estimated EPS average, aligning with the P/E ratios of Shenling’s peers in mainland China. This valuation accounts for the company’s ability to capitalize on the capital expenditure upcycle in China’s artificial intelligence sector.
BofA Securities anticipates that Shenling will experience significant sales growth, projecting increases of 40% and 31% in 2025 and 2026, respectively. This growth is expected to be driven by escalating demand for cooling in data centers and nuclear power infrastructure.
Furthermore, the analyst forecasts that Shenling’s earnings will surge, with an impressive 92% growth in 2025 and 35% in 2026, outstripping sales growth. This earnings leap is attributed to an increased mix of liquid cooling solutions and an improved net profit margin following a substantial bad debt impairment in 2023/24, which affected approximately 42% of the company’s net profit after tax (NPAT).
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