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At the opening on July 24, the concept of liquid cooling rose rapidly, Jingyan Technology (300709.SZ) hit the daily limit of 20CM, Jialitu (603912.SH) and Chuanrun Shares (002272.SZ) hit the daily limit of 10CM.

Some analysts pointed out that with the strong promotion of NVIDIA, the absolute overlord in the field of AI chips, liquid cooling is expected to move from "optional" to "mandatory" in the field of ultra-high-performance AI servers. The demand for liquid cooling continues to grow, and the market space continues to expand.

Zhejiang-based Tongxing Technology (301252.SZ), which has maintained steady growth in performance, has recently attracted attention from the capital market. With the continued release of liquid cooling demand, Tongxing Technology is expected to continue to benefit, and its future performance is expected to be positive.

Liquid cooling demand surges, market space continues to expand

As NVIDIA continues to develop and innovate in the field of AI, its high-performance AI GPU server GB200 and the upcoming B100 chip have put forward higher requirements on heat dissipation technology.

In fact, traditional air cooling technology can no longer meet the stability and performance requirements of these high-performance GPUs when running under continuous high loads. Therefore, NVIDIA is also actively looking for high-quality suppliers with liquid cooling technology and seeking cooperation. A number of companies that maintain close cooperation with NVIDIA are growing rapidly.

Vertiv, the liquid cooling technology solution provider for NVIDIA's GB200 AI GPU server, has delivered satisfactory results. In the first quarter of this year, Vertiv's total orders increased by 60% year-on-year, and the amount of backlog orders at the end of the period reached US$6.3 billion, setting a new record. This indicates that the demand for liquid cooling technology in global AI data centers has surged, and it also indirectly shows that global companies have a very strong demand for NVIDIA's AI GPUs.

Wall Street analysts said that with the strong promotion of AI chip leader Nvidia, liquid cooling is expected to move from the "optional" stage to the "mandatory" stage in the field of ultra-high-performance AI servers, which means that the market size of "liquid cooling" solutions in the future will be extremely large.

In China's A-share market, Zhejiang-based Tongxing Technology's main business is the R&D, production and sales of refrigeration equipment-related products, including refrigeration parts and products, automotive air-conditioning system parts, etc. At present, the company has more than 2,000 finned heat exchanger products and an annual production capacity of 8 million finned heat exchangers, which can meet the needs of most light commercial customers.

In addition to the automotive and home appliance industries, Tongxing Technology's refrigeration equipment-related products can also be used in data centers, cold chain logistics and other fields. Tongxing Technology previously revealed at a performance briefing that the company's liquid cooling products are currently used by Invke, a leading company in the domestic liquid cooling field.

The development prospects of liquid cooling are widely optimistic. From 2024, the penetration scale of liquid cooling solutions is expected to enter an "explosive growth" mode. Dell'Oro Group predicts that the data center thermal management market size (air cooling + liquid cooling) will reach US$12 billion in 2028, and the liquid cooling scale is expected to reach US$3.5 billion by then, accounting for nearly 1/3 of the total thermal management expenditure, compared with less than 1/10 at present.

IDC predicts that the compound annual growth rate of China's liquid-cooled server market will reach 45.8% from 2023 to 2028, and the market size is expected to reach US$10.2 billion in 2028.

Steady performance growth and solid industry position

After more than 20 years of development, Tongxing Technology has been continuously innovating products and accumulating technology along with the development of the domestic refrigeration industry, and has gradually developed into a refrigeration equipment-related product company with product and technology advantages. The company has been recognized by many customers in the field of light commercial refrigeration, and its market share of finned heat exchangers is in the leading position in the industry.

In the past three years, Tongxing Technology's operating performance has maintained steady growth. From 2021 to 2023, the company's operating income was 784 million yuan, 809 million yuan, and 980 million yuan respectively; net profit attributable to the parent was 69.7652 million yuan, 84.3150 million yuan, and 119 million yuan respectively.

Tongxing Technology pointed out in its 2023 performance report that its revenue increased by 21.16% year-on-year and its net profit increased by 41.63% year-on-year, mainly due to the increase in orders from existing customers for refrigeration parts and components and the mass production of products developed in the early stage. In addition, the new energy vehicle market continues to drive the increase in automotive air-conditioning system parts.

The good growth trend will continue in 2024. In the first quarter of this year, Tongxing Technology achieved revenue of 278 million yuan, a year-on-year increase of 28.97%; net profit attributable to the parent company was 39.4 million yuan, a year-on-year increase of 53.18%.

In terms of products, in 2023, Tongxing Technology's refrigeration parts and products achieved revenue of 775 million yuan, a year-on-year increase of 19.44%; automotive air-conditioning system parts achieved revenue of 152 million yuan, a year-on-year increase of 24.51%; other businesses achieved revenue of 53.2876 million yuan, a year-on-year increase of 39.63%. It can be seen that the company's operating income from various products has increased, and the gross profit margin has also increased.

Future expectations continue to improve

As people's consumption concepts and methods change, the application scenarios of refrigeration equipment are becoming more and more diversified, and its demand for adapting to market consumption is constantly increasing. From creating environmental temperature and humidity management to optimizing food preservation and storage, to the application of liquid cooling technology in data centers, there are opportunities for refrigeration equipment to play an important role. Under the advocacy and promotion of the country, the cold chain logistics industry has also achieved considerable development, and the application scope of refrigeration equipment has been further expanded.

At the same time, with the emergence and popularization of emerging technologies such as the Internet of Things, AI, and laser refrigeration, the development of the refrigeration equipment industry is expected to gain "acceleration". The popularization of these new technologies will further change the development trend of the refrigeration equipment industry. Industry Online predicts that the sales volume of light commercial refrigeration products in China will reach 18.46 million units in 2024, a year-on-year increase of 3.9%.

In an environment of rapid industry development, Tongxing Technology, which possesses core competitive advantages, is expected to continue to benefit, and its future operating performance is expected to be positive.

From the perspective of stock price performance, after listing, Tongxing Technology's stock price fluctuated and fell. In early February 2024, Tongxing Technology bottomed out and rebounded, and it is still maintaining a fluctuating upward momentum. After the recent release of good news related to data centers, Tongxing Technology also exploded with the liquid cooling sector, and the stock once surged to nearly 13% in early trading.

Overall, Tongxing Technology has maintained steady performance in recent years, with all of its products maintaining a good growth trend and the application scope of related products continuing to expand. The company's future development is expected to reach a new level.