Sungrow Power Supply (300274) Report Interpretation

Overview

This quick note reviews Sungrow’s weaker 1H26 results, its more resilient gross margin, and management’s outlook for ESS, Europe and AIDC. Nomura keeps its Neutral rating and CNY120 target price, balancing growth opportunities against demand, competition and compliance-cost pressures.

Core views

Sungrow’s 1H26 revenue fell 29.0% year on year to CNY30.9bn. Nomura attributes the decline principally to Document 136-driven softness in China solar installations, which were 72GW in 1H26 versus 212GW in 1H25 according to NEA data, and to a difficult comparison with last year’s Saudi mega-project base. These pressures outweighed 8% overseas solar-installation growth and more than 30% global ESS-installation growth. Inverter revenue declined 19.2% to CNY12.4bn, while ESS revenue fell 13.2% to CNY15.5bn even though ESS shipments rose 28% to 25GWh. Margin performance was more resilient than revenue. Gross margin increased 1.6 percentage points to 35.9%, supported by a reduced contribution from low-margin development revenue and a higher European mix in inverter and ESS sales. Inverter gross margin rose 7.0 percentage points to 42.7%, but ESS gross margin fell 7.5 percentage points to 32.4% as lithium-cost pass-through and stronger competition weighed on profitability. Operating expenses fell only 3.7%, with R&D spending still up 2.9%, so the operating-expense ratio rose 4.2 percentage points to 16.1%. Net profit consequently declined 32.0% to CNY5.3bn and basic EPS fell 31.4% to CNY2.56; CNY0.4bn of lower asset impairments provided only partial offset. Management expects second-half ESS shipments to account for more than 60% of full-year volume, compared with less than 40% in the first half. It raised its 2026E European ESS-market estimate to 74GWh from about 60GWh, nearly double 2025’s 37GWh, citing the EU’s 200GW-by-2030 storage target and wider peak-to-trough power-price spreads in Poland, Germany and Spain. Management expects the European market to exceed 100GWh in 2027E, growing more than 50% year on year. It expects inverter gross margin to remain broadly stable, but sees long-term pressure on large-scale ESS margin because of regional revenue-recognition mix and delayed lithium-carbonate pass-through. Nomura highlights AIDC as a longer-term growth engine. Sungrow has shipped solid-state transformer products to operating data centers; its 13.8/10kV products are entering commissioning, with first orders expected from 4Q26E. Management expects 35kV R&D to finish by 1H27E and mass delivery during 2028-30E. AIDC orders already total about 2GWh, with more than a dozen projects being tracked, and management expects AIDC-related business to grow at more than 100% CAGR in 2027-28E. In the US, the company is shifting toward distributed and distribution-grid business without currently planning local manufacturing, and expects distributed and non-US markets to offset a US slowdown. Nomura’s central caution is that US and EU market access may be preserved for certain products, but compliance expenses are likely to rise structurally. The report points to re-certification, component re-sourcing, software and data localization, and hardware/software bill-of-materials documentation in the US. In Europe, Poland production carries a 12-18% cost premium to China, narrowing to 4-5% after low-interest financing; the Net-Zero Industry Act also introduces local-content thresholds of 40%, 60% and 70% for 2026, 2027 and 2028, respectively, and requires non-China cells from 2028. Nomura therefore maintains Neutral. The stock trades at 11x 2027F P/E based on EPS of CNY8.78, while Nomura’s CNY120 target price is based on 14x 2027F P/E, 0.2 standard deviations below its historical average of 17x because it expects gross margins to decline over 2026-28F.

Analysis framework

Nomura assesses the first-half revenue, segment, shipment, margin, expense and earnings trends, then tests management’s second-half and regional ESS outlook against policy and power-market drivers. It also considers AIDC product milestones and evaluates how US and EU compliance requirements could affect costs and profitability before applying a forward P/E multiple to derive its target price.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E multiple valuation

  Nomura values Sungrow using 14x 2027F P/E to set a CNY120 target price. The multiple is below the historical average because the report expects gross-margin pressure during 2026-28F.

• Industry AnalysisVolume-price decomposition

  Segment revenue, shipment and gross-margin analysis

  The report separates inverter and ESS revenue, shipment volume and margin changes to show why higher ESS shipments did not prevent lower ESS revenue and profitability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sungrow Power Supply (300274.SZ)

  Primary covered company; positioned to benefit from European ESS growth and longer-term AIDC demand.

  Strengths

  Resilient overall gross margin, rising European sales mix, ESS shipment growth and early AIDC orders.

  Weaknesses

  Revenue and net profit declined sharply in 1H26; ESS gross margin contracted amid lithium-cost pass-through and competition.

  Comparison

  Target P/E of 14x 2027F is 0.2 standard deviations below its historical average of 17x.

  Risks

  ESS policy headwinds and softening utility-scale project demand could impede the target-price outcome.

Key data

• 1H26 revenueCNY30.9bnDown 29.0% year on year
• 1H26 net profitCNY5.3bnDown 32.0% year on year
• 1H26 gross margin35.9%Up 1.6 percentage points year on year
• ESS revenue and shipmentsCNY15.5bn; 25GWhRevenue fell 13.2% year on year while shipments increased 28%
• 2026E European ESS market74GWhManagement raised its estimate from about 60GWh; 2025 market was 37GWh
• AIDC ordersAbout 2GWhMore than a dozen projects are under tracking
• 2027F EPS and trading valuationCNY8.78; 11x P/ENomura cites the current trading multiple

Impact & implications

Nomura sees Europe and AIDC as important offsets to weaker China demand and potential US softness, but considers the benefit tempered by competitive pressure, large-scale ESS-margin risk and higher US/EU compliance costs. Its below-historical target multiple reflects the expected gross-margin decline over 2026-28F.

Risks

• Faster ESS development among data-center clients could create upside to the target-price outcome.
• More stable battery prices could improve gross margins.
• Policy headwinds for the ESS business could impede the target-price outcome.
• Softening utility-scale project demand could impede the target-price outcome.