Sungrow's 2Q26 Revenue Missed Expectations but Margins Improved; Goldman Sachs Cuts Target Price and Maintains Neutral

Overview

The report reviews Sungrow's 2Q26 results and analyzes changes in revenue and margins across its energy storage, solar inverter, solar EPC, and AIDC power businesses. Goldman Sachs believes the improved overseas business mix cushioned the domestic solar downturn, but US regulation, energy storage competition, and slower medium- to long-term growth constrain the risk-reward profile. It therefore lowered its earnings forecasts and target price while maintaining a Neutral rating.

Core views

Sungrow reported its 2Q26 results after the market close on August 28, 2026. Revenue, gross profit, operating profit, and net profit were Rmb15,352mn, Rmb5,928mn, Rmb3,095mn, and Rmb2,967mn, respectively, down 37%, 28%, 33%, and 24% YoY and changing -1%, +15%, +18%, and +30% QoQ; relative to Goldman Sachs' estimates, they were -34%, -19%, -16%, and +6%, respectively. Revenue missed expectations significantly, primarily because the downturn in China's solar industry hurt the domestic solar EPC and inverter businesses, while concentrated recognition of Middle East projects in 1H25 created a high comparison base for energy storage revenue. Middle East sales declined from Rmb5,700mn in 1H25 to Rmb1,100mn in 1H26. Goldman Sachs viewed net profit as broadly in line with expectations because a higher proportion of overseas sales improved inverter and energy storage margins. The overall gross margin was 38.6% in 2Q26, up 5 percentage points both YoY and QoQ and approximately 7 percentage points above Goldman Sachs' estimate. Goldman Sachs' long-term investment thesis continues to recognize Sungrow as a leading global supplier of solar inverters and energy storage systems that can benefit from renewable-energy demand in developed and emerging markets through its product performance, project experience, and sales network. Overseas policy, however, has become a key variable. Management believes the US business currently mainly serves grid-connected renewable-energy projects and could gradually contract over the long term due to tariffs imposed since 2025, supply-chain restrictions under the One Big Beautiful Bill Act, the US Federal Communications Commission's ban on new foreign power inverters, and an executive order restricting foreign-produced equipment for bulk-power systems. The details of the relevant rules have not yet been fully determined. The company expects its existing inverter and energy storage models to remain sellable for several years, while local distributed projects such as behind-the-meter generation and power distribution for data centers face relatively less scrutiny. The company currently has no plans to build a factory in the United States but will seek other means of compliance. Goldman Sachs' model continues to forecast a gradual decline in US energy storage sales during 2026-28. Energy storage sales in 1H26 and 2Q26 were Rmb15,456mn and Rmb6,756mn, respectively, down 13% and 19% YoY, due to the high Middle East base, fluctuations in lithium carbonate prices, and intense competition in utility-scale energy storage. Europe remains a bright spot. Management raised its 2026 industry demand forecast from more than 60GWh to 74GWh and maintained its expectation of an industry CAGR exceeding 50% over the next three years. The energy storage gross margin recovered from 24% in 4Q25 and 30% in 1Q26 to 34% in 2Q26, but the 2H26 margin will still depend on the regional mix and lithium prices. The company expects the gross margin of utility-scale energy storage to decline gradually over the long term due to competition and longer battery duration, although it believes its advantages in technology, product quality, service, and brand can support margins above the industry level. Goldman Sachs forecasts 49% YoY growth in energy storage sales and a 31% gross margin for 2H26, supported in part by a 31% YoY increase in energy storage shipments in 1H26. Given the US risks, the company is redirecting more resources toward distributed energy storage, an area in which it previously underinvested, including residential and commercial and industrial applications. The company has reorganized its teams to shorten decision-making cycles and strengthened its distribution channels. The report believes that, compared with the direct-sales model for utility-scale energy storage, the distribution business is less affected by geopolitical and raw-material price fluctuations and has a more stable margin trajectory. However, its ability to gain market share will still depend on the execution of organizational adjustments and channel investments. Solar inverter revenue declined, but profitability improved. Sales in 1H26 and 2Q26 were Rmb11,161mn and Rmb6,161mn, respectively, down 21% and 25% YoY. Weak domestic solar demand was the main drag, while overseas sales grew moderately. Inverter shipments were 66GW in 1H26, down 13% YoY; domestic shipments fell 45% to 17GW, while overseas shipments rose 9% to 49GW. The rising overseas contribution and relatively moderate global competitive environment lifted gross margins to 47% in 1H26 and an estimated 48% in 2Q26, up 9 and 10 percentage points YoY, respectively. Goldman Sachs expects the segment's sales to decline 18% YoY in 2H26, but its 44% gross margin should still enhance the company's overall profitability. Solar EPC was the business with the most pronounced performance shortfall. Sales in 1H26 and 2Q26 were only Rmb1,258mn and Rmb316mn, respectively, down sharply by 85% and 95% YoY, while the business recorded a net loss of Rmb380mn in 1H26. China's new solar installations fell 66% YoY over the same period, reflecting a severe domestic industry downturn. Goldman Sachs expects the weakness to persist, forecasting a further 87% YoY decline in solar EPC sales in 2H26. The AIDC-related business remains in the incubation stage. Sungrow has secured 2GWh of AIDC energy storage orders, mainly from projects seeking priority access to the grid-connection queue, and has a project pipeline exceeding 10GWh. The company is deepening cooperation on AIDC energy storage applications with several US hyperscale cloud providers and European customers. For solid-state transformers, the company plans to deliver several 10-13.8kV SST units to customers for field testing in 4Q26 and expects other AIDC power products to potentially receive small-batch orders from 4Q26 onward. A 35kV version is scheduled for launch in 1H27, and management expects large-scale SST adoption potentially in 2028-30. Goldman Sachs believes this direction merits monitoring but does not expect it to make a meaningful financial contribution in 2026. Goldman Sachs lowered its 2026-30 net profit forecasts by an average of 3% to reflect the results, the significant contraction in domestic inverter and EPC operations, and the partial offset to margins from the improved overseas mix. The new model forecasts revenue of Rmb76,610.4mn, Rmb84,369.5mn, and Rmb90,950.8mn for 2026E, 2027E, and 2028E, respectively, versus prior forecasts of Rmb86,322.1mn, Rmb97,619.0mn, and Rmb106,604.2mn. Net profit forecasts for the same periods are Rmb10,973.8mn, Rmb11,812.4mn, and Rmb11,944.9mn, with EPS of Rmb5.29, Rmb5.70, and Rmb5.76, versus prior EPS forecasts of Rmb5.27, Rmb5.86, and Rmb5.95. As the assumed 2028-30E EPS CAGR was lowered from 14% to 12%, the target valuation was reduced from 22x to 20x 2027E P/E, and the 12-month target price was lowered from Rmb128.9 to Rmb114.0. Based on the current price of Rmb97.69, the implied upside is 16.7%, but Goldman Sachs views the risk-reward as balanced and maintains its Neutral rating.

Analysis framework

Goldman Sachs first compared 2Q26 revenue, profits, and margins with the prior-year period, the previous quarter, and its own forecasts, then broke down sales volume, regional mix, competition, and cost factors across the energy storage, inverter, EPC, and AIDC businesses. It subsequently assessed the impact of US regulation, European demand, and the shift toward distributed energy storage on medium- to long-term revenue and margins, incorporated these judgments into its 2026-30 earnings model, and adjusted the 2027E P/E multiple and 12-month target price based on the reduced EPS growth outlook.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  12-month target price based on 2027E P/E

  The report derives a 12-month target price of Rmb114.0 using 20x 2027E P/E, versus 22x previously. The valuation multiple was lowered because the expected 2028-30E EPS CAGR declined from 14% to 12%.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Business-by-business analysis of sales, shipments, and gross margins

  The report separately examines sales, shipments, and margins for energy storage, inverters, and EPC, while incorporating changes in domestic and overseas sales volumes to distinguish the differing profit impacts of business contraction and an improved regional mix.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of regional energy storage demand, competitive intensity, and profitability

  The report jointly considers European energy storage demand, demand constraints caused by US regulation, utility-scale energy storage competition, lithium prices, and battery duration to forecast energy storage revenue growth and margin trends.

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  GS Factor Profile

  This framework standardizes and ranks forward sales, EBITDA, and EPS growth; financial return metrics such as ROE, ROCE, and CROCI; and valuation metrics such as P/E, P/B, and EV/EBITDA, converting them into percentiles. The composite metric averages the growth, financial return, and inverse valuation percentiles to provide market and peer context for individual stocks.

• Event-Driven Strategy and Behavioral Finance

  Potential M&A Takeover Probability Score

  Goldman Sachs classifies takeover probability from 1 to 3 based on qualitative and quantitative factors. Sungrow is rated 3, corresponding to a low probability of 0%-15%, so M&A is considered immaterial and is not incorporated into the target price.

Asset mapping & comparison

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

• Sungrow Power Supply (300274.SZ)

  The primary research and rating subject of the report, with businesses spanning solar inverters, energy storage systems, solar EPC, and AIDC power.

  Strengths

  A leading global supplier of solar inverters and energy storage systems, with advantages in product performance, technology, quality, service, brand, project experience, and sales networks; an improved overseas mix can lift margins.

  Weaknesses

  The domestic solar downturn is significantly weighing on inverter and EPC revenue, past investment in distributed energy storage was insufficient, and the US grid-connected business faces regulatory and geopolitical constraints.

  Comparison

  Management believes its advantages in technology, product quality, service, and brand can support utility-scale energy storage margins above the industry level, but the report does not provide specific operating-data comparisons with peer companies.

  Risks

  Potential restrictions in the United States and Europe, global energy storage competition, material costs, the pace of production-footprint diversification, and the commercialization speed of AIDC products could all alter earnings and valuation outcomes.

Key data

• 2Q26 RevenueRmb15,352mnDown 37% YoY and 1% QoQ, 34% below Goldman Sachs' estimate
• 2Q26 Gross ProfitRmb5,928mnDown 28% YoY and up 15% QoQ, 19% below Goldman Sachs' estimate
• 2Q26 Operating ProfitRmb3,095mnDown 33% YoY and up 18% QoQ, 16% below Goldman Sachs' estimate
• 2Q26 Net ProfitRmb2,967mnDown 24% YoY and up 30% QoQ, 6% above Goldman Sachs' estimate
• Overall 2Q26 Gross Margin38.6%Up 5 percentage points both YoY and QoQ, approximately 7 percentage points above Goldman Sachs' estimate
• 1H26/2Q26 Energy Storage SalesRmb15,456mn / Rmb6,756mnDown 13% and 19% YoY, respectively
• European Energy Storage Demand Forecast74GWh in 2026Previously forecast at more than 60GWh; the industry CAGR over the next three years is still expected to exceed 50%
• 2Q26 Energy Storage Gross Margin34%Versus 24% in 4Q25 and 30% in 1Q26
• 2H26 Energy Storage ForecastSales +49% YoY, gross margin 31%1H26 energy storage shipments increased 31% YoY
• 1H26 Inverter Shipments66GWDown 13% YoY; domestic shipments were 17GW, down 45% YoY, while overseas shipments were 49GW, up 9% YoY
• 1H26/2Q26 Inverter Gross Margin47% / 48%Up 9 and 10 percentage points YoY, respectively
• 1H26/2Q26 Solar EPC SalesRmb1,258mn / Rmb316mnDown 85% and 95% YoY, respectively; 1H26 net loss was Rmb380mn
• AIDC Energy Storage Orders and Pipeline2GWh of orders; pipeline exceeding 10GWhThe company is advancing applications with US hyperscale cloud providers and European customers
• SST Commercialization Timeline4Q26 testing; 35kV version launch in 1H27; potential large-scale adoption in 2028-30ESeveral 10-13.8kV SST units are scheduled for delivery for field testing in 4Q26
• Earnings Forecast Revision2026-30E net profit lowered by an average of 3%Contraction in the domestic solar business, partly offset by margin improvement from a better overseas mix
• Target Price and ValuationRmb114.0; 20x 2027E P/EPreviously Rmb128.9 and 22x 2027E P/E
• 2028-30E EPS CAGR12%Previously 14%
• Market Capitalization and Enterprise ValueRmb202.5bn / Rmb177.0bnEquivalent to $30.1bn and $26.3bn, respectively
• 3-Month Average Daily Trading ValueRmb8.5bn / $1.3bnKey data basis used in the report
• M&A Rating3Corresponds to a low takeover probability of 0%-15% and is not incorporated into the target price

Impact & implications

The report believes near-term revenue pressure is concentrated primarily in domestic solar inverters and EPC, while the rising overseas contribution is improving the company's overall earnings quality. European energy storage, distributed energy storage, and AIDC offer avenues for growth, but the US grid-connected business may contract over the long term, and utility-scale energy storage margins also face competitive downward pressure. These factors led Goldman Sachs to lower its medium- to long-term growth expectations and valuation multiple. At the same time, it continues to believe the company has above-industry competitiveness in technology, service, brand, and global channels, ultimately maintaining a Neutral view based on balanced risk-reward.

Risks

• US tariffs, supply-chain restrictions, the ban on foreign power inverters, and executive restrictions on bulk-power system equipment could cause the US grid-connected energy storage and inverter businesses to contract over the long term.
• Potential US and European restrictions on Chinese solar and battery inverters increase uncertainty for the overseas business.
• The pace at which raw-material cost inflation persists or eases could cause margins to deviate from the report's assumptions.
• Production-footprint diversification proceeding faster or slower than expected could alter the company's ability to mitigate tariffs and affect operating results.
• Intensifying or easing competition in the global energy storage industry will affect sales growth and utility-scale energy storage margins.
• Fluctuations in the regional sales mix and lithium carbonate prices limit visibility into 2H26 energy storage margins.
• Commercialization of AIDC power and related energy storage products proceeding faster or slower than expected could create upside or downside risk to the target price.

What to watch

• Monitor the final details of relevant US regulations, the company's compliance plans, and the path of declining US energy storage sales forecast by Goldman Sachs for 2026-28.
• Monitor whether European energy storage demand can reach management's raised forecast of 74GWh in 2026 and whether the industry CAGR of more than 50% over the next three years can be achieved.
• Track the forecast of 49% YoY growth in 2H26 energy storage sales and a 31% gross margin, particularly changes in the regional mix, lithium prices, and competition.
• Observe the restructuring of the distributed energy storage team, increased channel resources, and progress in gaining market share in residential and commercial and industrial markets.
• Track whether domestic new solar installations, inverter demand, and EPC sales continue the severe contraction forecast in the report.
• Monitor field testing of 10-13.8kV SSTs and small-batch orders in 4Q26, the launch of the 35kV product in 1H27, and progress toward large-scale adoption in 2028-30.
• Observe whether growth in overseas inverter shipments and high margins can continue to offset weakness in the domestic business.