Sungrow 4Q25 margins came under significant pressure; Goldman Sachs maintains Neutral

Overview

This report is Goldman Sachs' commentary on Sungrow's FY25/4Q25 results. The company's 4Q25 results were significantly below Goldman Sachs' expectations, with the key issues being margin compression in the energy storage business, delayed recognition of high-margin overseas revenue, rising lithium carbonate costs, and the drag from expenses and year-end settlement items on profitability. Even so, cash flow remained strong, the target for global energy storage shipment growth remains aggressive, and AIDC power and storage applications are viewed as a medium- to long-term watch item.

Core views

Goldman Sachs maintains a Neutral rating, believing the risk-reward is broadly balanced. Negative factors include intensifying competition in China and overseas energy storage, a roughly 6-month lag in passing through raw material price increases, near-term ESS gross margin pressure, and higher SG&A expenses to support long-term growth. Positive factors include the company's technology, delivery and service capabilities in global PV inverters and energy storage systems, a strong overseas customer base, and its proactive decision to give up low-margin domestic projects to protect earnings quality.

Analysis framework

The report uses an earnings variance analysis, segment margin decomposition, energy storage shipment and regional demand outlooks, commercialization tracking for new AIDC applications, and a P/E-based target price methodology. Goldman Sachs also compares actual 4Q25 revenue, gross profit, EBIT and net profit against its original forecasts and accordingly cuts its 2025E-30E earnings estimates.

Methodology notes

• Valuation methodP/E target price method

  22x 2027E P/E discounted back to 2026E

  The 12-month target price of Rmb150.0 is based on 22x 2027E P/E and discounted back to 2026E using an 11% cost of equity.

• Factor frameworkGS Factor Profile

  Growth, financial returns, valuation multiples and composite percentile

  Goldman Sachs compares the stock with the market and peers on a percentile basis using forward sales, EBITDA, EPS growth, ROE, ROCE, CROCI, and valuation metrics such as P/E, P/B and EV/EBITDA.

• Event frameworkM&A Rank

  M&A probability score

  The company's M&A Rank is 3, indicating a low probability of takeover and typically excluded from the target price.

Asset mapping & comparison

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

• 300274.SZ

  Core coverage name

  Strengths

  A global leader in PV inverters and energy storage systems, recognized by overseas customers for its technology, delivery record and long-term service capabilities, with strong cash flow.

  Weaknesses

  4Q25 margins fell sharply, and energy storage gross margin was pressured by delayed recognition of overseas revenue, higher lithium carbonate costs and price competition.

  Comparison

  Relative to other clean energy companies in the coverage universe, Goldman Sachs views the risk-reward as broadly balanced and therefore maintains Neutral.

  Risks

  Intensifying global energy storage competition, continued raw material cost increases, lagged cost pass-through, rising expenses and AIDC commercialization falling short of expectations.

• Energy storage systems business

  Primary earnings and growth driver

  Strengths

  Global shipments reached 43GWh in 2025, with a high overseas mix; the company targets 40%-50% shipment growth in 2026.

  Weaknesses

  4Q25 ESS gross margin fell 17 percentage points sequentially to 24%, and 2026E gross margin is expected to decline to 32.8%.

  Comparison

  Europe and Asia Pacific ex-China are expected to grow the fastest, at 80%-90%; the Americas are expected to grow 20%-30%; China is expected to post positive growth.

  Risks

  Domestic price competition spilling over globally, more new competitors entering the market, and raw material cost increases that cannot be fully passed on to end customers in the short term.

• AIDC power and energy storage applications

  Medium- to long-term optional growth avenue

  Strengths

  The company is developing medium-voltage SSTs, high-density modular power supplies and DC backup power products, and is advancing product architecture definitions with global cloud service providers, AI computing companies and domestic internet companies.

  Weaknesses

  Still at the R&D and sample-delivery stage, with no meaningful financial contribution expected in 2026E.

  Comparison

  Application scenarios include PV-plus-storage generation, backup power, load smoothing, energy arbitrage and grid-access optimization.

  Risks

  The timing of product launches, small-scale deliveries and the 2H27 mass-production ramp may be earlier or later than expected.

• PV inverters and PV EPC

  Traditional business segment

  Strengths

  In 2025, inverter sales grew 3% YoY and gross margin improved by 5 percentage points YoY, benefiting from new products and a higher overseas mix.

  Weaknesses

  In 2025, PV EPC sales fell 21% YoY, weighed by weaker demand for residential PV in China.

  Comparison

  Goldman Sachs expects inverter sales to grow 3% in 2026E and PV EPC sales to decline 20%.

  Risks

  Weak Chinese PV demand could continue to drag on the EPC business, and changes in the mix of low-margin EPC revenue may also affect overall operating margin.

Key data

• 4Q25 revenueRmb22,782mnDown 18% YoY and 25% below Goldman Sachs' estimate.
• 4Q25 net profitRmb1,580mnDown 54% YoY and 61% below Goldman Sachs' estimate.
• 4Q25 gross margin / operating margin / net margin23%/8%/7%Down 5/9/5 percentage points YoY, and 7/9/7 percentage points below Goldman Sachs' estimate.
• 4Q25 operating cash flowRmb7,004mnEquivalent to more than 400% of 4Q25 net profit.
• 2025 global ESS shipments43GWhOf which 36GWh were overseas and 7GWh were domestic.
• 2026E ESS shipment forecast60GWhGoldman Sachs expects 40% YoY growth, while the company's target is 40%-50%.
• 2026E ESS gross margin forecast32.8%Below 2025's 36.5%, reflecting cost inflation and industry competition.
• Target priceRmb150.0Cut from the previous Rmb157.3.

Impact & implications

The near-term impact of the report on Sungrow is cautious: 4Q25 results below expectations and margin compression may weigh on earnings expectations and valuation upside. In the longer term, however, the company still benefits from global energy storage installation growth, overseas customer recognition, product and delivery capabilities, and potential new application scenarios for AIDC power systems. The current Neutral rating indicates that Goldman Sachs sees growth opportunities broadly balanced against margin, competition and cost risks.

Risks

• Sustained raw material cost inflation or a slower-than-expected easing.
• Uncertainty over the pace and magnitude of either intensifying or easing global ESS competition.
• The pace of the company's capacity expansion and production layout diversification may be faster or slower than expected.
• The commercialization schedule for AIDC power and related storage products may be faster or slower than expected.
• Delayed recognition of revenue from high-margin overseas projects may continue to affect quarterly margins.
• The pass-through of costs such as lithium carbonate lags by about 6 months, making it difficult to fully pass them on to end customers in the short term.

What to watch

• Whether 2026 ESS shipments can meet the company's 40%-50% target and Goldman Sachs' 60GWh forecast.
• Whether ESS gross margin recovers from the 4Q25 low and remains around 32.8% in 2026E.
• Differences in shipment growth across Europe, Asia Pacific ex-China, the Americas, China, and the Middle East and Africa.
• Lithium carbonate cost trends and the effectiveness of cell suppliers' price locking.
• The recovery pace of revenue recognition for high-margin overseas projects.
• The initial launch and small-scale delivery progress of AIDC-related SST, high-density modular power supplies and DC backup power products before the end of 2026.
• Whether the company continues to give up low-margin domestic projects and the impact of that strategy on revenue growth and margins.