Limited disruption from rumors of a U.S. inverter ban; Nomura maintains Neutral on Sungrow

Overview

This report is Nomura's event commentary on Sungrow, with the core background being that the U.S. may draft an import ban on foreign energy inverters based on grid security concerns. The company subsequently held an analyst call to respond to policy disruptions, the global ESS demand outlook, and the upcoming SST product launch. Overall, Nomura believes the policy news needs to be monitored, but the additional damage to fundamentals is limited, and it maintains a Neutral rating and CNY120 target price.

Core views

The core views include three points: first, if implemented, a U.S. inverter ban could create policy pressure, but the proposal may still be revised or shelved at this stage, and Nomura believes the incremental impact on Sungrow's fundamentals is limited; second, ESS demand has been revised up, with Europe's three-year CAGR potentially raised from about 50% to about 60%, and data center energy storage volume growth in 2027-2028F is expected to continue driving earnings growth; third, management defines SST as a controllable and programmable digital power platform that could cover scenarios including data centers, charging piles, PCS, photovoltaics, wind power, DC microgrids, and hydrogen energy, making it a potential second growth curve.

Analysis framework

The report adopts an event-driven analysis combined with the company conference call: it first assesses the policy scope and implementation uncertainty of Reuters' report on rumors of a U.S. inverter ban, then cites management's comments on safe-harbour, PFE, kill-switch rumors, ESS demand, capacity delivery, and SST products, and finally maintains its target price judgment through a P/E valuation framework.

Methodology notes

• Valuation methodP/E valuation

  The target price is based on 16x 2026F P/E

  Nomura uses the P/E method for valuation. The CNY120 target price corresponds to 16x 2026F P/E, close to the historical average of 17x; ESS sales growth provides support, but declining gross margins constrain valuation.

• Event trackingPolicy scenario analysis

  Track the final scope of the FCC rule

  The report emphasizes the need to continue tracking the final scope of the U.S. FCC's inverter restrictions and whether the rule will threaten U.S. data center ESS/AIDC growth opportunities.

• Fundamental analysisManagement call verification

  Verify demand, policy, and new product progress through the company call

  The report cites management's comments on ESS demand upgrades, delivery cycles, overseas capacity, SST launch timing, and R&D barriers as the main basis for judging medium-term growth drivers.

Asset mapping & comparison

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

• Sungrow Power Supply（300274.SZ）

  Research target

  Strengths

  Upward revisions to ESS demand, relatively fast domestic and overseas delivery cycles, capacity in Thailand and Poland supporting global shipments, and the SST platform offering a potential second growth curve.

  Weaknesses

  The implied upside based on the target price is negative, and the current valuation of about 19x 2026F P/E is higher than the 16x 2026F P/E implied by the target price.

  Comparison

  Nomura's target multiple of 16x 2026F P/E is roughly close to the company's historical average of 17x, but it does not assign a higher valuation because of declining gross margins.

  Risks

  U.S. policy headwinds, policy risks in the ESS business, weaker utility-scale project demand, declining gross margins, and slower-than-expected SST adoption progress.

• Energy Storage System (ESS) business

  Core growth driver

  Strengths

  Global ESS demand has been revised up, Europe's three-year CAGR may be about 60%, long-duration storage capacity is rising from 4 hours to 8 hours, and data center energy storage is expected to ramp up in 2027-2028F.

  Weaknesses

  The business remains affected by fluctuations in policy, lithium prices, gross margins, and demand for large-scale storage projects.

  Comparison

  Compared with traditional PV inverters, ESS benefits more directly from growth in long-duration storage and data center power demand.

  Risks

  If U.S. inverter or grid security rules expand to data center ESS/AIDC scenarios, growth expectations may weaken.

• SST platform

  Potential second growth curve

  Strengths

  The same technology stack can be reused across multiple vertical scenarios such as data centers, charging piles, PCS, photovoltaics, wind power, DC microgrids, and hydrogen energy; management believes its potential to replace traditional transformers is similar to EVs replacing fuel vehicles.

  Weaknesses

  Commercialization is still at an early stage; the 10kV product is only planned for launch, and the 35kV version is still under development.

  Comparison

  Compared with traditional transformers, SST is described as a controllable and programmable digital power source.

  Risks

  The actual pace of industry adoption, mass-production capability, customer validation, and the competitive landscape still need to be observed.

Key data

• RatingNeutralThe rating is maintained this time.
• Target priceCNY 120.00Maintained unchanged, based on 16x 2026F P/E.
• Closing priceCNY 136.92The price date is July 1, 2026.
• Implied upside-12.4%Calculated based on the target price of CNY120.00 and the closing price of CNY136.92.
• Current valuation19x 2026F P/EThe report states that the stock is currently trading at about 19x 2026F P/E.
• Europe ESS three-year CAGRabout 60%Management said it could be raised by about 10 percentage points from about 50% to about 60%.
• Delivery cycleas fast as about 2 months domestically, about 2-3 months overseasManagement emphasized its speed advantage from contract signing to delivery.
• PFE ruleThe share of non-China components rises to 75% over timeManagement said that after the revision of the PFE rule, shareholder identity is no longer reviewed, and the integration business has not been hindered.
• Timing of new SST product2026-07-09The industry's first commercial 10kV SST is planned for release, while the 35kV version is still under development.
• SST R&D barriersR&D team of more than 300 people, with 5 consecutive years of investmentManagement said mass production requires a large R&D scale and sustained investment, and there are few domestic competitors with similar investment.

Impact & implications

For investors, the key short-term variable is the final wording and scope of application of U.S. inverter policy; if restrictions apply only to new foreign models and do not expand to the core ESS growth chain, the impact on Sungrow's fundamentals may be limited. In the medium term, upward revisions to ESS demand, support from overseas capacity, and ramp-up in data center energy storage will help earnings growth; in the long term, if SST can be successfully commercialized and deployed across multiple scenarios, it may become the company's second growth curve. However, because the target price is below the current share price, Nomura still maintains a neutral view.

Risks

• Policy restrictions by the U.S. or other regions on Chinese inverters, ESS, or grid equipment exceed expectations.
• The FCC's final rule scope expands and affects U.S. data center ESS/AIDC growth opportunities.
• The ESS business faces policy headwinds.
• Demand for utility-scale projects weakens.
• Unfavorable changes in battery prices or gross margins put pressure on earnings and valuation.
• After launch, SST product performance, mass production, or industry adoption progress falls short of expectations.

What to watch

• The final scope, release timing, and exemption mechanism of the U.S. FCC's restrictive rules on foreign energy inverters.
• Whether U.S. rules affect Sungrow's growth opportunities in data center ESS/AIDC.
• Whether the safe-harbour policy is extended to 1H28 as management expects.
• Implementation details after the revision of the PFE rule, especially the pace at which the share of non-China components rises to 75%.
• Performance feedback, order validation, and customer adoption progress after the 10kV SST launch on July 9, 2026.
• Development progress of the 35kV SST version.
• The pace of European ESS demand, lithium prices, long-duration storage capacity, and data center energy storage ramp-up.
• The extent to which capacity in Thailand and Poland supports global shipments.