FCC Covered List may restrict Sungrow's US growth; Nomura maintains Neutral rating

Overview

This report focuses on the impact of the US FCC adding foreign-manufactured power inverters to the Covered List on Sungrow's US business growth, product certification, overseas capacity strategy, and long-term margins. Nomura believes Sungrow's inverter and storage PCS products may fall within the regulatory scope. While existing certifications may cushion 2026F, the freezing of the new-model pipeline from 2027F onward, replacement of non-China components, and rising software/data localization costs will weaken competitiveness.

Core views

The core views are: first, the FCC rule's scope may cover Sungrow's major inverters and hybrid battery storage PCS; second, the Buy American "domestic end product" test means third-country capacity cannot naturally circumvent the restrictions; third, the freezing of certification channels for new models will gradually age products in the US market; fourth, compliance requirements such as non-China hardware substitution, US cloud deployment, and source code audits will raise costs and compress long-term margins.

Analysis framework

The report uses a combination of policy-rule interpretation, product-definition mapping, certification-path judgment, capacity-strategy assessment, and a P/E valuation framework, with a focus on analyzing the impact of the FCC Covered List on the company's US growth curve, the narrative around storage as a second growth curve, and 2027/28F earnings forecasts.

Methodology notes

• Valuation methodP/E multiple valuation

  14x 2027F P/E

  Nomura uses the P/E method for valuation. The CNY120 target price is based on 14x 2027F P/E, about -0.2 standard deviations below the historical average of 17x, with the discount reflecting gross margin pressure in 2026-28F.

• Policy impact analysisFCC Covered List scope mapping

  Two defining criteria for power inverters

  The report maps the FCC's two defining conditions for inverters to Sungrow's products: equipment that converts DC/AC bidirectionally, and products with remote communication, control, sensing, data collection, or monitoring functions such as Wi-Fi, cellular, or Bluetooth.

• Relative rating systemNomura equity rating system

  Neutral

  Neutral indicates that the analyst expects the stock to perform broadly in line with the benchmark over the next 12 months; the benchmark index in this report is the CSI300.

Asset mapping & comparison

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

• Sungrow Power Supply 300274.SS

  Research target, the company's A-share stock

  Strengths

  The company is a leading Chinese supplier of power control systems and energy storage, with major products including PV inverters, energy storage equipment, and solar EPC; it also has ESG thematic exposure and benefits from renewable power generation.

  Weaknesses

  The US FCC Covered List may restrict its foreign-manufactured inverters and storage PCS from entering the US market, while the freezing of certification pathways for new models will weaken product competitiveness.

  Comparison

  The target price implies 14x 2027F P/E, below the historical average of 17x; the stock currently trades at about 12x 2027F P/E, carries a Neutral rating, and is expected to perform broadly in line with the CSI300.

  Risks

  Policy headwinds, restricted US certification, third-country capacity failing to meet Buy America tests, rising costs for non-China component substitution and localized compliance, and declining gross margins.

Key data

• RatingNeutralMaintained unchanged.
• Target priceCNY120.00Maintained unchanged, based on 14x 2027F P/E.
• Closing priceCNY106.55As of July 29, 2026.
• Implied upside+12.6%Calculated from the target price and current price.
• 2027F EPSCNY8.78Cut from CNY9.13.
• 2028F EPSCNY10.41Cut from CNY11.20.
• Current valuation12x 2027F P/EThe report states the stock is currently trading at about 12x 2027F P/E.
• Market capUSD32,631.8mnDisclosed in the report's key data table.
• ADTUSD1,629.4mnDisclosed in the report's key data table.

Impact & implications

From an investment perspective, the rating was not downgraded in the short term, indicating that 2026F still has some cushion; however, the earnings downgrade and the valuation basis shifting to 2027F reflect Nomura's greater focus on medium- to long-term structural pressure. If new US models cannot be certified, third-country capacity cannot meet Buy America tests, and the classification risk for EnerNeo SST materializes, the company's US growth and storage growth narrative may weaken. At the same time, non-China component substitution, US cloud deployment, and code audits will increase expenses and compress margins.

Risks

• After the FCC Covered List brings foreign-manufactured inverters into scope, Sungrow's certification of new products and sales growth in the US may be constrained.
• Third-country capacity may fail the Buy American domestic end product test, creating impairment risk for the overseas capacity strategy.
• EnerNeo SST may be deemed an AC-to-DC conversion device and satisfy the two defining criteria; if US certification and grid-connection testing are delayed until mid-2028, the narrative around a second growth driver will weaken.
• Non-China component redesign, US-hosted cloud, and source code audits may increase costs and expenses, compressing long-term margins.
• Stripped-down products without connectivity features may weaken product competitiveness.
• Upside risks to the target price include faster-than-expected ESS development among data center customers and margin improvement driven by stable battery prices.
• Downside risks include policy headwinds for the ESS business and weakening demand for utility-scale projects.

What to watch

• Follow-up implementation details of the FCC Covered List and the outcome of Conditional Approval.
• Sales and delivery of Sungrow's existing certified products in the US.
• Whether certification pathways for new inverter and storage PCS models in the US are restored or alternative solutions emerge.
• Whether third-country capacity can pass the Buy America domestic end product test.
• Progress on the classification, certification, and grid-connection testing of EnerNeo SST in the US.
• The impact of non-China component substitution, US cloud deployment, data localization, and source code audits on cost ratios.
• Whether 2027/28F EPS continues to be revised down, and whether gross margins decline in line with the report's assumptions.