Report Interpretation

Overview

This quick note reviews Sungrow Power Supply’s 1H26 results, management’s ESS and AIDC outlook, and rising US/EU compliance requirements. Nomura maintains a Neutral rating and a CNY120 target price.

Core views

Sungrow’s 1H26 revenue fell 29.0% year-on-year to CNY30.9bn. Nomura attributes the decline primarily to softer Chinese solar-installation demand following Document 136-driven weakness—72GW in 1H26 versus 212GW in 1H25 according to NEA data—and to a demanding comparison against last year’s Saudi mega-project contribution. These factors outweighed 8% growth in overseas solar installations and more than 30% growth in global ESS installations. Inverters generated CNY12.4bn of revenue, down 19.2%, while ESS revenue declined 13.2% to CNY15.5bn even as ESS shipments rose 28% to 25GWh. Margins proved more resilient than revenue. Group gross margin rose 1.6 percentage points to 35.9%, helped by a smaller share of low-margin development revenue and a higher European mix within inverter and ESS sales. Inverter gross margin increased 7.0 percentage points to 42.7%; however, ESS gross margin fell 7.5 percentage points to 32.4% because of lithium-cost pass-through and intensifying competition. The operating-expense ratio rose 4.2 percentage points to 16.1%, as absolute operating expenses declined only 3.7% and R&D spending still increased 2.9%. Against the lower gross-profit base, net profit dropped 32.0% to CNY5.3bn and basic EPS declined 31.4% to CNY2.56, partly cushioned by CNY0.4bn lower asset impairments. Management expects ESS volume to be materially back-end loaded: 2H26E shipments should exceed 60% of full-year volume, versus below 40% in 1H26. It raised its 2026E European ESS market estimate to 74GWh from about 60GWh, nearly double the 37GWh recorded in 2025, citing the EU’s 200GW-by-2030 storage target and widening peak-trough spreads in Poland, Germany and Spain. Management expects the European market to exceed 100GWh in 2027E, with growth above 50% year-on-year. It expects inverter gross margin to remain broadly stable, while large-scale ESS gross margin is likely to decline over the long term because of regional revenue-recognition mix and lagged lithium-carbonate pass-through. AIDC is presented as a longer-term growth avenue. Management said SST products have already shipped to operating data centers; 13.8/10kV products are entering commissioning, with first orders expected from 4Q26E. It expects 35kV R&D to complete by 1H27E and mass delivery during 2028-30E. AIDC orders already total about 2GWh, with more than a dozen projects being tracked, and management sees more than 100% CAGR for AIDC-related business in 2027-28E. In the US, Sungrow is shifting toward distributed and distribution-grid business, without local manufacturing plans for now, and expects distributed and non-US markets to offset any US slowdown. Nomura sees policy and market-access compliance as a new structural cost line. It notes that a 27 August US executive order moved to restrict procurement and installation of certain foreign-made bulk-power-system equipment, pending detailed Department of Energy rules. Management said the FCC’s early-August clarification excludes pure AC/DC conversion, including AIDC SST power supplies, from FCC scope, although local communications functions are newly covered. It also said current ESS business remains within the OBBBA safe harbor and legacy inverter/PCS models have several years of runway. Nomura’s view is that access to US and EU markets may be retained for certain products, but re-certification, component re-sourcing, software and data localization, and hardware/software bill-of-materials documentation will raise costs. In Europe, it cites Polish production costs 12-18% above China, narrowing to 4-5% after low-interest financing; local-content thresholds of 40%, 60% and 70% for 2026, 2027 and 2028 under the Net-Zero Industry Act; and a requirement for non-China cells from 2028. Nomura maintains its Neutral rating. The stock traded at 11x 2027F P/E based on CNY8.78 of 2027F EPS. Its CNY120 target price is based on 14x 2027F P/E, 0.2 standard deviations below the historical average of 17x, reflecting expected declining gross margins in 2026-28F.

Analysis framework

Nomura links the earnings decline to demand conditions and project-base effects, then separates revenue and shipment trends by inverter and ESS businesses. It explains margin changes through product and regional mix, costs and competition; incorporates management’s shipment, market-size and AIDC roadmap guidance; and assesses regulatory requirements as a structural cost and market-access issue. The target price uses a forward P/E multiple applied to 2027F earnings.

Methodology notes

• Industry AnalysisSupply-demand framework

  Solar-installation demand, ESS installation growth and regional market-size outlook

  The report explains revenue and shipment trends through Chinese solar demand, overseas installation growth, European ESS demand and project comparisons.

• Industry AnalysisVolume-price decomposition

  ESS shipment growth versus revenue and gross-margin changes

  The report distinguishes physical ESS shipment growth from revenue growth and explains profitability through mix, lithium-cost pass-through and competition.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  Nomura values Sungrow at 14x 2027F P/E to derive the CNY120 target price, referencing its historical 17x average.

Asset mapping & comparison

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

• Sungrow Power Supply (300274.SZ; 300274 CH)

  Primary covered company; its earnings are exposed to solar inverter and ESS demand, margins and regulatory market-access costs.

  Strengths

  Higher European mix supported 1H26 gross margin; management expects strong European ESS demand and sees AIDC as a new growth engine.

  Weaknesses

  1H26 revenue and profit declined sharply; large-scale ESS gross margin is expected to decline over the long term.

  Comparison

  European ESS market is estimated at 74GWh in 2026E versus 37GWh in 2025.

  Risks

  Policy headwinds for ESS business and softening utility-scale project demand.

Key data

• 1H26 revenueCNY30.9bnDown 29.0% year-on-year.
• 1H26 net profitCNY5.3bnDown 32.0% year-on-year.
• 1H26 basic EPSCNY2.56Down 31.4% year-on-year.
• Group gross margin35.9%Up 1.6 percentage points year-on-year.
• ESS revenue and shipmentsCNY15.5bn; 25GWhRevenue down 13.2% year-on-year while shipments rose 28%.
• 2026E European ESS market74GWhRaised from about 60GWh; compared with 37GWh in 2025.
• 2027F EPS and valuationCNY8.78; 11x P/EThe stock was trading at 11x 2027F P/E.

Impact & implications

The report argues that European ESS growth and the AIDC opportunity can support Sungrow’s medium- and long-term growth, while near-term earnings remain constrained by weak Chinese demand, a tougher project comparison and declining large-scale ESS margins. Compliance requirements may preserve access for certain products but increase the structural cost base in the US and Europe.

Risks

• Policy headwinds could impede the ESS business.
• Softening utility-scale project demand could impede achievement of the target price.
• Large-scale ESS gross margin may decline over the long term due to regional revenue-recognition mix and lagged lithium-carbonate pass-through.

What to watch

• Whether 2H26E ESS shipments exceed 60% of full-year volume.
• European ESS demand progression toward management’s 74GWh 2026E and over-100GWh 2027E market outlook.
• AIDC SST commissioning, expected first orders from 4Q26E, 35kV R&D completion by 1H27E and the 2028-30E mass-delivery timetable.
• Detailed US Department of Energy rules and the cost impact of US and EU compliance requirements.