FCC restrictions weigh on imports of new models in the United States, but JPMorgan believes Sungrow's valuation reflects the major downside risks

Overview

This report provides an event-driven assessment of the U.S. FCC's restrictions on imports of new Chinese connected power inverters and evaluates the impact on Sungrow - A's medium-term earnings, valuation, and investment rating. JPMorgan believes the policy covers inverters and ESS PCS, including utility-scale and off-grid/behind-the-meter applications, making it more stringent than the market expected and therefore a negative event. However, the restrictions had already been anticipated in the news, and Sungrow's share price has significantly underperformed, so current valuation partly reflects U.S. market risks.

Core views

The core view is that the policy is negative but already priced in. The report estimates that the U.S. market contributed approximately 20% to 25% of Sungrow's 2025 gross profit, and that a complete exit from the United States in an extreme scenario could result in an approximately 20% to 25% earnings reduction. At the same time, JPMorgan believes existing FCC-authorized models can continue to be sold in the short term, meaning the actual earnings impact may be delayed by several years; the company continues to benefit from strong growth in non-U.S. energy-storage markets. Based on a 12x FY27E P/E, approximately 15x FY27E P/E excluding U.S. exposure, and non-U.S. ESS demand growth, the report maintains its Overweight rating.

Analysis framework

The report combines event-impact analysis, assessment of policy applicability, scenario-based earnings sensitivity estimates, and valuation comparisons. It first identifies the coverage of the FCC rules across new models, inverters, ESS PCS, and different application scenarios; it then assesses the impact of the definition of 'remote connectivity' and conditional approval pathways on Sungrow's products; next, it estimates potential earnings downside using the U.S. market's share of gross profit; finally, it evaluates risk-reward based on share-price relative performance, FY27E P/E, and non-U.S. ESS growth.

Methodology notes

• Valuation methodsSOTP

  Segment valuation

  The report states that SOTP valuation is applied to different business segments. The December 2026 target price of Rmb212 corresponds to a 12-month forward target P/E of 23.0x, with the target multiple 0.1 standard deviation below the historical average.

• Scenario analysisPolicy-impact sensitivity analysis

  U.S. market exit scenario

  Based on the U.S. market accounting for approximately 20% to 25% of 2025 gross profit, the report estimates that earnings could decline by approximately 20% to 25% if Sungrow completely exited the U.S. market and adjusted its cost structure.

• Policy analysisAssessment of regulatory applicability

  FCC import restrictions and the definition of remote connectivity

  The report focuses on the FCC's restrictions on imports of new Chinese inverters and ESS PCS, and whether 'remote connectivity' is broad enough to cover Sungrow's new models; this legal interpretation will determine whether the new models can continue to be sold in the United States.

Asset mapping & comparison

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

• Sungrow - A (300274.SZ)

  Core covered company directly affected by FCC restrictions

  Strengths

  One of the world's largest solar-inverter producers, with approximately 30% of FY24 production volume; cost advantages, product quality, and brand recognition; benefits from utility-scale and data-center energy-storage demand.

  Weaknesses

  The U.S. market contributes a relatively high share, accounting for approximately 20% to 25% of 2025 gross profit; new models may face FCC authorization restrictions.

  Comparison

  Compared with some domestic peers, the report believes Sungrow has stronger product quality and brand advantages; however, Deye is considered a purer play on emerging-market distributed-generation ESS growth.

  Risks

  Expansion of the scope of U.S. restrictions, an unfavorable definition of remote connectivity, a complete U.S. exit, solar/ESS installations below expectations, weaker-than-expected pricing and gross margins, and intensifying domestic competition.

• Deye - A (605117.SS)

  Peer comparison and alternative investment focus

  Strengths

  The report describes it as having purer exposure to emerging-market distributed-generation ESS growth.

  Weaknesses

  The report does not elaborate on Deye's specific operating weaknesses.

  Comparison

  Among Chinese ESS integrators, Deye is less affected than Sungrow by the theme of U.S. inverter import restrictions.

  Risks

  It may likewise face industry installation, pricing, gross-margin, and competitive risks.

Key data

• Current ratingOverweightJPMorgan maintains the rating.
• Current priceRmb112.08As of July 28, 2026.
• Target priceRmb212.00December 2026 target price.
• Implied upsideApproximately 89.2%Calculated based on the Rmb212.00 target price and Rmb112.08 current price.
• U.S. market gross-profit contributionApproximately 20% to 25%JPMorgan estimates that the U.S. market accounts for approximately this share of Sungrow's 2025 gross profit.
• Earnings downside in an extreme U.S. exit scenarioApproximately 20% to 25%Assumes Sungrow completely exits the U.S. market and adjusts operating costs.
• ValuationApproximately 12x FY27E P/ECurrent trading valuation.
• Valuation excluding U.S. exposureApproximately 15x FY27E P/EThe report believes this still compensates for the risk.
• Non-U.S. ESS installation growthApproximately 40% CAGRAssumed growth in non-U.S. ESS installation TAM from 2026 to 2027.
• Global inverter shareApproximately 30%Based on FY24 production volume, Sungrow is the world's largest solar-inverter producer.

Impact & implications

In the short term, the market may continue to focus on the details of the FCC rules and their impact on new-model imports into the United States; in the medium term, if the definition of 'remote connectivity' is broad, sales of Sungrow's new inverters and ESS PCS in the United States may be restricted, creating downside risk to earnings. From an investment perspective, the report believes that downside risks are already largely reflected in the share price and valuation, so it maintains OW, although the potential for valuation re-rating driven by the AIDC ESS theme is constrained. By comparison, Deye is viewed as a purer emerging-market distributed-generation ESS growth play among Chinese ESS integrators.

Risks

• If the FCC's legal interpretation of 'remote connectivity' covers Sungrow's new models, the relevant products may no longer be sold in the United States.
• Conditional approval requires detailed disclosure of the company's structure, supply chain, U.S. manufacturing, and localization plans, so the application threshold may be high.
• A complete exit from the U.S. market could expose Sungrow to approximately 20% to 25% downside risk to earnings.
• Solar and ESS installation growth falls below expectations.
• Pricing and gross-margin performance is weaker than expected.
• Competition from domestic manufacturers weakens the company's profitability.
• Policy uncertainty limits the potential for valuation re-rating from the AIDC ESS theme.

What to watch

• The FCC's final rules and implementation details, particularly the definition of 'remote connectivity.'
• Whether existing FCC-authorized models can continue to be sold and the feasibility of obtaining authorization for new models.
• Whether Sungrow applies for DoW or DHS conditional approval and whether it can submit the required U.S. manufacturing and supply-chain disclosure plan.
• U.S. market orders, gross-profit contribution, and the pace of cost adjustments.
• Whether non-U.S. ESS installation demand achieves approximately 40% CAGR in 2026-2027.
• Whether growth in data-center and utility-scale energy-storage orders can offset the impact of U.S. policy.
• Whether Sungrow's share-price performance relative to the Shanghai Composite and peers continues to reflect policy risks.