Sungrow Power Supply Co. (300274) Report Interpretation

Overview

This earnings review examines Sungrow’s 2Q26 miss, its changing regional and business mix, and the implications for forecasts and valuation. Goldman Sachs keeps a Neutral rating after lowering earnings estimates and its target price, citing balanced risks and opportunities.

Core views

Sungrow’s 2Q26 revenue, gross profit, operating profit and net profit were Rmb15,352mn, Rmb5,928mn, Rmb3,095mn and Rmb2,967mn, respectively. Revenue declined 37% year on year and was 34% below Goldman Sachs estimates, while net profit fell 24% year on year but was 6% above estimates. The report attributes the sales shortfall principally to the domestic Chinese solar downturn, which impaired solar EPC and inverter demand, and to a high comparison base for Middle East ESS project revenue: Middle East sales were Rmb1,100mn in 1H26 versus Rmb5,700mn in 1H25. Profitability held up better because a higher overseas mix improved inverter and ESS gross margins. ESS sales were Rmb15,456mn in 1H26 and Rmb6,756mn in 2Q26, down 13% and 19% year on year. The report cites the prior Middle East base, lithium carbonate price volatility and intense utility-scale competition. Segment gross margin nevertheless recovered to 34% in 2Q26 from 24% in 4Q25 and 30% in 1Q26. Management expects European ESS demand of 74GWh in 2026, above its prior 60GWh-plus expectation, while retaining a 50%-plus industry CAGR expectation for the next three years. Visibility on 2H26 margin remains limited because regional mix and lithium prices matter; management also expects utility-scale ESS margins to trend lower over time as competition and longer battery duration weigh. In response to US risks, Sungrow is shifting resources toward residential and commercial-and-industrial distributed ESS channels, which management considers less exposed to geopolitics and raw-material volatility. Goldman Sachs forecasts 2H26E ESS sales growth of 49% year on year and a 31% gross margin, supported by 31% ESS shipment growth in 1H26. Solar inverter sales were Rmb11,161mn in 1H26 and Rmb6,161mn in 2Q26, down 21% and 25% year on year as Chinese solar demand weakened. First-half shipment declined 13% to 66GW: domestic shipment fell 45% to 17GW, whereas overseas shipment rose 9% to 49GW. The overseas mix and a relatively benign global competitive environment lifted segment gross margin to 47% in 1H26 and 48% in 2Q26, increases of 9 percentage points and 10 percentage points year on year. Goldman Sachs models an 18% year-on-year decline in segment sales but expects its 44% gross margin to remain supportive of company profitability. Solar EPC was the most impaired segment: revenue fell 85% in 1H26 and 95% in 2Q26 to Rmb1,258mn and Rmb316mn, respectively, producing a Rmb380mn first-half net loss. With new solar installations in China down 66% year on year in 1H26, the report forecasts another 87% year-on-year EPC revenue decline in 2H26. The report identifies AIDC-related power infrastructure as an early-stage growth avenue. Sungrow has received 2GWh of AIDC ESS orders, largely linked to projects seeking priority in the grid-interconnection queue, and has more than 10GWh in the pipeline as it works with US hyperscalers and European customers. It has shipped several 10-13.8kV solid-state transformer units for onsite testing in 4Q26E, expects small-volume orders for other AIDC power products from 4Q26E, and targets a 35kV version in 1H27E. Management expects mass SST adoption only in 2028-30E, and Goldman Sachs does not expect a meaningful AIDC financial contribution in 2026E. US exposure is a material constraint in the report’s outlook. Management believes utility-scale ESS and solar-inverter business in the US may contract gradually over the long term as tariffs, supply-chain restrictions under the One Big Beautiful Bill Act, an FCC ban on new foreign power inverters and an executive order on foreign-produced bulk-power equipment create hurdles. The company expects to continue selling existing models for several years and sees behind-the-meter projects such as AI data-center generation and distribution as facing less scrutiny, but has no current plan to build US factories. Goldman Sachs therefore continues to forecast a gradual decline in US ESS sales during 2026-28E. Reflecting the results and the domestic solar contraction, partially offset by overseas-mix margin improvement, Goldman Sachs cuts 2026-30E net-income forecasts by 3% on average. It lowers the 12-month target price to Rmb114.0 from Rmb128.9 and reduces the valuation basis to 20x 2027E P/E from 22x, citing a lower expected 2028-30E EPS CAGR of 12% versus 14% previously. The firm maintains Neutral, describing the stock’s risk-reward balance as even.

Analysis framework

Goldman Sachs reviews the quarter against its estimates, separates the drivers by ESS, inverter and EPC businesses, and links volume, regional mix, competition and input costs to margins. It then incorporates revised operating assumptions and US exposure into 2026-30E earnings forecasts and values the company on a 2027E P/E multiple.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  Goldman Sachs sets its 12-month target price using 20x 2027E P/E, reduced from 22x because it expects lower 2028-30E EPS growth.

• Industry AnalysisVolume-price decomposition

  Segment volume, revenue and margin analysis

  The report assesses ESS, inverter and EPC performance through sales, shipment volumes, regional mix and gross margins to explain the earnings outcome and forecasts.

Asset mapping & comparison

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

• Sungrow Power Supply Co. (300274.SZ)

  Primary covered company; its domestic solar slowdown is partly offset by stronger overseas margin mix and emerging AIDC opportunities.

  Strengths

  Leading global solar inverter and ESS provider with product performance, project experience, sales network, and management’s expected margin premium versus the industry.

  Weaknesses

  Domestic inverter and EPC demand are under pressure; utility-scale ESS margins are expected to decline gradually.

  Comparison

  European ESS demand is expected to strengthen, while Sungrow’s overseas inverter shipment grew 9% year on year as domestic shipment fell 45%.

  Risks

  US regulations, global ESS competition, material-cost inflation, production-footprint execution and uncertain AIDC commercialization.

Key data

• 2Q26 revenueRmb15,352mn-37% year on year, -1% quarter on quarter and -34% versus Goldman Sachs estimates.
• 2Q26 net profitRmb2,967mn-24% year on year, +30% quarter on quarter and +6% versus Goldman Sachs estimates.
• 2Q26 gross profit margin38.6%+5 percentage points year on year and +7 percentage points versus Goldman Sachs estimates.
• 1H26 ESS salesRmb15,456mn-13% year on year; 2Q26 sales were Rmb6,756mn, down 19%.
• 1H26 inverter shipments66GW-13% year on year; domestic shipment was -45% to 17GW and overseas shipment +9% to 49GW.
• 2026-30E net-income revision-3% on averageCut following the results and weaker domestic solar outlook.
• 2027E valuation basis20x P/EReduced from 22x previously; the target price falls to Rmb114.0 from Rmb128.9.

Impact & implications

The report sees overseas sales mix and distributed ESS expansion as partial offsets to the domestic solar downturn, but expects persistently weak EPC activity, softer US ESS sales and lower long-term EPS growth to limit the outlook. AIDC products are a potential future catalyst but are not expected to materially affect 2026E financials.

Risks

• US tariffs, supply-chain restrictions, inverter restrictions and bulk-power equipment rules could cause a gradual long-term contraction in US utility-scale ESS and inverter sales.
• Prolonged or moderating material-cost inflation could affect profitability.
• Faster or slower production-footprint diversification could affect the company’s ability to mitigate trade restrictions.
• Global ESS competition could intensify or ease, affecting pricing and margins.
• AIDC power and AIDC-related ESS products could commercialize faster or slower than expected.

What to watch

• Progress in domestic solar demand and the outlook for solar EPC and inverter revenue.
• Regional sales mix and lithium prices, which management says will influence 2H26 ESS gross margin.
• US regulatory implementation and Sungrow’s compliance measures for its US business.
• Distributed ESS share gains and the durability of margins versus utility-scale direct sales.
• Conversion of the 2GWh AIDC ESS orders and more than 10GWh pipeline, alongside SST testing and commercialization milestones.