Sungrow's 1Q26 revenue and earnings missed expectations, but energy storage growth and balance sheet quality support the Outperform rating

Overview

This report is Bernstein's earnings review of Sungrow's 1Q26 results. It believes first-quarter revenue, shipments, and profit were meaningfully below market expectations, indicating weak demand and project delivery at the start of the year; however, gross margin recovered significantly, operating cash flow remained positive, and cash balances increased, reflecting still-high business quality. The analyst therefore lowered near-term energy storage shipment, margin, and earnings forecasts, and cut the target price to RMB185, while maintaining the Outperform rating.

Core views

The core view is that short-term growth is under pressure, but the long-term energy storage thesis remains intact. Negative factors include 1Q26 revenue down 18% YoY, attributable net profit down about 40% YoY, weak energy storage demand and project delivery cadence, and a cut in 2026-2030 energy storage margin assumptions from 39% to 34%. Positive factors include gross margin rising to 33.3%, increased cash and cash equivalents, improved net gearing, and management still expecting energy storage shipments to grow to about 62GWh. The report believes that at around 17x 2026 P/E, the current valuation is not expensive relative to earnings growth and balance sheet strength.

Analysis framework

The report combines earnings decomposition, market demand assessment, segment growth outlook, and DCF valuation: it first compares 1Q26 revenue, profit, gross margin, and cash flow with market expectations, then adjusts 2026-2030 forecasts based on energy storage demand, raw material costs, competition, and regional growth, and finally re-derives the target price using a DCF model.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The report uses annual free cash flow forecasts through 2050 plus a terminal value for valuation, applying a WACC of about 8.6% and a perpetual growth rate of 2%, resulting in a target price of RMB185/share.

• earnings_reviewconsensus_comparison

  Comparison of results versus consensus expectations

  The report compares 1Q26 revenue, net profit, and gross margin with market consensus expectations, concluding that revenue and profit were below expectations, while gross margin was better than expected.

• forecast_revisionvolume_margin_reset

  Downward revision to shipment volume and margin assumptions

  The report lowers its near-term energy storage shipment forecast and cuts 2026-2030 energy storage margin assumptions from 39% to 34% to reflect slowing demand, intensifying competition, and potential pricing pressure.

Asset mapping & comparison

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

• 300274.CH

  Research coverage target

  Strengths

  Energy storage business growth remains strong; gross margin has recovered significantly; cash balance has increased; balance sheet is strong; overseas profitability is expected to remain stable.

  Weaknesses

  1Q26 revenue and profit were meaningfully below expectations; project delivery and shipments were weak; energy storage margin assumptions were lowered; domestic competition is intense.

  Comparison

  Currently trading at about 17x 2026 P/E, below the long-term historical average; the report believes this is not expensive relative to 27% earnings growth in 2026 and a 17% earnings CAGR through 2030.

  Risks

  Slowing ESS demand, higher U.S. tariffs, inventory and margin pressure, market share loss, and policy changes targeting Chinese suppliers.

• Energy storage systems business

  Core growth driver

  Strengths

  Global new lithium battery energy storage installations reached 317GWh in 2025, up about 74% YoY; the company still targets about 40-50% energy storage growth in 2026, reaching 60+GWh.

  Weaknesses

  Rising raw material costs are causing some projects to wait; competition and pricing pressure may compress margins; growth in the Middle East and Africa is weaker.

  Comparison

  The report expects market growth of 30-50% in 2026, while the company's target growth is about 40-50%, roughly in line with or slightly above market growth.

  Risks

  Demand slowdown due to weaker AI spending, project delays into 2027, and intensifying price competition.

• Data center energy storage and SST

  Potential new growth direction

  Strengths

  Cloud service providers and internet companies are validating the products, with higher technology acceptance than traditional energy companies; the target is small-scale deliveries by the end of 2026 and mass production in 2027.

  Weaknesses

  AIDC energy storage orders are still at an early stage, and SST requires significant R&D investment; traditional inverter and transformer companies are also entering the market.

  Comparison

  The report believes growth in this area may be faster than in other renewable energy business lines, but it is still currently in product validation and early-order stages.

  Risks

  R&D progress falling short of expectations, delays in mass production, and share or pricing pressure from new competitors entering.

Key data

• 1Q26 revenueRMB15.56bn, YoY -18%Below market consensus of RMB21.2bn.
• 1Q26 gross margin33.3%Above market expectations of about 32%, and rebounded significantly from 23% in 4Q25.
• 1Q26 attributable net profitRMB2.29bn, YoY -40.1%Below the RMB3.32bn implied by consensus expectations.
• Operating cash flowRMB1.21bnRemained positive despite weak revenue, supported by tax refunds and other operating cash inflows.
• Period-end cash balanceRMB30.04bnUp from RMB22.83bn at the end of 2025.
• 2026 energy storage growth assumption45%, to 62GWhCompany target is about 60+GWh, and the report still assumes significant full-year growth in energy storage shipments.
• 2026 EPS forecastRMB8.22Previous forecast was RMB10.54; the report says this is a cut of about 22%.
• Target priceRMB185Lowered from RMB260, with Outperform maintained.
• Implied valuation at target price2026E P/E 22.4x, EV/EBITDA 17.6x, P/S 3.4xDerived based on DCF valuation.
• Current valuationAbout 17x 2026 P/E, about 13x 1-year forward EV/EBITDAThe report believes this is not high relative to growth and financial quality.

Impact & implications

The implication for the investment view is that the market needs to digest weaker-than-expected near-term revenue and earnings, lower energy storage margin assumptions, and pressure from intensifying competition; however, if energy storage shipments recover, overseas margins remain stable, the company continues to reject low-margin projects, and maintains a strong cash position, Sungrow may still support valuation recovery with strong earnings growth. The lower target price reflects a reduced earnings and cash flow path, but the Outperform rating indicates the report still sees attractive risk-reward.

Risks

• ESS demand may slow due to reduced AI capital expenditure or weaker power allocation demand.
• Higher U.S. tariffs may affect overseas profitability and demand.
• High inventory levels and industry pricing pressure may compress margins.
• The industry is becoming more fragmented and price-sensitive, which may lead to market share loss.
• Policy changes targeting Chinese suppliers may affect overseas orders and deliveries.
• Rising raw material costs may delay some energy storage projects and cause customers to wait.

What to watch

• Whether 2026 energy storage shipments can reach about 60+GWh or 62GWh.
• Whether energy storage gross margin can remain stable near the lowered assumption amid intensifying competition.
• Whether demand growth in overseas markets, especially Europe, Asia-Pacific, and the Americas, materializes.
• Whether the company continues to reject low-margin projects, and whether cost increases can be passed on to customers.
• Progress in AIDC energy storage orders and SST product validation, especially the pace of small-scale deliveries by the end of 2026 and mass production in 2027.
• Changes in cash balance, operating cash flow, inventory, and accounts receivable.
• U.S. tariffs and policy developments targeting Chinese suppliers.