Sungrow 4Q25 results materially miss expectations; Goldman Sachs maintains Neutral

Overview

This report is Goldman Sachs' company research update following Sungrow's FY25/4Q25 results. The report says the company's 4Q25 results materially missed Goldman Sachs' expectations, driven mainly by a sharp contraction in ESS margins, delayed revenue recognition from high-margin overseas projects, higher raw material costs such as lithium carbonate, and increased after-sales costs, customer rebates, bad debt provisions, and operating expenses. Even so, cash flow remained strong, and management continued to emphasize support from global ESS demand, overseas customer recognition, and technical service capabilities for medium- to long-term business growth.

Core views

Goldman Sachs maintains a Neutral rating on Sungrow, viewing the risk-reward as relatively balanced. Positive factors include the company's leading position in global solar inverters and ESS, the resilience of its overseas business, strong collections, and the long-term optionality of AIDC power products; pressures include domestic price competition spilling over into overseas markets, about a six-month lag in passing through raw material price increases, declining ESS gross margin, weak domestic solar EPC demand, and the fact that AIDC-related products are still unlikely to make a material financial contribution in 2026E.

Analysis framework

The report combines earnings breakdown, segment trends, management call takeaways, forecast cuts, and valuation updates. Goldman Sachs compares 4Q25 revenue, gross profit, EBIT, net profit, and margins against y/y, q/q, and prior GSe estimates, and further decomposes the growth and margin drivers for ESS, inverters, solar EPC, and AIDC applications. The target price is based on a 22x 2027E P/E discounted to 2026E, using an 11% cost of equity.

Methodology notes

• Valuation methodsP/E target price methodology

  22x 2027E P/E discounted to 2026E

  The 12-month target price of Rmb150.0 is based on a 22x 2027E P/E multiple, discounted to 2026E using an 11% cost of equity.

• factor_profileGS Factor Profile

  Growth, Financial Returns, Multiple, Integrated

  Goldman Sachs factor profiling compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and integrated metrics.

• corporate_actionM&A Rank

  M&A Rank 3

  M&A Rank 3 indicates a low probability of acquisition, around 0%-15%, and is typically not included in the target price.

Asset mapping & comparison

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

• Sungrow Power Supply Co. equity 300274.SZ

  Core coverage target

  Strengths

  A global leader in solar inverters and ESS, with overseas customers recognizing its technology, delivery track record, and long-term service capabilities, plus strong operating cash flow.

  Weaknesses

  4Q25 margins contracted sharply, ESS gross margin declined q/q, raw material cost pass-through lagged, and domestic solar EPC demand was weak.

  Comparison

  Compared with Goldman Sachs' prior forecast, 4Q25 revenue, gross profit, EBIT, and net profit all came in materially below expectations; relative to the coverage group, Goldman Sachs views the risk-reward as balanced.

  Risks

  Raw material prices, global ESS competition, capacity deployment, trade policy, and AIDC commercialization pace.

• ESS energy storage business

  Primary source of growth and profit volatility

  Strengths

  Management targets 40%-50% y/y shipment growth in 2026, with stronger growth expectations in overseas markets, especially Europe and APAC ex-China.

  Weaknesses

  Delayed recognition of high-margin overseas projects, lithium carbonate price increases, and about a six-month lag in cost pass-through are pressuring gross margin.

  Comparison

  In 2025, global ESS shipments reached 43GWh, with 36GWh overseas, far above 7GWh in China; Goldman Sachs expects 60GWh in 2026E.

  Risks

  Domestic competition spilling over overseas, incomplete raw material cost pass-through, and new entrants intensifying pricing pressure.

• AIDC power and ESS applications

  Long-term optional growth avenue

  Strengths

  The company is developing medium-voltage SST, high-density modular power supplies, and DC backup power products, and is defining product architectures with global cloud service providers, AI computing companies, and domestic internet companies.

  Weaknesses

  The business is still in the R&D and sample stage, with no significant financial contribution expected in 2026E.

  Comparison

  Management expects an initial product launch and small-scale deliveries by the end of 2026, with mass-production contribution expected in 2H27.

  Risks

  Commercialization may progress more slowly than expected, customer adoption may be uncertain, and technical route and cost competition pressures remain.

Key data

• 4Q25 revenueRmb22,782mnYoY -18%, 25% below Goldman Sachs' prior estimate.
• 4Q25 gross profitRmb5,229mnYoY -32%, q/q -36%, 42% below Goldman Sachs' prior estimate.
• 4Q25 EBITRmb1,920mnYoY -61%, 64% below Goldman Sachs' prior estimate.
• 4Q25 net profitRmb1,580mnYoY -54%, 61% below Goldman Sachs' prior estimate.
• 4Q25 gross margin/operating margin/net margin23% / 8% / 7%Down 5, 9, and 5 percentage points y/y; 7, 9, and 7 percentage points below Goldman Sachs' prior estimate.
• 4Q25 operating cash flowRmb7,004mnExceeding 4Q25 net profit by more than 400%, reflecting improved collections and a higher share of overseas sales.
• 2025 global ESS shipments43GWhOf which 36GWh came from overseas and 7GWh from China.
• 2026E ESS shipment forecast60GWhGoldman Sachs expects 40% y/y growth, while management targets 40%-50% growth.
• 2026E ESS gross margin forecast32.8%Below the 2025 figure of 36.5%, reflecting cost inflation and industry competition.
• 2025E-2030E net profit forecast revisionAverage cut of 8%Reflects results below expectations, competition, rising raw material costs, and higher SG&A.

Impact & implications

In the near term, Sungrow's share price and earnings expectations face pressure from margin compression, the pace of overseas revenue recognition, and the lag in passing through raw material costs. Over the medium to long term, the company's technical and delivery capabilities in global ESS, solar inverters, and potential AIDC power infrastructure remain valuable, but AIDC products are expected to see only an initial launch and small-scale deliveries by the end of 2026, with mass-production contribution not expected until 2H27, making it difficult to offset pressure on core-business margins immediately.

Risks

• Raw material cost inflation continues or moderates less than expected.
• Competition in the global ESS industry intensifies, with domestic price competition spilling over into overseas markets.
• Delayed revenue recognition of high-margin overseas projects affects near-term margins and earnings forecasts.
• The pace of production-base diversification is faster or slower than expected.
• Commercialization of AIDC power and related ESS products is faster or slower than expected.
• Global trade policy, tariffs, and OBBBA restrictions create uncertainty for strategy execution.

What to watch

• Whether ESS shipments in 2026 can meet management's 40%-50% y/y growth target.
• Whether ESS gross margin falls to 32.8% as Goldman Sachs forecasts, and whether raw material cost pass-through improves.
• The pace of orders, deliveries, and revenue recognition in overseas markets, especially Europe, APAC ex-China, and the Americas.
• Whether the company continues to avoid low-margin, negative-net-margin domestic projects, and the impact of that strategy on revenue and margins.
• Whether AIDC-related SST, 800V DC, and backup power products can achieve initial launch and small-scale deliveries by the end of 2026.
• Whether SG&A, bad debt provisions, after-sales costs, and customer rebates continue to weigh on operating margins.