FCC Covered List may restrict Sungrow Power's U.S. growth; Nomura maintains Neutral

Overview

This report focuses on the impact of the FCC adding overseas-produced power inverters to the Covered List on Sungrow Power's U.S. business. Nomura believes that Sungrow Power's inverters and some energy storage PCS may fall within the scope of the rule. Restrictions on the certification pathway for new models may weaken its ability to update its product line and gradually affect competitiveness in 2027 and beyond.

Core views

The core view is that existing or already certified products may have some buffer in the short term, but the closure of certification channels for new models will cause the product portfolio to age. Over the medium to long term, third-country production strategies, the classification of EnerNeo SST, non-China component substitution, and software and data localization may all create cost and margin pressure. Therefore, Nomura maintains its Neutral rating rather than adopting a more constructive view.

Analysis framework

The report evaluates the impact from six perspectives: regulatory definitions, product applicability, supply chain and production capacity compliance, product certification timelines, long-term cost structure, and valuation multiples. It reflects the earnings forecast reduction in 2027/28F EPS.

Methodology notes

• Valuation methodologyP/E multiple valuation

  14x 2027F P/E

  Nomura uses a P/E-based valuation. The CNY120 target price is based on 14x 2027F P/E, below the historical average of 17x, reflecting the risk of declining gross margins in 2026-28F.

• Regulatory analysisFCC Covered List and Buy America test

  Determination of foreign-produced and domestic end product status

  The report believes that the FCC definition adopts the Buy America domestic end product test under 48 CFR 25.101(a), rather than a simple country-of-origin rule. Therefore, production capacity in third countries may not necessarily circumvent the restrictions.

Asset mapping & comparison

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

• Sungrow Power 300274.SS

  Core covered security in the report

  Strengths

  The company is a leading Chinese supplier of power control systems and energy storage. Its main businesses include PV inverters, energy storage equipment, and solar EPC, and it aligns with the renewable energy ESG theme.

  Weaknesses

  Restrictions on certification channels for new models in the U.S. may cause the inverter product line to age, while non-China component substitution and software and data localization may increase costs and expenses.

  Comparison

  The target price uses 14x 2027F P/E, below the historical average of 17x; the current share price is approximately 12x 2027F P/E.

  Risks

  U.S. policy restrictions, policy headwinds for the energy storage business, weakening demand for utility-scale projects, and declining gross margins.

Key data

• RatingNeutralRating remains unchanged.
• Target priceCNY120.00Target price remains unchanged.
• Closing priceCNY106.55Price date is 2026-07-29.
• Implied upside+12.6%Calculated based on the target price relative to the closing price.
• 2027F EPSCNY8.78Lowered from the previous CNY9.13.
• 2028F EPSCNY10.41Lowered from the previous CNY11.20.
• Valuation multiple14x 2027F P/EPreviously 16x 2026F P/E.
• Current trading multiple12x 2027F P/ECurrent valuation level disclosed in the report.

Impact & implications

The implication for investment judgment is that U.S. regulatory restrictions may turn Sungrow Power's U.S. growth from a short-term certification issue into medium- to long-term challenges involving product iteration, cost structure, and margins. Even with the target price unchanged, the lower earnings forecasts and shift in valuation basis indicate that the analyst is more cautious about the quality of medium- to long-term growth.

Risks

• The FCC Covered List restricts overseas-produced inverters from entering relevant U.S. markets.
• A freeze in the certification pathway for new models may weaken product competitiveness in 2027 and beyond.
• Production capacity in third countries may not satisfy the Buy America test, increasing the risk of impairment of production capacity.
• If EnerNeo SST is classified within the relevant definition, it may weaken the second-growth-curve narrative.
• Local content requirements, including hardware reprocurement, U.S.-based cloud services, and source code audits, may increase costs and expenses.
• Policy headwinds for the energy storage business and weakening demand for utility-scale projects may affect achievement of the target price.

What to watch

• Subsequent FCC implementation rules and Conditional Approval results.
• Sungrow Power's progress in certifying new models in the U.S.
• Whether production capacity in third countries can satisfy the Buy America domestic end product test.
• The classification of EnerNeo SST and the timeline for U.S. certification and grid-connection testing.
• Cost changes resulting from non-China component substitution, U.S.-hosted cloud services, and source code audits.
• The pace of ESS adoption among data center customers and the stability of battery prices.