New Energy Business Weighs on 2Q26 Results, but Accelerating Data Center Orders Support 2H26 Growth; Goldman Sachs Maintains Buy on KSTAR

Overview

The report reviews KSTAR's 2Q26 results and updates its earnings forecasts. Weak new energy products caused revenue and profit to miss expectations, but domestic and overseas data center orders, demand for high-power AIDC UPS systems, and progress in product upgrades continue to support Goldman Sachs' positive view on growth from 2H26E through 2028E. Goldman Sachs lowered its target price to Rmb60.0 but maintained its Buy rating.

Core views

KSTAR reported its 2Q26 results on August 27, 2026. Revenue, gross profit, operating profit, and net profit were Rmb1,351mn, Rmb394mn, Rmb174mn, and Rmb151mn, respectively, representing yoy growth of 11%, 13%, 25%, and 5%, and qoq growth of 9%, 7%, 7%, and 9%, but coming in 13%, 16%, 14%, and 11% below Goldman Sachs' expectations, respectively. EPS was Rmb0.26, up 5% yoy and 9% qoq, but 11% below expectations. Gross margin, operating margin, and net margin were 29%, 13%, and 11%, respectively, flat, up 1 ppt, and down 1 ppt yoy; compared with Goldman Sachs' expectations, gross margin was 1 ppt lower, while operating margin and net margin were in line. The performance gap mainly stemmed from weak sales of new energy products such as energy storage and PV inverters. The data center business remains the core source of growth. Data center product sales in 1H26 and 2Q26 were Rmb1,557mn and Rmb907mn, respectively, up 17% and 27% yoy and accounting for 60% and 67% of total sales in the respective periods, in line with Goldman Sachs' expectations, with overseas sales slightly higher than domestic sales. Since May 2026, new order momentum in both domestic and overseas markets has strengthened significantly; the company stated that its 3Q26E production plan is substantially above 2Q26, supporting sequential shipment growth in 3Q-4Q26E. As current capacity utilization is relatively full, the company is expanding production capacity for high-power AIDC UPS systems. Goldman Sachs expects data center product sales to grow 40% yoy in 2H26E and 29% yoy in 2027E, and believes the customer and project pipeline can support sustained growth from 2026 to 2028. The business recorded a gross margin of 33.9% in 1H26, above 33.6% in 1H25; margin improvement from a higher share of domestic high-power AIDC products was partly offset by foreign exchange pressure on the overseas business. Goldman Sachs expects gross margin to remain at 33.9% in 2H26E. The conversion path for overseas orders is relatively specific. KSTAR recently secured a new order for high-power AIDC UPS systems from an existing European customer, with shipments expected to begin between 4Q26E and 1Q27E depending on the readiness of its Vietnam factory. The first batch of orders from an existing Taiwan customer is nearly fully delivered, and the company is testing megawatt-class UPS systems, compared with the previously supplied 600kW products. A UPS order worth more than Rmb200mn from a European data center is expected to begin shipping between September and October 2026. The company is also conducting tests or small-batch cooperation with multiple electrical equipment companies, integrators, and colocation data center customers in Taiwan, Japan, and Europe. Initial volume orders are expected between 4Q26E and 1Q27E, while the company continues to expand among local Southeast Asian and global colocation customers. Domestically, the company said data center construction activity so far in 2026 has rebounded significantly compared with 2025, while its domestic colocation customer project pipeline has grown by more than 200% versus 2025, which could accelerate demand for electrical equipment from 2H26E through 2028E. The new product roadmap covers 800 VDC and solid-state transformers. KSTAR said its 800 VDC products are undergoing on-site testing at AI data centers using cutting-edge computing chips, and it plans to conduct three- to six-month on-site tests in Europe and Southeast Asia beginning in October 2026. Management believes KSTAR and other domestic peers could receive initial commercial orders as early as 2Q27E, although this still depends on feedback from end customers, mainly US hyperscale cloud service providers; the business model could include both ODM and proprietary brands. The company plans to launch solid-state transformer modules around the end of 2026 and system products in 2027E, but expects it will take at least another two years for large-scale global industry adoption. Regarding the US executive order restricting electrical equipment for large-capacity power systems, the company believes the current impact is limited because its US business mainly uses the ODM model. It plans to strengthen its overseas footprint by expanding capacity in Vietnam, evaluating a second factory, and preparing contingency plans for escalating geopolitical restrictions. The new energy business was the main drag during the period. New energy product sales declined 13% yoy to Rmb432mn in 2Q26, accounting for 32% of total sales. Of this, energy storage sales were Rmb309mn, up 67% yoy but down 31% qoq, with the slowdown likely driven mainly by residential energy storage. Residential energy storage sales were slightly higher than commercial and industrial energy storage sales in 1H26. Given high residential storage penetration and intensifying competition in Europe, management expects only modest yoy growth in residential storage sales for full-year 2026, while commercial and industrial energy storage sales are expected to nearly double and help improve margins. Goldman Sachs expects commercial and industrial demand to drive 3% yoy growth in energy storage sales in 2H26E. PV inverter sales remained sluggish, with sales of Rmb187mn in 1H26 and Rmb90mn in 2Q26, down 59% and 68% yoy, respectively; approximately 80% of sales came from China and 20% from overseas. New domestic PV installations declined 66% yoy in 1H26. Goldman Sachs expects the weakness to continue and forecasts a 62% yoy decline in inverter sales in 2H26E. However, inverters' share of the company's total revenue is expected to decline from 17% in 2025 to 6% in 2026E and 4% in 2027E, so Goldman Sachs believes their subsequent impact on overall performance will become limited. The new energy products business recorded a gross margin of 22.2% in 1H26, up 1.4 ppts yoy and 3.7 ppts sequentially from 2H25, benefiting from a higher overseas contribution and an improved product mix; Goldman Sachs expects gross margin to rise to 23.1% in 2H26E. On the cost side, in response to rising raw material prices, KSTAR has notified customers that it will increase average selling prices for data center and new energy products by 8%-15% beginning in September 2026, while continuing to optimize its power electronics-related supply chain and inventory management. Foreign exchange losses were Rmb44mn in 1H26, versus a foreign exchange gain of Rmb20mn in 1H25. Share-based compensation expenses were Rmb18mn in 1H26, and Goldman Sachs expects a similar level in 2H26E. Goldman Sachs lowered its 2026-30E net profit forecasts by an average of 12%, mainly reflecting the latest results, weakness in the domestic PV business, slowing residential storage growth, foreign exchange pressure on overseas gross margins, and foreign exchange losses. Its 2026E, 2027E, and 2028E revenue forecasts were lowered from Rmb7,137.4mn, Rmb9,144.3mn, and Rmb11,336.1mn to Rmb6,213.6mn, Rmb7,946.2mn, and Rmb9,787.6mn, respectively; the corresponding EPS forecasts were reduced from Rmb1.55, Rmb2.22, and Rmb2.86 to Rmb1.33, Rmb1.95, and Rmb2.56. The 12-month target price was lowered from Rmb67.0 to Rmb60.0, still based on 26 times 2028E P/E and discounted to 2027E using an 11% cost of equity. Based on the August 28, 2026 closing price of Rmb35.47, the target price implies 69.2% upside. The report states that KSTAR trades at approximately 27 times and 18 times 2026E and 2027E P/E, respectively, while its 2026E-28E earnings CAGR is 35%. Given its long-term growth prospects and superior margins and returns relative to peers, Goldman Sachs maintains its Buy rating.

Analysis framework

The report first compares 2Q26 revenue, profit, and margins item by item against yoy and qoq results and Goldman Sachs' forecasts, identifying new energy products as the main source of the earnings miss. It then breaks down sales, mix, and margins across data centers, energy storage, and PV inverters, using orders, customer testing, capacity, and shipment plans to assess the pace of future revenue conversion. The report further evaluates the commercialization timelines for 800 VDC, solid-state transformers, and overseas capacity expansion, updates its 2026-30E forecasts after incorporating raw material, foreign exchange, and expense effects, and finally adjusts its target price using a discounted forward P/E approach while assessing the relationship between valuation and earnings growth.

Methodology notes

• Valuation MethodPE/PEG valuation

  Forward target P/E valuation discounted using the cost of equity

  Goldman Sachs calculates forward value using 26 times 2028E P/E and discounts it to 2027E using an 11% cost of equity, deriving a 12-month target price of Rmb60.0. The report also compares approximately 27 times and 18 times 2026E and 2027E P/E with a 35% earnings CAGR over 2026E-28E.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Transmission analysis of orders, capacity, production plans, and shipments

  The report uses changes in new orders, the customer project pipeline, capacity utilization, expansion plans, and production plans to assess when demand for data center equipment will translate into sales growth in 3Q-4Q26E and 2027E.

• Company Fundamentals and Financial Framework

  Breakdown of segment revenue, mix, and margins

  The report separately analyzes revenue growth, revenue contribution, and gross margins for data centers, energy storage, and PV inverters to explain the performance variance and assess the impact on overall company performance as the contribution from weaker businesses declines.

• Competition and Strategy FrameworkProduct life cycle

  Stage analysis of new products from testing and initial orders to large-scale adoption

  The report evaluates 800 VDC and solid-state transformers through stages including on-site testing, customer feedback, initial commercial orders, and large-scale industry adoption, identifying milestones such as testing in October 2026, potential initial orders as early as 2Q27E, and large-scale adoption at least two years later.

Asset mapping & comparison

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

• KSTAR (002518.SZ)

  The primary company covered in the report, whose data center power supplies, UPS systems, energy storage, and new energy products collectively determine its growth and earnings performance.

  Strengths

  According to CCID data, the company has ranked first in UPS shipments in China for more than 20 consecutive years. Domestic and overseas data center orders are strengthening, and the company is advancing products including high-power UPS systems, 800 VDC, and solid-state transformers, while retaining the option to expand capacity in Vietnam.

  Weaknesses

  The new energy business missed expectations, residential storage growth is slowing, and PV inverter demand has declined significantly, while overseas margins and net profit are also affected by exchange rates and foreign exchange losses.

  Comparison

  The report states that the company has better margins and returns than peers and that its P/E valuation is attractive relative to its long-term growth.

  Risks

  Slower-than-expected growth in US ODM orders, slower launches of new products such as 800 VDC, and weaker-than-expected overseas energy storage growth or margins.

Key data

• 2Q26 RevenueRmb1,351mnUp 11% yoy and 9% qoq, 13% below Goldman Sachs' expectation
• 2Q26 Gross ProfitRmb394mnUp 13% yoy and 7% qoq, 16% below Goldman Sachs' expectation
• 2Q26 Operating ProfitRmb174mnUp 25% yoy and 7% qoq, 14% below Goldman Sachs' expectation
• 2Q26 Net ProfitRmb151mnUp 5% yoy and 9% qoq, 11% below Goldman Sachs' expectation
• 2Q26 EPSRmb0.26Up 5% yoy and 9% qoq, 11% below Goldman Sachs' expectation
• 2Q26 MarginsGross margin 29%／Operating margin 13%／Net margin 11%Flat, up 1 ppt, and down 1 ppt yoy, respectively
• 2Q26 Data Center Product SalesRmb907mnUp 27% yoy, accounting for 67% of total sales
• Data Center Sales Growth Forecast2H26E +40%／2027E +29%Stronger orders, capacity expansion, and accelerating shipments support growth
• Data Center Business Gross Margin1H26 33.9%／2H26E 33.9%33.6% in 1H25
• 2Q26 New Energy Product SalesRmb432mnDown 13% yoy, accounting for 32% of total sales and representing the main reason for the earnings miss
• 2Q26 Energy Storage SalesRmb309mnUp 67% yoy and down 31% qoq
• PV Inverter Sales1H26 Rmb187mn／2Q26 Rmb90mnDown 59% and 68% yoy, respectively; expected to decline 62% in 2H26E
• Product Price Increase Plan8%-15%Planned to cover data center and new energy products beginning in September 2026
• Earnings Forecast Revision2026-30E net profit lowered by an average of 12%Reflects results, weakness in PV and residential storage, pressure on overseas gross margins, and foreign exchange losses
• 12-Month Target PriceRmb60.0Previously Rmb67.0; based on 26 times 2028E P/E and discounted using an 11% cost of equity
• Current Price and Target UpsideRmb35.47／69.2%Share price is the August 28, 2026 closing price

Impact & implications

The report believes weak new energy products will weigh on near-term revenue and earnings forecasts, but a rising data center business contribution, the conversion of orders into shipments, and demand for high-power UPS systems are expected to become the main growth drivers from 2H26E through 2028E. The rapidly declining revenue contribution from PV inverters could reduce the impact of the segment's continued downturn on overall company performance, while a higher contribution from commercial and industrial energy storage and product price increases may alleviate some cost and margin pressure. Although earnings forecasts and the target price were lowered, Goldman Sachs believes the current valuation remains attractive relative to the 35% earnings CAGR over 2026E-28E.

Risks

• Growth in US ODM orders falls below expectations.
• New product launches are slower than expected, particularly for 800 VDC products.
• Growth and margins in the overseas energy storage business fall below expectations.

What to watch

• Monitor whether the 3Q-4Q26E production plans translate into consecutive shipment growth.
• Monitor whether the European data center UPS order worth more than Rmb200mn begins shipping as scheduled between September and October 2026.
• Monitor whether customers in Taiwan, Japan, and Europe progress from testing or small-batch stages to initial volume orders between 4Q26E and 1Q27E.
• Monitor the progress of Vietnam factory preparations and whether the European customer's high-power AIDC UPS order begins shipping between 4Q26E and 1Q27E.
• Monitor the European and Southeast Asian on-site tests for 800 VDC products beginning in October 2026, as well as potential initial commercial orders as early as 2Q27E.
• Monitor the launch of solid-state transformer modules around the end of 2026 and the progress of system products in 2027E.
• Monitor the actual impact of the 8%-15% product price increases beginning in September 2026 on demand, cost pass-through, and margins.