Citi reiterates Buy on Deye Technology: long-term momentum in residential ESS is unlikely to end due to the opening of Hormuz

Overview

This is a Citi flash note on Ningbo Deye Technology (605117.SS). The report points out that the company's share price pulled back due to the U.S.-Iran agreement, the opening of the Strait of Hormuz, and the possibility of falling oil and gas prices, as the market worries that ESS demand growth may slow. Citi believes that while rising oil prices are a short-term catalyst, long-term residential ESS demand mainly comes from power shortages, energy security concerns, widening electricity price spreads, and government subsidies, and therefore reiterates its Buy rating.

Core views

The core views include: first, global residential ESS demand is still in a high-growth phase, with various demand drivers across Europe, the U.S., Southeast Asia, Africa, India, Spain, and Australia; second, Deye Technology holds leading share in fast-growing emerging markets such as Asia and Africa, and its 1Q26 ESS inverter sales were geographically diversified; third, 2Q26E shipments are expected to continue growing strongly, with full-year 2026E shipments projected to rise 70% YoY to about 1.3 million units; fourth, the company's gross margin is supported by product mix, cost savings, and falling lithium prices, and after the recent share price correction, 23.7x 2026E P/E is considered not high.

Analysis framework

The report combines industry shipment data, company quarterly shipment forecasts, regional sales mix, gross margin breakdown, raw material price changes, and a DCF valuation framework for its assessment. On the demand side, it focuses on the growth drivers of residential ESS in global markets; on the earnings side, it focuses on gross margins for ESS inverters and battery packs; on the valuation side, it uses cash flow forecasts through 2035E, a 3.0% terminal growth rate, and an 8.4% WACC to derive the target price.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The target price of Rmb142.857/share is based on a DCF model, incorporating cash flow forecasts through 2035E and assuming a 3.0% terminal growth rate and 8.4% WACC.

• RatingCiti Research Investment Rating

  12-month expected total return rating framework

  Citi's stock ratings are typically based on expected total return and risk over the next 12 months; this report reiterates a Buy rating on Deye Technology.

Asset mapping & comparison

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

• Ningbo Deye Technology (605117.SS)

  Covered company; China A-share company related to residential ESS inverters and battery packs

  Strengths

  Leading share in emerging markets, strong growth in ESS inverter shipments, diversified regional sales, and margins supported by product mix and falling costs.

  Weaknesses

  The business is relatively sensitive to overseas residential and commercial & industrial energy storage demand, raw material prices, trade policies, and industry price competition.

  Comparison

  Compared with fossil fuel projects, falling oil prices may reduce the economic advantage of ESS, but the report argues that power shortages and energy security are longer-term demand drivers.

  Risks

  Residential and C&I energy storage demand in emerging markets comes in below expectations, price competition among inverter peers intensifies, and overseas trade tariffs on Chinese inverter products are higher than expected.

Key data

• Report date2026-06-15 03:43:29 ETThe report is a 10-page Citi Research Flash.
• Rating and target priceBuy; Rmb142.857/shareCiti reiterates its Buy rating, and the target price is based on a DCF model.
• Current valuation description23.7x 2026E P/EThe report says this valuation does not look high after the recent correction.
• Key DCF assumptionsWACC 8.4%; terminal growth rate 3.0%; risk-free rate 1.6%; market risk premium 8.9%; equity beta 0.9xThe target price implies 2027E P/E of 26.8x and P/B of 10.0x.
• 2Q26E ESS inverter shipments379-406k unitsExpected to grow 40-50% QoQ and 106-121% YoY.
• 2026E full-year shipmentsabout 1.3 million unitsThe report expects full-year shipments to grow 70% YoY.
• Global residential ESS shipments35.11GWh in 2025, 20.67GWh in 1Q26According to Infolink, these represented YoY growth of 75.6% and 392.2%, respectively.
• 1Q26 net profitRmb1,188mUp 68.4% YoY, while support from rising oil prices was limited.
• 1Q26 blended gross margin41.4%Up 4.2 percentage points YoY; inverter gross margin was 51.5%, battery pack gross margin was 32.0%.
• Regional sales mix of ESS invertersEurope >40%; Asia 35%; Africa 10%; North America 4%; Oceania 2%; South America 1%This shows that 1Q26 sales were geographically diversified.
• Lithium price changedown about 15% from the mid-May peakBattery cells account for 55-60% of battery pack production cost, so falling lithium prices may benefit margins.

Impact & implications

The investment implication of the report is that the market may be linearly extrapolating short-term factors such as falling oil and gas prices into residential ESS demand, thereby underestimating the long-term support from power security, blackout frequency, electricity price spreads, and subsidy policies. If 2Q26E shipments and margins materialize as expected, Deye Technology's growth resilience and valuation appeal may be reaffirmed.

Risks

• Residential and C&I energy storage demand in emerging markets is below expectations.
• Price competition among inverter peers is more intense than expected.
• Trade tariffs in overseas markets on Chinese inverter products are higher than expected.
• Falling oil and gas prices may weaken the relative economics of ESS projects versus fossil fuel projects in the short term.

What to watch

• Whether actual 2Q26E ESS inverter shipments reach the 379-406k unit range.
• Whether 2026E full-year shipments can achieve the target of about 1.3 million units, up 70% YoY.
• Changes in demand and policy support in Europe, Australia, Asia, and Africa.
• Whether falling lithium prices can continue to translate into improved battery pack margins.
• Changes in overseas trade tariffs, price competition, and energy storage demand in emerging markets.
• The impact of Strait of Hormuz-related geopolitical events on oil and gas prices and energy security expectations.