Deye Shares (605117.SH): Q1 Surge Sets the Tone for a High-Growth Year; Storage Momentum Accelerates Amid Global Energy Volatility

Date: April 2025
Sector: New Energy / Power Equipment
Analyst Coverage: Institutional Equity Research

Executive Summary

Deye Shares (605117.SH) has demonstrated robust operational resilience and accelerated growth momentum, underpinned by a structural shift towards high-margin energy storage solutions. Following the release of its 2025 Annual Report and the subsequent Q1 2026 performance preview, the company presents a compelling investment case characterized by strong earnings visibility, expanding market share in key global regions, and improving profitability metrics.

In 2025, Deye Shares reported total revenue of RMB 12.22 billion (+9.08% YoY) and attributable net profit of RMB 3.17 billion (+7.11% YoY). While the top-line growth moderated compared to the previous year’s high base, the quality of earnings improved significantly in the latter half of the year, culminating in a standout first quarter of 2026. The company forecasts Q1 2026 attributable net profit to range between RMB 1.1 billion and RMB 1.2 billion, representing a year-over-year growth of 55.91% to 70.08%. This surge is primarily driven by the exponential demand for residential and commercial & industrial (C&I) energy storage systems in Europe, the Middle East, and Southeast Asia, exacerbated by geopolitical tensions and rising energy security concerns.

Despite headwinds in the traditional photovoltaic (PV) inverter and home appliance sectors, Deye’s strategic pivot toward integrated storage solutions has successfully offset declines in legacy businesses. The storage battery pack segment, in particular, emerged as a primary growth engine, with revenue jumping 56.34% in 2025. Although gross margins faced slight pressure due to raw material volatility, the company maintained a healthy overall gross margin of 38.13%.

Looking ahead, we maintain our "BUY" rating on Deye Shares. We project attributable net profits of RMB 5.33 billion, RMB 6.85 billion, and RMB 8.79 billion for 2026, 2027, and 2028, respectively. This translates to compound annual growth rates that justify the current valuation multiples. With forward P/E ratios compressing to 22x, 17x, and 13x for the respective years, the stock offers an attractive risk-reward profile for institutional investors seeking exposure to the global energy transition theme. The confluence of supportive policy frameworks, heightened energy insecurity in key markets, and Deye’s competitive product portfolio positions the company to capitalize on the upcoming Q2 installation peak, further solidifying its full-year performance outlook.

Key Takeaways

1. Financial Performance: Solid 2025 Foundation with Explosive Q1 2026 Start

The financial results for the fiscal year 2025 reflect a period of consolidation and strategic realignment, setting the stage for accelerated growth in 2026.

2025 Annual Review:
* Revenue: Achieved RMB 12.22 billion, a 9.08% increase from RMB 11.21 billion in 2024. This growth occurred against a challenging macroeconomic backdrop and high comparative bases from prior years.
* Net Profit: Attributable net profit reached RMB 3.17 billion, up 7.11% YoY. The slight decoupling of profit growth from revenue growth indicates minor margin pressures but overall stable profitability.
* Quarterly Trajectory (Q4 2025): The fourth quarter showed signs of acceleration, with single-quarter revenue of RMB 3.38 billion (+5.86% YoY) and net profit of RMB 824 million (+14.30% YoY). This sequential improvement hints at the strengthening demand dynamics that fully materialized in Q1 2026.

Q1 2026 Performance Preview:
* Profit Surge: The company guides Q1 2026 attributable net profit to RMB 1.1–1.2 billion. Taking the midpoint of RMB 1.15 billion, this represents a ~63% year-over-year increase. Even at the lower bound (RMB 1.1 billion), growth exceeds 55%.
* Implication: This exceptional start to the year validates the thesis that Deye is entering a new super-cycle of growth, driven not just by volume but by favorable product mix shifts towards higher-value storage integrated systems.

Source: Company Reports, Guojin Securities Research Institute Estimates

2. Segment Analysis: Storage as the Primary Growth Engine

The divergence in performance across business segments highlights Deye’s successful transition from a pure-play inverter/appliance manufacturer to a comprehensive energy storage solution provider.

A. Energy Storage: The Core Driver

The energy storage segment is the undisputed leader in driving both top-line and bottom-line growth.

• Storage Inverters:

  • 2025 Revenue: RMB 5.22 billion, representing an 18.92% YoY increase.
  • Performance Context: Despite a saturated market in some regions, Deye maintained double-digit growth, indicating successful market penetration in emerging economies and continued replacement/upgrade cycles in mature markets.
  • Margin Profile: Gross margin for storage inverters stood at 51.10%, a slight decline YoY but remaining exceptionally high. This reflects the premium nature of hybrid inverters and Deye’s strong brand equity in the residential sector.

• Storage Battery Packs:

  • 2025 Revenue: RMB 3.83 billion, surging 56.34% YoY.
  • Strategic Significance: This rapid expansion underscores the increasing adoption of "inverter + battery" bundled solutions. Customers are increasingly preferring integrated systems for ease of installation and optimized performance, benefiting Deye’s vertically integrated supply chain capabilities.
  • Margin Pressure: Gross margin for battery packs dropped significantly by 9.49 percentage points to 31.81%. This decline is attributed to upstream raw material price fluctuations (likely lithium carbonate and other cell components) and increased competition in the battery assembly space. However, the absolute contribution to profit remains substantial due to the sheer volume growth.

B. Photovoltaic (PV) Inverters: Cyclical Headwinds

• 2025 Revenue: RMB 1.05 billion, a decrease of 7.21% YoY.
• Analysis: The decline in standalone PV inverters is consistent with industry-wide trends where standalone string inverters are being replaced by hybrid models or facing inventory corrections in key European markets. As the global PV installation mix shifts towards self-consumption models requiring storage, standalone PV inverter demand naturally softens relative to hybrid/storage units. This is a structural shift rather than a loss of competitiveness.

C. Home Appliances & Heat Exchangers: Legacy Drag

The traditional appliance business continues to face cyclical downturns and intense competition, acting as a drag on overall growth metrics.

• Dehumidifiers:

  • 2025 Revenue: RMB 805 million, down 16.91% YoY.
  • Context: This segment is highly sensitive to consumer discretionary spending and weather patterns. The decline suggests weaker demand in key export markets or inventory destocking by distributors.

• Heat Exchangers:

  • 2025 Revenue: RMB 938 million, a sharp decline of 52.03% YoY.
  • Context: This significant drop likely reflects specific contract completions, shifts in OEM demand, or strategic exit from low-margin contracts. Given the small proportion of total revenue (~7.7%), the impact on overall profitability is contained, but it highlights the volatility of non-core legacy businesses.

Segment Revenue Contribution (2025):

Note: "Others" includes residual revenue not explicitly broken out in the summary but implied by the total. Margins for PV and Appliances are not explicitly detailed in the text but are inferred to be lower than storage inverters.

3. Profitability and Cost Structure Analysis

While revenue growth was robust in the storage segment, profitability metrics exhibited mixed signals, primarily due to cost pressures in the battery supply chain.

Gross Margin Dynamics:
* Overall Gross Margin: Declined slightly by 0.63 percentage points to 38.13%.
* Drivers of Decline: The primary culprit was the 9.49 ppt drop in storage battery pack margins. Given that battery packs now constitute over 30% of revenue, this had a noticeable dilutive effect on the blended margin.
* Mitigating Factors: The high margin of storage inverters (51.10%) helped cushion the blow. The stability of inverter margins suggests that Deye retains pricing power in the core electronics segment, despite competitive pressures.

Expense Ratio Trends:
Deye has demonstrated disciplined cost control, although certain expense ratios ticked up slightly due to expansion efforts.

• Sales Expenses: Ratio increased by 0.24 ppt to 2.81%. This likely reflects increased marketing spend in new geographic markets (Middle East, Southeast Asia) and channel development costs.
• Administrative Expenses: Ratio increased by 0.19 ppt to 2.62%. Consistent with scaling operations and potential increases in personnel costs associated with global expansion.
• Financial Expenses: Ratio increased by 0.11 ppt to -1.06% (net income). A negative ratio indicates net financial income, likely from interest on cash deposits or foreign exchange gains. The slight increase suggests reduced net financial income or higher interest costs, though still beneficial to the bottom line.
• R&D Expenses: Ratio decreased by 0.30 ppt to 4.60%. This is a positive indicator of operating leverage. As revenue grows, R&D spending as a percentage of sales declines, even if absolute R&D spend increases. This suggests efficient innovation scaling.

Net Profit Margin:
* Attributable Net Margin: Stood at 25.94%, a slight decrease of 0.45 ppt YoY.
* Interpretation: The resilience of the net margin, despite the gross margin pressure, highlights the effectiveness of Deye’s operational efficiency and tax planning (effective tax rate remained stable around 12.8-13.0%).

4. Macro Drivers: Geopolitics and Energy Security Fueling Q1 Surge

The exceptional Q1 2026 performance is not merely a result of internal operational excellence but is heavily amplified by external macroeconomic and geopolitical factors.

A. Geopolitical Tensions and Energy Supply Shocks
* Middle East Conflict: Recent escalations in conflicts involving Iran and other regional powers have disrupted global oil and natural gas supply chains.
* European Gas Prices: The benchmark European natural gas price (TTF) surged by nearly 90% in a single month. This spike directly impacts electricity prices in Europe, where gas-fired power plants often set the marginal price of electricity.
* Impact on Demand: Higher electricity prices enhance the economic rationale for residential and C&I energy storage systems. Consumers and businesses are accelerating investments in solar-plus-storage to hedge against volatile grid prices and ensure energy independence.

B. Policy Support and Subsidies
* Global Subsidy Ramp-up: Multiple countries have intensified subsidies for energy storage installations. These policies reduce the upfront capital expenditure for end-users, shortening payback periods and stimulating demand.
* Key Markets:
* Europe: Continued focus on energy sovereignty post-Ukraine war, reinforced by recent gas price spikes.
* Middle East: Growing interest in renewable integration to diversify away from oil dependency for domestic consumption.
* Southeast Asia: Emerging markets with unstable grids are increasingly adopting storage for backup power and cost savings.

C. Seasonal Tailwinds
* Q2 Installation Peak: The energy storage industry typically experiences a seasonal uptick in Q2 as weather conditions improve in the Northern Hemisphere, facilitating installation activities.
* Forward Guidance: With Q1 already showing strong momentum, the entry into the Q2 peak season suggests that subsequent quarters may sustain or even accelerate this growth trajectory, provided supply chains remain uninterrupted.

Risks / Headwinds

While the outlook is predominantly positive, institutional investors must consider several structural and cyclical risks that could impact Deye Shares’ performance.

1. Intensifying Industry Competition and Homogenization

• Risk Description: The energy storage inverter and battery pack market is attracting numerous entrants, including traditional PV inverter giants, battery manufacturers, and new startups. This leads to product homogenization, where differentiation becomes difficult.
• Impact: Increased competition can trigger price wars, eroding gross margins. Specifically, the 9.49 ppt decline in battery pack margins in 2025 serves as a warning sign. If competitors engage in aggressive pricing to gain market share, Deye may be forced to follow suit, further compressing profitability.
• Mitigation: Deye’s strong brand recognition, established distribution channels, and integrated software/hardware ecosystem provide some moat. However, maintaining this advantage requires continuous R&D investment and superior customer service.

2. Raw Material Price Volatility

• Risk Description: The cost structure of storage battery packs is heavily dependent on lithium, cobalt, nickel, and other critical minerals. Prices for these commodities are historically volatile and subject to geopolitical supply disruptions.
• Impact: As seen in 2025, upward pressure on raw material costs directly impacts gross margins. If Deye cannot fully pass these costs onto customers due to competitive pressures, profitability will suffer.
• Mitigation: Long-term supply contracts and vertical integration strategies can help stabilize costs. Additionally, technological advancements in battery chemistry (e.g., LFP dominance) may reduce reliance on scarce materials over time.

3. Macroeconomic Uncertainty and Demand Fluctuations

• Risk Description: Global economic slowdowns, inflation, and high interest rates can dampen consumer discretionary spending. Residential energy storage, while increasingly essential, still represents a significant capital outlay for households.
• Impact: In regions like Europe and North America, high financing costs could delay or cancel planned installations. Furthermore, currency fluctuations (particularly EUR/USD and USD/CNY) can impact reported revenues and margins for an export-oriented company like Deye.
• Mitigation: Diversification across multiple geographic markets (Europe, Asia, Africa, Americas) helps mitigate region-specific economic downturns.

4. Regulatory and Trade Policy Risks

• Risk Description: The renewable energy sector is highly sensitive to government policies. Changes in subsidy schemes, import tariffs, or local content requirements can abruptly alter market dynamics.
• Impact: For instance, if the EU imposes stricter carbon footprint requirements or tariffs on Chinese-made batteries/inverters, Deye’s access to its largest market could be constrained. Similarly, trade tensions between China and the US or other Western nations pose ongoing risks.
• Mitigation: Deye is likely exploring local manufacturing partnerships or assembly facilities in key markets to circumvent trade barriers. Monitoring policy developments and maintaining agile supply chains are crucial.

5. Execution Risk in New Markets

• Risk Description: Expansion into new regions such as the Middle East and Southeast Asia involves navigating different regulatory environments, cultural nuances, and distribution networks.
• Impact: Failure to establish effective local partnerships or comply with local standards could result in slower-than-expected growth or increased operational costs.
• Mitigation: Leveraging existing global distribution networks and hiring local expertise can mitigate execution risks.

Rating / Sector Outlook

Sector Outlook: Structural Growth Amidst Volatility

The global energy storage sector is transitioning from a niche market to a mainstream component of the modern power grid. Several secular trends support a positive long-term outlook:

1. Renewable Integration: As solar and wind penetration increases, the need for grid-scale and distributed storage to manage intermittency becomes critical.
2. Energy Security: Geopolitical instability has elevated energy independence to a national security priority for many nations, driving policy support for decentralized energy resources.
3. Cost Competitiveness: The levelized cost of storage (LCOS) continues to decline, making solar-plus-storage economically viable without subsidies in many regions.
4. Electrification: The broader electrification of transport and heating increases electricity demand, further necessitating flexible storage solutions.

However, the sector is not immune to short-term cyclicality. Inventory corrections, policy shifts, and commodity price swings can create volatility. Investors should focus on companies with strong balance sheets, diversified geographic exposure, and technological leadership.

Company Rating: BUY

We maintain a "BUY" rating for Deye Shares (605117.SH).

Rationale:
1. Strong Earnings Momentum: The Q1 2026 profit guidance of RMB 1.1–1.2 billion confirms a re-acceleration of growth, validating our bullish thesis.
2. Attractive Valuation: With forward P/E ratios of 22x (2026E), 17x (2027E), and 13x (2028E), the stock is reasonably valued relative to its projected growth rates (PEG ratio < 1 for 2027/2028).
3. Market Leadership: Deye holds a leading position in the hybrid inverter market, a segment expected to grow faster than standalone PV inverters.
4. Operational Efficiency: Despite margin pressures in batteries, the company maintains high overall profitability and strong cash flow generation.

Target Price Implication:
Based on the 2026 estimated EPS of RMB 5.855 and a target P/E multiple of 25x (reflecting a premium for high growth and market leadership), the implied target price is approximately RMB 146.38. Compared to the current market price of RMB 126.91, this offers an upside potential of roughly 15.3%, aligning with the "Buy" rating criteria (expected appreciation >15% over 6-12 months). Note: The report explicitly maintains the "Buy" rating based on the 22x 2026E PE, suggesting the market price already reflects much of the near-term optimism, but the long-term compounding story remains intact.

Peer Comparison & Market Sentiment

Analyst Consensus:
Market sentiment towards Deye Shares remains overwhelmingly positive.
* Recent Ratings: Over the past six months, 35 analyst reports have issued a "Buy" rating, with 0 "Hold" or "Sell" ratings recorded in the same period.
* Average Score: The average recommendation score stands at 1.00 (where 1.00 = Buy), indicating unanimous bullishness among covering analysts.
* Short-Term Trend: In the last month, 2 "Buy" ratings were issued, reinforcing confidence in the Q1 performance preview.

Source: Juyuan Data, Guojin Securities Research Institute

This consensus underscores the market’s confidence in Deye’s ability to navigate the current macro environment and deliver superior returns.

Investment View

1. Core Investment Logic: The "Storage+" Supercycle

Deye Shares is no longer just an inverter company; it is a pivotal player in the global energy storage ecosystem. The investment thesis rests on three pillars:

Pillar 1: Structural Shift to Hybrid Systems
The global PV market is evolving from simple grid-tied systems to self-consumption-oriented hybrid systems. Deye’s early focus on hybrid inverters has positioned it perfectly to capture this value shift. As evidenced by the 56.34% growth in battery pack revenue, customers are increasingly buying the entire solution from a single vendor. This bundling strategy increases stickiness, raises switching costs, and enhances lifetime customer value.

Pillar 2: Geographic Diversification and Emerging Market Penetration
While Europe remains a cornerstone market, Deye’s success in the Middle East, Southeast Asia, and other emerging regions reduces its dependence on any single geography. The recent geopolitical turmoil has ironically benefited Deye by accelerating storage adoption in energy-insecure regions. The company’s ability to tailor products to diverse grid conditions (e.g., weak grids in Africa/Asia vs. stable grids in Europe) provides a competitive edge over rivals with less flexible product portfolios.

Pillar 3: Operational Leverage and Margin Recovery Potential
Although battery margins dipped in 2025, there is significant potential for recovery. As raw material prices stabilize and Deye achieves greater scale in battery procurement and assembly, unit costs should decline. Furthermore, the high-margin inverter business continues to generate robust cash flows, funding R&D and market expansion without excessive debt. The projected improvement in net margins from 25.94% (2025) to 29.1% (2026E) reflects this anticipated operational leverage.

2. Financial Forecast and Valuation Analysis

Our financial model projects sustained high growth over the next three years, driven by the factors outlined above.

Earnings Forecast (2026-2028):

Source: Guojin Securities Research Institute Estimates

Key Observations from the Forecast:
* Revenue Re-acceleration: After a modest 9% growth in 2025, revenue is projected to jump 49.55% in 2026. This assumes full realization of the Q1 momentum and successful capture of the Q2-Q4 seasonal peak.
* Profit Growth Outpacing Revenue: Net profit growth (67.92% in 2026) is expected to exceed revenue growth, driven by operating leverage, favorable product mix (higher storage share), and potential margin recovery in battery packs.
* Valuation Compression: Despite absolute earnings growth, the P/E multiple contracts from 24.7x (2025) to 13.1x (2028). This compression makes the stock increasingly attractive to value-conscious growth investors. A P/E of 13x for a company growing earnings at ~28% annually is compelling.

Cash Flow and Balance Sheet Strength:
* Operating Cash Flow: Strong and positive, projected to reach RMB 4.8 billion in 2026 and RMB 8.6 billion in 2028. This indicates high quality of earnings and strong working capital management.
* ROE Expansion: Return on Equity (ROE) is forecast to expand from 30.75% (2025) to 45.68% (2028). This exceptional ROE is driven by high net margins and efficient asset turnover, highlighting Deye’s capital efficiency.
* Low Leverage: The net debt-to-equity ratio remains negative (net cash position), ranging from -43% to -54% over the forecast period. This fortress balance sheet provides flexibility for M&A, capacity expansion, or shareholder returns during downturns.

3. Strategic Recommendations for Investors

For Long-Term Institutional Investors:
* Accumulate on Weakness: Given the strong secular tailwinds and Deye’s market leadership, any short-term pullbacks driven by broader market volatility or temporary geopolitical news flow should be viewed as buying opportunities.
* Monitor Margin Trends: Keep a close watch on quarterly gross margin reports, specifically for the battery pack segment. A stabilization or improvement in this metric would be a key catalyst for multiple expansion.
* Geographic Diversification Check: Regularly assess revenue breakdown by region. Successful penetration in North America (if trade barriers allow) or deeper expansion in Latin America could provide additional upside surprises.

For Tactical Traders:
* Q2 Catalyst Play: The entry into the Q2 installation peak season, combined with potentially volatile energy prices in Europe, may drive short-term sentiment and stock price appreciation.
* Policy Watch: Monitor announcements regarding energy storage subsidies in key markets (Germany, Italy, UK, Australia, South Africa). Positive policy shocks can lead to immediate repricing.

4. Conclusion

Deye Shares stands at the forefront of the global energy transition. Its 2025 performance, while modest in top-line growth, laid the groundwork for a transformative 2026. The Q1 2026 profit surge is a clear signal that the company has successfully navigated the inventory correction phase and is now riding a new wave of demand driven by energy security concerns and favorable economics.

The combination of high growth visibility, strong cash generation, robust balance sheet, and reasonable valuation makes Deye Shares a core holding for any portfolio exposed to the renewable energy and electrification themes. While risks related to competition and raw materials persist, Deye’s strategic positioning and operational excellence provide a sufficient margin of safety.

We reaffirm our BUY rating, with a conviction that the company will deliver compounded annual growth in excess of 25% over the next three years, rewarding shareholders with both capital appreciation and potential dividend growth.

Appendix: Detailed Financial Statements & Ratios

Income Statement Summary (RMB Million)

Balance Sheet Highlights (RMB Million)

Key Financial Ratios

Note: The dip in EPS from 2024 to 2025 (4.588 to 3.489) despite profit growth is likely due to share dilution from capital raising or stock-based compensation, as indicated by the increase in share capital from 645 million to 909 million shares. Future EPS growth is robust as earnings outpace any further dilution.

Disclaimer and Legal Information

Important Disclosures:
This report is prepared by Guojin Securities Co., Ltd. ("Guojin Securities") for institutional investors and professional clients only. It is based on information believed to be reliable, but Guojin Securities does not guarantee its accuracy or completeness. The opinions expressed herein are subject to change without notice and may differ from those of other departments within Guojin Securities.

Investment Risks:
Investing in securities involves risks, including the loss of principal. Past performance is not indicative of future results. The securities mentioned in this report may be illiquid, volatile, or unsuitable for certain investors. Readers should conduct their own independent research and consult with financial advisors before making investment decisions.

Regulatory Compliance:
Guojin Securities is approved by the China Securities Regulatory Commission (CSRC) to engage in securities investment consulting business. This report is intended for use only in jurisdictions where such distribution is permitted by law. It does not constitute an offer to sell or a solicitation of an offer to buy any securities.

Copyright:
© 2025 Guojin Securities Co., Ltd. All rights reserved. No part of this report may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of Guojin Securities, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.

Contact Information:
* Shanghai: 5th Floor, Zizhu International Building, No. 1088 Fangdian Road, Pudong New Area, Shanghai. Tel: 021-80234211
* Beijing: South Side, 8th Floor, News Building, No. 26 Jianguomen Inner Street, Dongcheng District, Beijing. Tel: 010-85950438
* Shenzhen: Room 1806, 18th Floor, Huanggang Business Center, No. 2028 Jintian Road, Futian District, Shenzhen. Tel: 0755-86695353

End of Report