Equity Research: Sungrow Power Supply (300274 CH)

Date: April 2, 2026
Sector: New Energy / Photovoltaic Inverters & Energy Storage
Analyst: Hao Wen, CPA; Min Kang Zheng
Rating: BUY
Current Price: RMB 134.45
Target Price: RMB 155.00
Potential Upside: +15.3%

Executive Summary

Short-term Headwinds Obscure Long-term Structural Growth: A Strategic Buying Opportunity

Sungrow Power Supply (300274 CH, "Sungrow" or the "Company") reported fourth-quarter 2025 (4Q25) results that fell short of both our estimates and market consensus, primarily driven by significant margin compression and revenue recognition timing issues. The Company recorded quarterly revenue of RMB 22.8 billion (-18% YoY, -0.4% QoQ) and net profit attributable to shareholders of RMB 1.58 billion (-54% YoY, -62% QoQ). The gross margin contracted sharply by 12.9 percentage points (ppts) quarter-on-quarter to 23.0%, weighed down by a mix shift towards lower-margin new energy investment development projects, a sequential decline in energy storage system margins, and rising lithium carbonate costs that were not fully passed through in existing contracts.

Despite the disappointing quarterly print, we maintain our BUY rating with a revised target price of RMB 155.00 (previously RMB 220.00). We believe the market has largely priced in the near-term negative sentiment following the earnings release. Our investment thesis rests on three pillars:
1. Resilient Long-term Storage Growth: The global energy storage market continues to expand robustly, with 2025 installations growing 74% YoY. Sungrow is well-positioned to capture this growth, targeting shipments of over 60GWh in 2026, driven by strong overseas demand which now constitutes 83% of its storage shipments.
2. Margin Recovery Potential: While 4Q25 margins were pressured by one-off factors (high base from UK projects in 3Q25, raw material costs), we expect gross margins to stabilize and recover towards ~30% as cost pass-through mechanisms take effect and the product mix improves.
3. New Growth Engine (AIDC Power): The Company is strategically expanding into AI Data Center (AIDC) power solutions, including Solid State Transformers (SST). With pilot deliveries expected in 2026 and mass production slated for 2027, this segment offers a valuable optionality value not yet fully reflected in the current valuation.

We have adjusted our earnings forecasts downward for 2026 and 2027 to reflect the softer margin environment but maintain that Sungrow’s current valuation of 17.4x 2026E P/E is attractive relative to its historical average (19.4x) and peers, offering a compelling entry point for long-term investors.

Key Takeaways

1. 4Q25 Performance Analysis: Below Expectations Due to Margin Compression

Revenue and Profit Miss:
In 4Q25, Sungrow reported revenue of RMB 22.78 billion, representing an 18.4% year-over-year (YoY) decline and a slight 0.4% quarter-over-quarter (QoQ) decrease. Net profit attributable to parent company shareholders stood at RMB 1.58 billion, a significant drop of 54.0% YoY and 61.9% QoQ. This underperformance was primarily attributed to:
* Revenue Recognition Timing: Fluctuations in the recognition pace of certain large-scale projects impacted the top line.
* Operating Leverage Deterioration: Despite the decline in revenue, operating expenses grew faster than sales. Selling, administrative, R&D, and financial expense ratios increased by 2.2, 0.6, 1.7, and 0.8 ppts YoY, respectively, squeezing operating profits.

Gross Margin Contraction:
The consolidated gross margin for 4Q25 fell to 23.0%, a decrease of 4.5 ppts YoY and a stark 12.9 ppts QoQ. This contraction was multifactorial:
* Mix Shift: An increased proportion of revenue from the "New Energy Investment Development" segment, which carries inherently lower margins (14.5% in 2025), diluted the overall blend.
* Storage Margin Pressure: The energy storage business, a key profit driver, saw its margin drop by 17 ppts QoQ to 24%. Key drivers included:
1. High Base Effect: 3Q25 benefited from the recognition of high-margin projects in the UK, creating a difficult comparison base.
2. Raw Material Costs: Rising lithium carbonate prices during the quarter were not immediately passed through to customers in certain legacy contracts.
3. Pricing Pressure: New contract signing prices declined sequentially.
4. Geographic Mix: A higher share of shipments to mainland China and South America, regions characterized by lower margins compared to Europe or North America.

Source: Company Data, BOCOM International Estimates

2. Segment Performance: Divergent Trends in Storage and Inverters

Energy Storage Systems: High-Quality Overseas Growth
The energy storage segment remains the primary growth engine for Sungrow, demonstrating robust volume expansion despite margin headwinds.
* Full Year 2025 Performance: Revenue reached RMB 37.3 billion, a substantial 49% YoY increase. Shipments totaled 43GWh, up 54% YoY.
* Overseas Dominance: Crucially, this growth was entirely driven by overseas markets. The overseas shipment share surged by 16 percentage points to 83% in 2025. This geographic shift is vital as international markets typically offer better pricing power and profitability.
* Margin Profile: The segment’s full-year 2025 gross margin dipped slightly by 0.2 ppts to 36.5%. While 4Q25 saw a sharp sequential drop, the annualized margin remains healthy, reflecting the Company’s strong competitive position in high-value markets like Europe and North America.

PV Inverters: Strategic Portfolio Optimization
The inverter business demonstrated resilience through strategic discipline, prioritizing profitability over sheer volume in saturated domestic markets.
* Full Year 2025 Performance: Revenue grew modestly by 7% YoY to RMB 31.1 billion. Total shipments decreased by 3% YoY to 143GW.
* Strategic Shift: The decline in volume was intentional, resulting from the Company’s decision to exit domestic residential PV projects that were generating negative gross margins. This discipline protected overall profitability.
* International Expansion: Similar to storage, the inverter business saw a meaningful shift towards higher-margin overseas markets. The overseas shipment share increased by 8 percentage points to 60%.
* Margin Improvement: Reflecting this improved mix and cost control, the inverter segment’s gross margin expanded by 3.8 ppts YoY to 34.7% in 2025.

New Energy Investment Development: Policy Headwinds
This segment faced significant challenges due to regulatory changes in China.
* Performance: Revenue declined 21% YoY to RMB 16.6 billion in 2025.
* Margin Erosion: Gross margin fell by 4.9 ppts to 14.5%.
* Root Cause: The implementation of "Document No. 136" significantly impacted demand for residential distributed PV systems in China, leading to reduced project volumes and tighter economics.

3. Outlook and Guidance: Strong Volume Growth Expected in 2026

Global Storage Market Tailwinds:
The macro environment for energy storage remains highly favorable. Driven by increasing renewable energy penetration and improving economic viability (levelized cost of storage), global energy storage installations grew by an impressive 74% YoY in 2025.

2026 Company Guidance:
* Volume Targets: Sungrow aims to align its 2026 shipment targets with the upper end of market growth forecasts. The Company projects shipment volumes to exceed 60GWh in 2026, implying continued strong double-digit growth from the 43GWh achieved in 2025.
* Market Growth Forecast: Despite concerns over raw material inflation, the Company anticipates the global storage market will continue to grow at a rate of 30-50% in 2026.
* Margin Trajectory: Management expects gross margins to recover. While acknowledging short-term pressure from lithium prices and competition, the Company’s technological leadership and entrenched presence in high-margin overseas markets provide a pathway for margins to revert towards the 30% range.

4. New Growth Catalyst: AIDC Power Solutions

Sungrow is leveraging its power electronics expertise to enter the rapidly growing AI Data Center (AIDC) power supply market. This represents a significant diversification opportunity beyond traditional renewable energy applications.

• Product Offering: The Company provides Solid State Transformers (SST) and comprehensive power supply solutions tailored for high-density computing environments.
• Customer Engagement: Sungrow has already initiated collaborations with leading international cloud service providers and top-tier Chinese internet enterprises.
• Commercialization Timeline:
  • 2026: Product landing and small-scale deliveries are targeted for this year.
  • 2027: Mass production and broader commercial deployment are expected to commence.
• Investment Implication: While revenue contribution in 2026 may be minimal, this business line adds a valuable "call option" to the stock. As AI infrastructure spending accelerates globally, Sungrow’s ability to provide efficient, high-power density solutions could unlock a new, high-margin revenue stream.

5. Valuation Adjustment and Target Price Revision

Earnings Forecast Revisions:
In light of the 4Q25 margin compression and the slower-than-expected pass-through of raw material costs, we have revised our earnings estimates downward.
* 2026E EPS: Adjusted down by 18.6% to RMB 7.75 (from RMB 9.52).
* 2027E EPS: Adjusted down by 18.3% to RMB 9.28 (from RMB 11.35).

Valuation Methodology:
* Previous Approach: We previously valued Sungrow at 22x 2026E P/E.
* Current Approach: We have lowered our valuation multiple to 20x 2026E P/E. This adjustment reflects a more conservative stance given the near-term margin volatility and competitive landscape. However, it is worth noting that this 20x multiple is still slightly above the company’s 4-year historical average of 19.4x, justified by the superior growth profile of the storage segment and the emerging AIDC optionality.
* Target Price Calculation: Applying the 20x 2026E P/E multiple to our revised EPS of RMB 7.75 yields a new target price of RMB 155.00 (previously RMB 220.00).

Relative Valuation:
At the current price of RMB 134.45, Sungrow trades at approximately 17.4x 2026E P/E. This is:
1. Below our revised target multiple of 20x.
2. Below its 4-year historical average of 19.4x.
3. The lowest valuation among major peers in the inverter and energy storage sector.

This valuation disconnect suggests that the market is overly pessimistic about the sustainability of margin pressures, ignoring the Company’s strong market position and future growth vectors.

Source: Company Data, BOCOM International Estimates

Risks / Headwinds

While we maintain a positive long-term outlook, investors should be aware of the following risks that could impact Sungrow’s performance and stock price:

1. Raw Material Price Volatility

• Lithium Carbonate: The energy storage business is sensitive to lithium prices. The 4Q25 margin compression was partly due to a lag in passing through rising lithium costs. If lithium prices remain elevated or rise further, and the Company cannot negotiate price adjustments with customers quickly enough, gross margins could remain under pressure.
• Other Components: Prices of other key components such as IGBTs, copper, and aluminum also influence manufacturing costs. Supply chain disruptions or commodity super-cycles could erode profitability.

2. Intensifying Competition

• Price Wars: The energy storage and inverter markets are becoming increasingly crowded, with both established players and new entrants competing for market share. This has led to a decline in new contract signing prices, as noted in the 4Q25 results. Persistent price competition could limit the upside for margin recovery.
• Domestic Market Saturation: In China, the residential PV market is facing saturation and policy headwinds (e.g., Document No. 136). While Sungrow has strategically exited low-margin segments, broader industry overcapacity could spill over into commercial and industrial segments.

3. Geopolitical and Trade Policy Risks

• Overseas Dependence: With 83% of storage shipments and 60% of inverter shipments going overseas, Sungrow is highly exposed to international trade policies. Tariffs, import restrictions, or local content requirements in key markets like the US, Europe, or India could disrupt supply chains or reduce competitiveness.
• Regulatory Changes: Changes in subsidy schemes, grid connection standards, or safety regulations in foreign jurisdictions could impact demand or increase compliance costs.

4. Execution Risk in New Businesses

• AIDC Power Supply: While promising, the AIDC power business is in its early stages. There is execution risk regarding product validation, customer adoption, and scaling production. Delays in mass production (currently targeted for 2027) could defer the expected revenue contribution.
• H-Share Issuance: The Company is considering an H-share listing. The final issuance price and the resulting dilution to A-share holders are uncertain. A significant discount in the H-share issuance price relative to the A-share price could exert downward pressure on the A-share valuation in the short term.

5. Currency Fluctuations

• Exchange Rate Exposure: A significant portion of Sungrow’s revenue is denominated in foreign currencies (USD, EUR, etc.), while a large part of its cost base is in RMB. Fluctuations in the RMB exchange rate can impact reported earnings. A strengthening RMB could negatively translate overseas revenues, while a weakening RMB could boost them but increase the cost of imported components.

6. Project Development Risks

• New Energy Investment: The Company’s own project development business is subject to construction delays, permitting issues, and changes in electricity pricing policies. The recent margin decline in this segment highlights the sensitivity to regulatory shifts like Document No. 136.

Rating / Sector Outlook

Sector Outlook: Leading

We maintain a LEADING outlook for the New Energy sector, specifically focusing on the Energy Storage and High-End Inverter sub-segments.

Key Sector Drivers:
1. Global Energy Transition: The imperative to decarbonize continues to drive massive investments in renewable energy generation. As solar and wind penetration increases, the need for flexible grid resources—primarily energy storage—becomes critical.
2. Economic Viability of Storage: The levelized cost of storage (LCOS) continues to decline, making battery storage economically competitive with peaker plants in many markets. This is shifting storage from a policy-driven mandate to an economically driven investment.
3. Grid Modernization: Aging grid infrastructure in developed markets and rapid electrification in emerging markets are driving demand for advanced power electronics, including inverters and transformers, to ensure grid stability and efficiency.
4. AI and Electrification Demand: The surge in AI data centers and electric vehicle adoption is creating new, high-growth demand pockets for power management solutions, offering diversification opportunities for leading players like Sungrow.

Supply-Demand Dynamics:
* Supply: While there is some overcapacity in the lower-end segments of the PV and storage supply chain (particularly in China), high-quality, bankable suppliers with strong overseas channels and technological advantages (like Sungrow) remain in tight supply.
* Demand: Global demand remains robust, particularly in Europe, North America, and emerging markets in the Middle East and Asia-Pacific. The 74% YoY growth in global storage installations in 2025 underscores the strength of demand.

Price/Inventory Trends:
* Battery Cells: Lithium carbonate prices have stabilized after a period of volatility. While still a cost headwind, the rate of increase has moderated, allowing for better visibility on margins.
* Inverter Prices: Domestic inverter prices remain under pressure due to competition, but overseas prices have held up better, supported by brand value and service networks.

Peer Comparison and Recommendation

Within the BOCOM International coverage universe, Sungrow stands out as a top pick due to its balanced exposure to high-growth storage and stable inverter businesses, along with its strong overseas footprint.

Source: FactSet, BOCOM International Estimates (as of April 1, 2026)

Sungrow’s valuation is more attractive than many peers when adjusted for growth quality and market leadership. While polysilicon and glass manufacturers face cyclical headwinds, Sungrow’s downstream focus and service-oriented business model provide greater resilience.

Investment View

Why Buy Now?

1. Mispricing of Short-Term Noise vs. Long-Term Value
The sharp sell-off following the 4Q25 earnings report appears to be an overreaction to temporary margin pressures. The market has focused heavily on the 12.9 ppt QoQ gross margin decline, but this figure was distorted by a high base effect from exceptional UK projects in 3Q25 and temporary lithium cost mismatches. As these one-off factors fade, we expect margins to normalize. The current P/E of 17.4x for 2026E does not adequately reflect the Company’s dominant market position and the structural growth of the storage industry.

2. Superior Quality of Earnings Growth
Sungrow’s growth is increasingly driven by high-quality overseas revenue. The shift to 83% overseas shipments in storage and 60% in inverters is a critical strategic achievement. Overseas markets not only offer higher margins but also provide diversification away from the intensely competitive and policy-sensitive domestic Chinese market. This geographic mix improvement is a sustainable competitive advantage that will support long-term profitability.

3. Optionality in AIDC Power
The market is currently valuing Sungrow primarily as a renewable energy equipment manufacturer. However, the emerging AIDC power business represents a significant untapped value driver. As AI infrastructure build-out accelerates, the demand for specialized power solutions like Solid State Transformers will surge. Sungrow’s early mover advantage and partnerships with top cloud providers position it to capture a share of this high-margin market. This "free option" is not fully priced in.

4. Strong Balance Sheet and Cash Flow
Sungrow maintains a net cash position, providing financial flexibility to invest in R&D, navigate working capital cycles, and pursue strategic opportunities. The Company’s ability to generate strong operating cash flows (RMB 16.9 billion in 2025) supports its dividend payments and reduces reliance on external financing, which is crucial in a potentially higher-for-longer interest rate environment.

Key Monitoring Indicators

Investors should closely monitor the following catalysts and data points in the coming quarters:

1. 1Q26 Gross Margin Recovery: The most immediate test of our thesis is whether gross margins show a clear sequential improvement in 1Q26. A rebound towards the 28-30% range would confirm that the 4Q25 dip was transient.
2. Lithium Carbonate Price Trends: Stabilization or decline in lithium prices would ease cost pressures and improve the Company’s ability to maintain or expand margins.
3. H-Share Issuance Details: The pricing and timing of the proposed H-share listing will be a key short-term catalyst. A narrow discount to A-shares would be positive, while a deep discount could cause temporary volatility. However, the long-term benefit of access to international capital and enhanced global brand profile remains positive.
4. AIDC Pilot Progress: Updates on the successful deployment of SST solutions with key cloud customers in 2026 will validate the new growth narrative.
5. Overseas Order Book: Continued growth in overseas orders, particularly in high-margin markets like the US and Europe, will reinforce the quality of earnings trajectory.

Conclusion

Sungrow Power Supply remains a best-in-class player in the global energy transition. While 4Q25 presented short-term challenges, the fundamental drivers of the business—robust global storage demand, strategic overseas expansion, and technological leadership—remain intact. The current valuation offers an attractive entry point for investors willing to look through the near-term noise. We reiterate our BUY rating with a target price of RMB 155.00, implying a 15.3% upside from current levels.

Appendix: Detailed Financial Analysis

Income Statement Analysis (Annual)

Note: The projected decline in gross margin from 31.8% in 2025 to 28.9% in 2026E reflects our conservative assumption regarding persistent competition and raw material costs, before a gradual stabilization in 2027-2028.

Cash Flow Analysis

Sungrow demonstrates strong cash generation capabilities, although working capital fluctuations are notable due to the nature of project-based revenue recognition.

Analysis: The significant outflow in working capital in 2026E (-8,306 Mn) is a key risk factor, reflecting the anticipated growth in inventory and receivables associated with higher shipment volumes. However, the Company’s strong ending cash balance (projected to reach RMB 38.8 billion by 2028) provides a ample buffer to manage these working capital needs without compromising financial stability.

Balance Sheet Strength

Sungrow maintains a robust balance sheet with a net cash position, which is a significant competitive advantage in a capital-intensive industry.

Key Ratios:
* Current Ratio: Improves from 1.7x in 2025 to 1.9x in 2028E, indicating strong short-term liquidity.
* Debt-to-Equity: The Company operates with a conservative leverage profile, relying more on internal cash generation and trade payables than interest-bearing debt.

Profitability and Efficiency Metrics

Analysis:
* ROE/ROA: While ROE shows a slight declining trend due to equity base expansion, it remains exceptionally high (>27%), underscoring the Company’s efficient use of capital.
* Working Capital Efficiency: The projected improvement in inventory turnover days (from 169 to 143.6) and receivables turnover days (from 114.9 to 101.2) in 2026E suggests management’s focus on operational efficiency as scale increases. The high payables turnover days indicate strong bargaining power with suppliers.

Analyst Certification and Disclosures

Analyst Certification:
The analysts responsible for this report, Hao Wen and Min Kang Zheng, hereby certify that:
1. The views expressed in this report accurately reflect their personal views about the subject securities or issuers.
2. No part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3. They have not received any material non-public information regarding the securities or issuers mentioned in this report.

Conflicts of Interest and Disclosures:
* Trading Activity: The analysts and their related parties (as defined by the SFC Code of Conduct) have not traded in the securities of Sungrow Power Supply in the 30 calendar days preceding the date of this report.
* Positions: The analysts and their related parties do not hold any financial interest in the securities of Sungrow Power Supply.
* Corporate Finance Relationships: BOCOM International Securities Limited and/or its affiliates have had investment banking relationships with various entities in the past 12 months, but none specifically with Sungrow Power Supply that would compromise the independence of this report.
* Market Making: BOCOM International and its affiliates may act as market makers or engage in principal trading activities in the securities mentioned in this report.

Disclaimer:
This report is confidential and intended solely for the use of BOCOM International Securities clients. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information contained herein is believed to be reliable but is not guaranteed as to its accuracy or completeness. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investors should conduct their own independent investigation and consult with professional advisors before making any investment decisions.

Rating Definitions:
* BUY: Expected total return > relevant industry index over the next 12 months.
* NEUTRAL: Expected total return ≈ relevant industry index over the next 12 months.
* SELL: Expected total return < relevant industry index over the next 12 months.

Industry Rating Definitions:
* LEADING: Expected industry performance > benchmark index over the next 12 months.
* IN-LINE: Expected industry performance ≈ benchmark index over the next 12 months.
* LAGGING: Expected industry performance < benchmark index over the next 12 months.

Benchmark Indices: Hang Seng Composite Index (HK), MSCI China A Index (A-Shares), S&P US China 50 USD Index (US-listed Chinese stocks).

Contact Information

BOCOM International Securities Limited
9th Floor, Man Yee Building, 68 Des Voeux Road Central, Hong Kong
Tel: (852) 3766 1899 | Fax: (852) 2107 4662

Lead Analyst:
Hao Wen, CPA
Email: bob.wen@bocomgroup.com
Phone: (86) 21 6065 3667

Co-Analyst:
Min Kang Zheng
Email: wallace.cheng@bocomgroup.com
Phone: (852) 3766 1810

Note: All financial data and estimates are based on information available as of April 2, 2026. Forecasts are subject to change based on market conditions and company performance.