“EQUITY: TECHNOLOGY # 3Q26 net profit down $68 \%$ y-y as ESS GPM falls ## Weak 3Q26 on lagged cell costs, rebate cut and FX; compliance costs cap ESS margin recovery into 2027F 3Q26 net profit down 68% y-y on ESS margin squeeze Sungrow reported 3Q26 revenue of CNY17.95bn, down 21…”
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EQUITY: TECHNOLOGY # 3Q26 net profit down $68 \%$ y-y as ESS GPM falls ## Weak 3Q26 on lagged cell costs, rebate cut and FX; compliance costs cap ESS margin recovery into 2027F 3Q26 net profit down 68% y-y on ESS margin squeeze Sungrow reported 3Q26 revenue of CNY17.95bn, down 21.5% y-y but up 17% q-q. Management attributed the q-q increase to recovering US shipments and revenue recognition, and fast growth in European utility-scale ESS (energy storage system). ESS revenue rose 14% q-q to CNY7.7bn on 17GWh of shipments. Only 9-10GWh was recognized, as management said overseas projects take about six months from shipment to recognition. Gross margin fell to 29.4% from 38.6% in 2Q26, with ESS GPM down to 21% from 34%. Management attributed the ESS decline to high-cost cells bought in 1H26, the export rebate cut to 6% from 9%, FX, freight, and the consumption tax levied from 1 September. 3Q26 net profit fell 67.7% y-y and 55% q-q to CNY1.34bn, which was due to a CNY489mn fair-value loss on financial assets, and higher opex ratio at 16.4%. 4Q26F recognition catch-up, but compliance may cap margin recovery in 2027F Management guided 4Q26E ESS shipments of about 25GWh, which would take 2026E shipments above 60GWh. For 2027E, management expects global ESS growth >30%, and also sees domestic solar installations flat to slightly up. Further, management commented ESS pricing has stabilized and lithium has fallen to about CNY80k/t, though copper and other material costs are rising. For 2027F, we also see structural GPM pressure from 2027F: the battery export rebate will be abolished from 1 January 2027, and the consumption tax will rise to 4% from September 2027. Further, we estimate that the Poland plant costs 12-18% more than China supply. In the US, FCC re-certification and component re-sourcing should raise compliance costs further (Compliance cost rises across the US and EU on 16 August 2026). Maintain Buy; lower TP to CNY63 on a lower ESS margin due to compliance costs We maintain our Neutral rating and lower our TP to CNY63 (from CNY120), to reflect slow earnings growth due to gross margin pressure. We cut our 2026F/27F EPS toCNY4.18/5.24 from CNY7.25/8.78 to reflect: i) lower ESS GPM in 4Q26F-2027F as high-cost cells and tax changes flow through, and ii) higher compliance costs in the US and EU. Our new TP is based on 12x 2027F P/E (previously 14x 2027F P/E), at -0.5x SD of its historical average P/E of 19x. The stock currently trades at 13x 2027F P/E. Year-end 31 Dec FY25 FY26F FY27F FY28F Currency (CNY) Actual Old New Old New Old New Revenue (mn) 89,184 103,136 67,740 125,455 78,694 152,317 89,137 Reported net profit (mn) 13,461 15,030 8,662 18,201 10,854 21,572 12,062 Normalised net profit (mn) 13,461 15,030 8,662 18,201 10,854 21,572 12,062 FD normalised EPS 6.55 7.25 4.18 8.78 5.24 10.41 5.82 FD norm. EPS growth (%) 23.1 11.7 -36.2 21.1 25.3 18.5 11.1 FD normalised P/E (x) 10.0 - 15.6 - 12.5 - 11.2 EV/EBITDA (x) 6.4 - 9.4 - 7.7 - 6.5 Price/book (x) 2.7 - 2.6 - 2.2 - 1.9 Dividend yield (%) 2.5 - 1.6 - 2.0 - 2.2 ROE (%) 29.9 26.1 17.0 24.2 19.2 22.4 18.4 Net debt/equity (%) net cash net cash net cash net cash net cash net cash net cash Source: Company data, Nomura estimates Rating Remains Neutral Target priceReduced fromCNY 120.00 CNY 63.00 Closing price30 October 2026 CNY 65.29 Implied upside -3.5% Market Cap (USD mn) 20,332.6 ADT (USD mn) 659.7 ## Relative performance chart  Source: LSEG, Nomura ## Research Analysts Advanced Manufacturing Frank Fan - NIHK frank.fan@nomura.com +852 2252 2195 Donnie Teng - NIHK donnie.teng@nomura.com +852 2252 1439 ## Key data on Sungrow Power Supply Performance(%) 1M 3M 12M Absolute (CNY) -20.9 -37.0 -66.5 M cap (USDmn) 20,332.6 Absolute (USD) -20.3 -36.1 -64.2 Free float (%) 61.0 Rel to CSI 300 -13.6 -25.9 -52.3 3-mth ADT (USDmn) 659.7 Income statement (CNYmn) Year-end 31 Dec FY24 FY25 FY26F FY27F FY28F Revenue 77,857 89,184 67,740 78,694 89,137 Cost of goods sold -54,545 -60,795 -45,813 -54,458 -61,956 Gross profit 23,312 28,389 21,927 24,235 27,181 SG&A -8,528 -11,230 -11,149 -11,489 -13,014 Employee share expense Operating profit 14,784 17,159 10,778 12,746 14,167 EBITDA 15,706 18,414 12,091 14,118 15,602 Depreciation -783 -1,112 -1,168 -1,226 -1,288 Amortisation -138 -143 -144 -146 -147 EBIT 14,784 17,159 10,778 12,746 14,167 Net interest expense -290 -40 -596 -236 -267 Associates & JCEs Other income -950 -859 62 111 126 Earnings before tax 13,544 16,260 10,244 12,621 14,026 Income tax -2,280 -2,727 -1,755 -1,893 -2,104 Net profit after tax 11,264 13,533 8,489 10,727 11,922 Minority interests -228 -72 173 126 140 Other items Preferred dividends Normalised NPAT 11,036 13,461 8,662 10,854 12,062 Extraordinary items Reported NPAT 11,036 13,461 8,662 10,854 12,062 Dividends -2,217 -3,367 -2,165 -2,713 -3,016 Transfer to reserves 8,820 10,095 6,496 8,140 9,047 Valuations and ratios Reported P/E (x) 12.3 10.0 15.6 12.5 11.2 Normalised P/E (x) 12.3 10.0 15.6 12.5 11.2 FD normalised P/E (x) 12.3 10.0 15.6 12.5 11.2 Dividend yield (%) 1.6 2.5 1.6 2.0 2.2 Price/cashflow (x) 11.2 7.9 22.1 10.4 9.4 Price/book (x) 3.4 2.7 2.6 2.2 1.9 EV/EBITDA (x) 7.9 6.4 9.4 7.7 6.5 EV/EBIT (x) 8.4 6.9 10.5 8.5 7.2 Gross margin (%) 29.9 31.8 32.4 30.8 30.5 EBITDA margin (%) 20.2 20.6 17.8 17.9 17.5 EBIT margin (%) 19.0 19.2 15.9 16.2 15.9 Net margin (%) 14.2 15.1 12.8 13.8 13.5 Effective tax rate (%) 16.8 16.8 17.1 15.0 15.0 Dividend payout (%) 20.1 25.0 25.0 25.0 25.0 ROE (%) 31.7 29.9 17.0 19.2 18.4 ROA (pretax %) 18.5 18.0 11.7 13.6 13.8 Growth (%) Revenue 14.5 -24.0 16.2 13.3 EBITDA 17.2 -34.3 16.8 10.5 Normalised EPS 23.1 -36.2 25.3 11.1 Normalised FDEPS 23.1 -36.2 25.3 11.1 Source: Company data, Nomura estimates Cashflow statement (CNYmn) Cashflow statement (CNYmn) Year-end 31 Dec FY24 FY25 FY26F FY27F FY28F EBITDA 15,706 18,414 12,091 14,118 15,602 Change in working capital -6,009 1,473 5,575 -1,682 -1,639 Other operating cashflow 2,372 -2,969 -11,543 589 512 Cashflow from operations 12,068 16,918 6,123 13,024 14,475 Capital expenditure -2,786 -3,008 -2,698 -2,754 -3,120 Free cashflow 9,282 13,910 3,425 10,270 11,355 Reduction in investments 0 0 0 0 Net acquisitions Dec in other LT assets -810 -1,623 -797 -863 Inc in other LT liabilities -1,099 -378 0 0 Adjustments -8,067 1,646 7,240 797 863 CF after investing acts 1,215 13,647 8,664 10,270 11,355 Cash dividends -2,217 -3,367 -2,165 -2,713 -3,016 Equity issue Debt issue 897 -2,713 1,623 2,280 2,280 Convertible debt issue Others 3,637 -4,536 -3,041 -4,531 -4,228 CF from financial acts 2,317 -10,616 -3,583 -4,964 -4,964 Net cashflow 3,532 3,031 5,081 5,306 6,391 Beginning cash 16,267 19,799 22,831 27,912 33,218 Ending cash 19,799 22,831 27,912 33,218 39,609 Ending net debt -10,722 -17,343 -21,751 -27,057 -33,448 Balance sheet (CNYmn) As at 31 Dec FY24 FY25 FY26F FY27F FY28F Cash & equivalents 19,799 22,831 27,912 33,218 39,609 Marketable securities Accounts receivable 28,486 24,733 20,688 23,699 26,571 Inventories 29,028 27,255 23,392 26,523 29,870 Other current assets 17,836 20,609 18,417 19,935 21,578 Total current assets 95,149 95,428 90,409 103,374 117,627 LT investments Fixed assets 11,267 13,674 14,967 15,459 16,006 Goodwill 297 297 297 297 297 Other intangible assets 1,122 1,231 1,717 1,752 1,787 Other LT assets 7,239 8,049 9,672 10,469 11,332 Total assets 115,074 118,679 117,062 131,351 147,050 Short-term debt 4,214 2,422 3,285 3,285 3,285 Accounts payable 36,757 36,636 32,164 36,469 41,071 Other current liabilities 19,327 18,169 18,115 19,788 21,409 Total current liabilities 60,298 57,228 53,565 59,541 65,765 Long-term debt 4,863 3,065 2,876 2,876 2,876 Convertible debt Other LT liabilities 9,714 8,615 8,237 8,237 8,237 Total liabilities 74,875 68,908 64,678 70,654 76,878 Minority interest Preferred stock Common stock 2,073 2,073 2,073 2,073 2,073 Retained earnings 28,346 37,640 43,565 54,419 66,481 Proposed dividends Other equity and reserves 9,779 10,058 6,746 4,204 1,618 Total shareholders' equity 40,199 49,772 52,384 60,697 70,173 Total equity & liabilities 115,074 118,679 117,062 131,351 147,050 Liquidity (x) Current ratio 1.58 1.67 1.69 1.74 1.79 Interest cover 50.9 433.8 18.1 54.0 53.0 Leverage Net debt/EBITDA (x) net cash net cash net cash net cash net cash Net debt/equity (%) net cash net cash net cash net cash net cash Per share Reported EPS (CNY) 5.32 6.55 4.18 5.24 5.82 Norm EPS (CNY) 5.32 6.55 4.18 5.24 5.82 FD norm EPS (CNY) 5.32 6.55 4.18 5.24 5.82 BVPS (CNY) 19.38 24.22 25.27 29.28 33.85 DPS (CNY) 1.07 1.64 1.04 1.31 1.45 Activity (days) Days receivable 133.5 108.9 122.4 102.9 103.2 Days inventory 194.2 169.0 201.8 167.3 166.6 Days payable 246.0 220.3 274.1 230.0 229.0 Cash cycle 81.8 57.5 50.1 40.2 40.7 Source: Company data, Nomura estimates ## Company profile Sungrow Power Supply is a top-tier power control system and energy storage vendor in China, with major product being PV inverter, energy storage equipment, and solar EPC. ## Valuation Methodology We use P/E method to value Sungrow and our TP of CNY63 is based on 12x 2027F P/E, -0.5x SD of its historical average at 19x, which is due to declining gross margins in 2026-28F. The benchmark index is CSI300. Risks that may impede the achievement of the target price Upside risks include: 1) faster ESS development in data center clients; 2) better gross margins due to stable battery prices. Downside risks include: 1) policy headwinds for ESS business; 2) softening utility-scale project demand. ## ESG Sungrow fits the ESG theme since it is one of leading solar inverter companies, helping generate renewable energy with low consumption costs. Fig. 1: Sungrow – forward P/E band  Source: Bloomberg Finance L.P., Nomura research Fig. 2: Sungrow – forward P/E with -1/+2x SD  Source: Bloomberg Finance L.P., Nomura research ## Appendix A-1 This report has been produced by Nomura International (Hong Kong) Ltd. (NIHK), Hong Kong. See Disclaimers for Nomura Group entity details. ## Analyst Certification We, Frank Fan and Donnie Teng, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company. ## Issuer Specific Regulatory Disclosures The terms "Nomura" and "Nomura Group" used herein refer to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura Securities International, Inc. ('NSI') and Instinet, LLC ('ILLC'), U. S. registered broker dealers and members of SIPC. ## Materially mentioned issuers Issuer Ticker Price Price date Stock rating Sector rating Disclosures Sungrow Power Supply 300274 CH CNY 65.29 30-Oct-2026 Neutral N/A  For explanation of ratings refer to the stock rating keys located after chart(s) Valuation Methodology We use P/E method to value Sungrow and our TP of CNY63 is based on 12x 2027F P/E, -0.5x SD of its historical average at 19x, which is due to declining gross margins in 2026-28F. The benchmark index is CSI300. Risks that may impede the achievement of the target price Upside risks include: 1) faster ESS development in data center clients; 2) better gross margins due to stable battery prices. Downside risks include: 1) policy headwinds for ESS business; 2) softening utility-scale project demand. ## Important Disclosures ## Online availability of research and conflict-of-interest disclosures Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, LSEG. Important disclosures may be read at http://go.nomuranow.com/research/m/Disclosures or requested from Nomura Securities International, Inc. If you have any difficulties with the website, please email grpsupport@nomura.com for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. 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本报告新增披露了阳光电源3Q26收入、净利润、储能出货与收入确认节奏及毛利率等数据；公司预计4Q26出货约25GWh以弥补3Q26确认缺口，2026年全年出货超过60GWh。报告同时更新了原材料、出口退税、消费税、本地化成本及欧美合规对盈利的影响，并显著下调2026至2027年盈利预测和目标价。