Bank of America: Sungrow Power’s third-quarter profit falls well short of expectations; rating and price target cut

Why did third-quarter results fall so far short of expectations?

In the third quarter of 2026, Sungrow Power reported revenue of approximately 18 billion yuan, down 22% year on year, and net profit attributable to shareholders of approximately 1.34 billion yuan, down 68% year on year and below market expectations of 2 billion to 2.5 billion yuan.
BofA attributed the miss primarily to the recognition of high-cost battery orders, lower export tax rebates on batteries, foreign-exchange losses and higher freight costs. Fair-value losses on equity investments also amounted to approximately 500 million yuan.
The company’s overall gross margin fell from 38.6% in the second quarter to 29.4% in the third, while the energy-storage business’s gross margin fell from 34% to 21%.

The company shipped 17 GWh of energy-storage systems in the third quarter, but recognized revenue on only 9 to 10 GWh of energy-storage products during the quarter, all shipped in the first half, showing a pronounced lag between shipment and revenue recognition.
Slower energy-storage revenue recognition and a decline in low-margin power-station development business together reduced revenue for the quarter. The company guided for energy-storage shipments exceeding 60 GWh in 2026, with the potential to double in 2027.

BofA expects gross margins to recover gradually as lithium carbonate prices normalize in the fourth quarter of 2026, but sees a return to second-quarter levels as difficult. It also expects faster shipment growth in lower-priced markets in 2027 to lower the average selling price of energy storage, partly offsetting the benefit of falling battery costs.
There is also pressure on the demand side: China shipped 797 GWh of energy-storage batteries in the first 10 months of 2026, up 95% year on year; in the first 9 months, a different period, China installed 99 GWh of energy storage, up 21% year on year. BofA believes the mismatch between shipment and installation growth raises concerns about demand sustainability; lower project returns also increase uncertainty about long-term installation growth in China.
Overseas, BofA is watching intensifying competition, lower margins in emerging markets and possible US Federal Communications Commission restrictions on inverters. The bank nevertheless believes the company’s market position and greater exposure to overseas business will help its energy-storage margins remain ahead of peers.

After incorporating third-quarter results and overseas headwinds, BofA cut its forecasts for net profit attributable to shareholders in 2026 through 2028 by 42%, 43% and 41%, respectively, to 9.009 billion yuan, 11.215 billion yuan and 13.371 billion yuan.
BofA lowered its target valuation from 22 times the average forecast price-to-earnings ratio for 2026 to 2027 to 13 times forecast earnings for 2027, which it considers broadly in line with mainland Chinese peers. It cut the price target from 186 yuan to 70 yuan and downgraded the rating from Buy to Neutral.