Bernstein: Sungrow’s energy storage shipments grew in the third quarter, but gross margin fell to 21%

Revenue rebounded quarter on quarter. Why did earnings still fall far short of expectations?

Third-quarter revenue in 2026 was 18 billion yuan, up 17% quarter on quarter but down 22% year on year and 30% below the market consensus of 25.8 billion yuan; net profit attributable to shareholders was 1.34 billion yuan, down 68% year on year and also below the market consensus of 3.9 billion yuan.
The year-on-year revenue weakness reflects lower domestic demand for new energy, a substantially smaller contribution from Middle East project deliveries than from Saudi projects a year earlier, and the company’s exit from low-return new energy development projects.
The group’s third-quarter gross margin fell to approximately 29.4% from 38% in the second quarter, below the market consensus of 30.2%. Lower energy storage profitability was the main operational drag; profit attributable to shareholders for the quarter was also affected by a fair-value loss of 489 million yuan.

Energy storage shipments totaled approximately 17 GWh in the third quarter, but revenue was recognized for only approximately 9–10 GWh, with energy storage revenue of approximately 7.7 billion yuan. Bernstein expects the remaining approximately 7–8 GWh to support revenue from the fourth quarter of 2026 through the first quarter of 2027.
Energy storage gross margin fell from approximately 34% in the second quarter to approximately 21% in the third. The delayed pass-through of higher battery costs, weaker exchange rates, freight costs, changes in export rebates and taxes, and project mix jointly put pressure on margins.
Inverters remain a pillar of earnings: shipments were approximately 103 GW in the first three quarters, including approximately 75 GW overseas, up approximately 13% year on year; the higher overseas share helped keep third-quarter inverter gross margin above 40%.

Contract liabilities rose 38% from the end of 2025 to a record 14.7 billion yuan, while inventories rose 50% to 41 billion yuan. Management attributed most of the inventory increase to higher energy storage orders and shipments, as well as longer overseas delivery and acceptance cycles.
Bernstein believes these indicators support subsequent deliveries, but conversion into revenue and cash is taking longer than expected; operating cash flow in the first three quarters of 2026 fell 63% year on year to 3.65 billion yuan.
Management expects energy storage shipments to exceed 20 GWh in the fourth quarter and 60 GWh for the full year, and says existing orders can support approximately 120 GWh of shipments in 2027. Bernstein raised its 2027 forecast from 84 GWh to 100 GWh, while offsetting most of the incremental earnings with a more cautious energy storage gross margin assumption.

Bernstein cut its earnings forecasts for 2026 and 2027 by 28% and 11%, respectively, and lowered its target price from 151 yuan to 114 yuan per share, while maintaining its outperform rating. Based on the firm’s forecasts, the share price listed in the report corresponds to a 2027 price-to-earnings ratio of approximately 9 times.
The US executive order on bulk power systems includes large grid-connected inverters, energy storage systems and related control systems within its scope of review. It applies to transmission facilities at 69 kilovolts and above and excludes local distribution systems. The US Department of Energy must issue detailed rules within 120 days; how a project’s point of connection affects the scope of application remains uncertain.
Bernstein’s base case is that the company continues to access the US market under tighter regulation, rather than being excluded entirely; management believes many current US projects may fall outside the executive order’s immediate scope.