Sieyuan Electric’s revenue rose by more than thirty percent; why did profit grow only 4.5%?

Revenue exceeded the growth target. Why did profit fall short of expectations?

In the third quarter of 2026, Sieyuan Electric reported revenue of 6.967 billion yuan, up 30.7% year on year; net profit was 939 million yuan, up only 4.5% and below market expectations. Revenue for the first three quarters rose 28.5% to 17.762 billion yuan, also exceeding the company’s full-year revenue growth target of 25%, but net profit rose only 9.7% over the same period.
The gap first appeared in gross margin: it was 30.9% in the third quarter, down 2.4 percentage points year on year and 0.7 percentage points quarter on quarter; for the first three quarters it was 30.6%, down 1.7 percentage points year on year. Both declines exceeded the company’s target of a year-on-year change in full-year gross margin of no more than 1 percentage points.
Revenue growth therefore did not translate into proportional profit growth. Third-quarter gross profit grew 21.4% year on year, slower than revenue; net margin fell to 13.5%, down 3.4 percentage points year on year, while subsequent expenses and gains and losses widened the gap in profit growth further.

Citi attributes the gross margin shortfall mainly to energy storage sales, estimating that the business has a gross margin of only about 15%, well below the company-wide level. The estimate draws on the first-half range of 15%–17% and peers’ third-quarter results, implying a relatively thin profit contribution from energy storage revenue.
The company entered the energy storage business only in 2025. Sales are concentrated mainly in China, where domestic competition is intensifying, and it has yet to benefit from higher-margin overseas sales. Citi expects this situation may continue into the fourth quarter of 2026, with the business mix continuing to constrain short-term revenue expansion.

Third-quarter impairment losses rose 126% year on year to 99 million yuan, mainly involving write-downs of inventory and accounts receivable. However, Citi has limited concern because it considers the impairment amount to be less than 1% of the relevant inventory and receivables balances.
Other operating income in the third quarter fell 74.2% year on year to 37 million yuan, partly due to lower government subsidies; finance expenses rose to about four times their year-earlier level, reaching 48 million yuan. Together, these changes weakened the boost to net profit from revenue growth.
By Citi’s calculations, third-quarter foreign exchange and hedging losses were about 42 million yuan, compared with a gain of 7 million yuan a year earlier. About 30% of the company’s revenue comes from overseas, and Citi attributes the loss mainly to the renminbi’s appreciation against other major currencies.

Excluding non-recurring items, third-quarter net profit was 916 million yuan, up 14.6% year on year. That was better than the overall net profit growth rate of 4.5%, but still well behind revenue growth. Earnings pressure therefore reflects both declining operating margins and changes in other gains and losses.
Citi estimates roughly that about half of the earnings shortfall came from the gross margin gap caused by the energy storage business, with the rest coming from other recurring items. The bank expects market earnings consensus for 2026 to be revised downward and believes the share price may retreat in the short term.
The report maintains a buy rating and a target price of 216 yuan, using a discounted cash flow method that incorporates cash flow forecasts through 2030, a perpetual growth rate of 4% and a cost of equity of 9.6%. Long-term valuation is also affected by domestic power grid capital expenditure, new overseas orders and raw material costs; the short-term earnings gap and long-term rating correspond to different time horizons.