Nomura: Sungrow energy storage shipments rebound, but lower gross margins weigh on third-quarter profit

Why did revenue rise quarter on quarter while profit fell sharply?

In the third quarter of 2026, Sungrow's revenue was 17.95 billion yuan, down 21.5% year on year and up 17% quarter on quarter. Management attributed the sequential recovery to a resumption of US shipments and revenue recognition, as well as rapid growth in Europe's large-scale energy storage business.
Profit moved in the opposite direction: third-quarter net profit was 1.34 billion yuan, down 67.7% year on year and 55% quarter on quarter. In addition to pressure on gross margins, the company recorded a fair-value loss of 489 million yuan on financial assets, and its operating expense ratio rose to 16.4%.
Overall gross margin fell from 38.6% in the second quarter to 29.4% in the third quarter, while the energy storage gross margin fell from 34% to 21%. Management said the pressure came from high-priced battery cells purchased in the first half, a cut in the export tax rebate rate from 9% to 6%, changes in exchange rates and freight costs, and a consumption tax imposed starting in September.

Third-quarter energy storage revenue was 7.7 billion yuan, up 14% quarter on quarter; shipments during the quarter were 17 GWh, but revenue was recognized for only 9–10 GWh. Management said overseas projects take about six months from shipment to revenue recognition, creating a timing gap between shipment growth and revenue booking.
Management expects energy storage shipments of about 25 GWh in the fourth quarter, taking full-year 2026 shipments above 60 GWh; it also expects the global energy storage market to grow by more than 30% in 2027.
Management said energy storage prices have stabilized and lithium prices have fallen to about 80 thousand yuan per tonne, but copper and other material costs are rising.

Nomura expects high-priced battery cells and tax changes to affect energy storage gross margins from the fourth quarter of 2026 through 2027: the battery export tax rebate will be abolished in January 2027, and the consumption tax will rise to 4% in September 2027.
Overseas compliance also adds costs. Nomura estimates that costs at the Polish factory are 12%–18% higher than sourcing from China; in the US, FCC recertification and finding new sources for components are expected to push compliance costs higher still.
Nomura cut its earnings per share forecasts for 2026 and 2027 from 7.25 yuan and 8.78 yuan to 4.18 yuan and 5.24 yuan, respectively, citing lower energy storage gross margins and higher compliance costs in Europe and the US.

Nomura maintained its neutral rating, cut its target price from 120 yuan to 63 yuan, and lowered its valuation basis from 14 times to 12 times forecast 2027 earnings. The report lists a historical average price-to-earnings ratio of 19 times.
Nomura sees faster-than-expected development of energy storage business with data center customers and better gross margins from stable battery prices as upside factors for the target price; energy storage policy headwinds and weaker demand for large projects are downside factors.