Sungrow (4Q25 Trans): 2026 ESS shipment target up ~40%-50%
The following is Dolphin Research's transcript summary of$Sungrow Power Supply(300274.SZ) FY25 earnings call. For our take on the results, see 'Sungrow: Thunder out of a clear sky — ESS hot, is Sungrow 'ice-cold'?'.
I. Key takeaways from the results
1. Shareholder returns: FY25 saw the first semi-annual dividend, with total cash dividends of RMB 3.36bn, or 25% of attributable net profit. As of period-end, the company had repurchased about RMB 300mn of shares.
2. Core results: FY25 revenue was RMB 89.1bn (+14.5% YoY), with GPM at 31.8% (+180bps YoY). Attributable net profit was RMB 13.46bn (+21.9% YoY), or approx. RMB 14.3bn (+29.8% YoY) excluding the incentive fund impact.
3. Operating cash flow sharply improved: Operating CF reached RMB 16.9bn (+40% YoY, +RMB 4.85bn). Days sales outstanding shortened by 10 days YoY, with collections up RMB 13.2bn YoY.
4. Healthier balance sheet: Debt-to-asset ratio fell to 58.1% (-700bps YoY). Accounts payable were RMB 23.5bn, down RMB 4.14bn vs. start of year, and inventory was RMB 27.26bn, down RMB 1.77bn vs. start of year.
5. R&D ramp: R&D expense was RMB 4.17bn (+31.9% YoY), with 7,625 R&D staff accounting for 40% of headcount. The incentive fund totals approx. RMB 1bn, amortized quarterly into COGS and opex (sales, G&A, R&D).
II. Details from the call
2.1 Management highlights
1) Industry
a. PV: FY25 global PV additions were 513GW (+12% YoY). China added 317GW (+14%), or 61% of global, while overseas additions were 196GW (+8%), with APAC at 56GW (+30%), Americas ~59GW, and Europe 64GW, bringing the three overseas regions to similar scales.
b. ESS: FY25 global ESS additions were 317GWh (+74% YoY), expanding from China/US/UK/Australia to a broader global footprint. China added 178GWh (+82%), overseas 139GWh (+65%), with Americas +46%, Europe +41%, and APAC +92%.
c. Wind: FY25 global wind additions were 169GW (+44% YoY). China rose from 80GW to ~120GW (+50%).
2) Inverters
a. Shipments were 143GW in FY25, down YoY overall, dragged by China. Overseas shipments grew 12% YoY, slightly ahead of market growth, while domestic declines stemmed from a weaker residential market and the company's decision to drop negative-margin projects.
b. Revenue was RMB 26.6bn (+4% YoY), with GPM around 37% and up YoY. Drivers included new products, a higher overseas mix, and brand premium.
c. Two flagship products launched during the period: the >400kW central inverter SG49, and the world's first split modular inverter.
3) ESS
a. FY25 shipments were 43GWh (+5% YoY), below the industry's +74% growth, as the company exited low-profit domestic projects. Overseas shipments were 36GWh (+90% YoY), outpacing the +65% overseas market growth, while domestic shipments were ~7GWh and declined YoY.
b. Revenue was RMB 37.2bn (+49% YoY), with GPM at 36.5% and broadly stable. In Q4, GPM fell to ~24% (-~17pp QoQ) due to a high Q3 base from large UK projects, lithium carbonate cost pass-through, a higher domestic/Americas mix, and year-end true-up of after-sales costs and channel rebates.
c. The company released PowerTitan 3.0 and upgraded Grid-forming 2.0 with a first-of-its-kind three-level coordination across battery, PCS, and plant. It completed grid connection at full capacity for the world's largest grid-forming ESS project (17.8GWh), and in C&I storage launched PowerStack 255/510, covering 400V to 35kV and 2–4 hour use cases, while residential storage passed large-scale UL9540B fire tests.
4) New energy investment & development
a. FY25 revenue reached RMB 16.5bn (-22% YoY), with GPM down from 20% to 14% and net profit near breakeven. Solar EPC dragged results, with revenue down 30% and GPM slipping to single digits, turning from profit to loss.
5) AIDC
a. The company entered AIDC power, offering solid-state transformers (SST) and power solutions. The roadmap spans medium-voltage direct connect, high-density modular power, and DC backup across outdoor, prefabricated cabin, and rack-mounted formats.
6) Overseas & globalization
a. Overseas revenue totaled RMB 54bn (+49% YoY), accounting for over 60% of the mix. Middle East, Americas, and APAC delivered strong growth, and faster collections overseas improved overall cash conversion.
2.2 Q&A
Q: How are AIDC and AI-related ESS orders progressing, and what is the outlook for the year?
A: ESS in AIDC mainly serves backup power and peak-shaving/variability management. Traditional data centers have had steady backup power orders, while AI-linked ESS sits in two buckets: on-site at the UPS side, where the industry is still testing shared battery approaches beyond a few minutes but reliability is a concern, and off-site paired storage that is separate from AIDC's SST power.
In the US, off-site ESS is driven by arbitrage and policy that prioritizes data center build-out when paired with storage. Overall AIDC ESS orders remain small, but as SST progresses, we expect synergy, and customer engagement is active.
Q: Why did Q4 revenue and margin swing QoQ, and how should we think about Q1 cadence?
A: Q4 revenue was about RMB 22.8bn, with profit down QoQ mainly as GPM fell from 36% to 23%. Mix shifted as large new energy investment projects were handed over in Q4, lifting that segment's revenue share by ~10pp, and product GPM was only ~24% in Q4, down ~17pp QoQ.
ESS margins dropped by the low-teens pp, due to a high Q3 base from UK projects, lithium carbonate inflation on backlog costs, a higher domestic and Americas mix, and year-end true-up of after-sales and channel rebates. Opex ticked up and we booked a few hundred million RMB in bad debt provisions.
On quarterly cadence, large ESS projects can swing single-quarter revenue, such as Middle East deliveries in Q1. This reflects normal project timing, and Q1 data are still being tallied.
Q: How is the ~RMB 1bn incentive fund accrued and where is it recognized, and was Q4 higher?
A: The incentive fund is linked to revenue and profit and is accrued quarterly based on full-year progress. It covers production, sales, R&D, and G&A staff and is allocated to COGS plus selling, G&A, and R&D expenses.
In Q4 specifically, accrual was not heavy in proportion to profit, roughly 10%–20% of the full-year amount, or about RMB 100mn–200mn. We view incentives as necessary to attract and retain talent and to strengthen the organization, and may consider future equity incentives.
Q: With lithium carbonate rising, domestic ESS has little profit. What margin can overseas ESS sustain, and how will margins trend?
A: Raw material pass-through typically lags by about six months because of long project cycles. Signed contracts must be honored, and intense end-market competition and more ESS players impede pass-through, pressuring margins for a while.
We have largely exited domestic ESS as GPM is ~10% with negative net profit, which is not worthwhile. Overseas, we leverage scale to lock in competitive supply, and drive costs lower via brand premium, technology, and supply-chain coordination to differentiate, and while domestic price wars will spill over, overseas customers value long-term service and track record, so the backdrop remains manageable and should be broadly stable.
Q: What is the 2026 ESS shipment target and regional mix, and how will margins trend amid higher lithium prices and demand hesitation?
A: Global ESS growth in 2026 is expected at 30%–50%, slightly slower than before as higher raw material costs push some projects to wait-and-see, with slippage into 2027 possible. We aim to track toward the high end, planning ~40%–50% growth to above 60GWh of shipments.
By region, growth will be limited in Middle East & Africa, with some growth in China, around 22%–35% in the Americas, and similar growth in APAC and Europe. We will continue to focus on quality customers and profitable projects in 2026.
Q: Please elaborate on SST progress in AIDC and the competitive landscape.
A: AIDC focuses on power architecture and key equipment, with emphasis on medium-voltage direct-connect SST, high-density modular power, and DC backup. Form factors include outdoor power, prefabricated cabins, rack-mounted and on-board power, covering primary/secondary/tertiary and auxiliary power.
We are co-defining product architectures with leading global cloud and AI providers and top domestic internet firms. We expect product landing and small-scale deliveries by end-2026 and potential volume in H2 2027.
AIDC is growing faster than PV, ESS, and wind. Internet companies adopt new tech quickly and engage openly, and while traditional transformer makers are entering SST, SST is fundamentally a power converter, not a line-frequency transformer, with high technical barriers; we are investing heavily and aim to deliver results in H2 2026.
Q: Will the 2026 incentive fund be around RMB 1bn as well?
A: The intensity of 2026 incentives is under study and not finalized. That said, given our emphasis on talent and R&D, we will continue to provide strong incentives.
Q: What was the domestic vs. overseas split of FY25 ESS shipments, and how will 2026 be distributed?
A: In FY25, ESS shipments were 43GWh, with about 7GWh domestic and roughly 36GWh overseas. In Q4, shipments were ~14GWh, with ~2GWh domestic and ~11–12GWh overseas, implying a very low domestic mix.
We have not disclosed the 2026 regional split. Market share is not the target, and we will continue to concentrate on quality customers and profitable projects in 2026.
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