Sungrow Power Supply (.SZ)_ 1Q25 Result Beats, But Uncertainty Exist & Valuations Not Low

Summary of Sungrow Power Supply (300274.SZ) Conference Call Company Overview - Company: Sungrow Power Supply - Ticker: 300274.SZ - Market Cap: Rmb121,946 million (approximately US$16,733 million) [11] Key Financial Highlights - 2024 Net Profit: Rmb11,036 million, up 16.9% year-over-year, aligning with consensus estimates [2] - 1Q25 Net Profit: Rmb3,826 million, a significant increase of 82.5% year-over-year, driven by: - Inverter shipment volumes increased by 19% year-over-year to 34GW - Energy-storage system (ESS) shipments surged to 12GWh, a 4.7x increase year-over-year [2] - Gross Profit Margin: Increased by 2.8 percentage points year-over-year to 29.9% in 2024 [2] Shipment and Revenue Projections - Inverter Shipment Target for 2025: Expected to rise by 10-20% year-over-year, with an assumption of 162GW [3] - ESS Shipment Target for 2025: Initially projected at 40-50GWh, now revised down to 35GWh (+25% year-over-year) due to anticipated tariff increases [3] Market and Tariff Impact - US Market Importance: Accounts for 10-20% of revenue, but is crucial for higher margins [1] - Tariff Impact: ESS shipments to the US have been suspended due to tariffs exceeding 100%, while inverter shipments remain unaffected as they are produced in Thailand [4] - Mitigation Strategies: The company is focusing on cost control and exploring sales in non-US markets to offset tariff impacts [4] Regulatory Environment - PRC Government Policy No.136: Introduced on February 9, 2025, adds uncertainty to ESS demand, with a rush in renewable capacity installations expected before June 1, followed by a sharp decline [5] Valuation and Recommendations - Target Price: Increased by 10.4% to Rmb53/share [1] - Current Valuation Metrics: - Price-to-Earnings Ratio (PER): 12.4x for 2025E - Price-to-Book Ratio (PB): 2.7x - Dividend Yield: 1.7% [1][7] - Analyst Rating: Cautious outlook with a "Sell" rating due to uncertainties despite the earnings beat [1] Additional Insights - Future Earnings Projections: Net profits are expected to increase by 12% for 2025E and 9% for 2026E [1] - Overall Market Sentiment: Despite strong performance in 1Q25, the company faces significant uncertainties that could impact future profitability and growth [1][14]