Sungrow Power Supply Earnings: Strong Margin Expansion Amid Falling Input Costs

Sungrow's fourth-quarter 2023 and first-quarter 2024 results beat expectations as its new-energy investment and development segment got a boost from strong solar installation activity and falling solar module costs. In addition, gross margin for its energy storage system segment also surprised positively on low lithium-ion cell costs. We expect profitability to remain high in 2024, as contracted sales prices should lag the drop in input costs. After raising our gross margin assumption to 31.9% from 25.1%, we increase our net income estimate to CNY 14 billion from CNY 11 billion for 2024. We raise our fair value estimate to CNY 94 from CNY 86. The shares closed 3% above our fair value estimate on April 23, and we think they are fully valued.