Sungrow Power Supply: Share Award Plan Highlights Slower Growth and Margin Compression Challenges

Sungrow's 2025 share award plan underscores our cautious view of the firm's outlook. Under the plan, shares will vest annually over 2025-28 if either the revenue or net income targets are met; otherwise, they will be forfeited. The plan sets revenue targets at 124% of the 2023 level in 2025, 145% in 2026, 168% in 2027, and 185% in 2028, translating to a 13% revenue compound annual growth rate for 2023-28, substantially lower than the 47% CAGR during 2018-23. Alternatively, net income targets are set at 110% of the 2023 level in 2025, 120% in 2026, 130% in 2027, and 140% in 2028. The implied 7% net income CAGR for 2023-28 lags the revenue CAGR, indicating an expectation of margin compression. As we had already anticipated slowing growth and margin contraction, our estimates remain unchanged. We believe the shares are fairly valued, trading at an 11% premium to our valuation of CNY 63 per share.