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Brian Ho, CFA+852 2123 2615brian.ho@bernsteinsg.com Sungrow Power Supply Co., Ltd Neil Beveridge, Ph.D.+852 2123 2648neil.beveridge@bernsteinsg.com Outperform(Market-PerformOLD) Hengliang Zhang+852 2123 2629hengliang.zhang@bernsteinsg.com Price Target 300274.CH 260.00 RMB(121.00OLD) Sungrow: A blue sky on ESS optimism - Upgrading to Outperform We are upgrading Sungrow to Outperform and raise our PT to RMB260/sh. Sungrow hasdone well to navigate increased competition,and we are now more confident about thecompany's outlook driven by: 1) robust ESS growth supported by a substantial order backlog,and 2) Sungrow’s impressive success in expanding overseas, which is driving notable marginimprovement. Our 2026 EPS estimates are 28% above consensus. We are raising Sungrow’s ESS sales outlook significantly in response to acceleratingdemand momentum.We expect Sungrow’s shares to continue to re-rate upward onstronger energy storage demand. We project ESS sales to surge from 45 GWh in 2025(+60% y-o-y) to 70 GWh in 2026 (+55% y-o-y). We raise our 2030 sales forecast to157GWh from 132GWh, implying a 30% CAGR while maintaining a steady 10% global M/S. A strong pipeline of overseas and domestic projects over the next several years underpinsthis growth trajectory and signals robust sales ahead. Margins are exceptionally strong, fueled by accelerated overseas ESS expansion. Sungrow is decisively gaining market share across all key markets across Europe, US, MiddleEast, and Asia. Overseas ESS sales surged 117% in 9M25 and now represents 83% of totalESS volume (from 63% in 2024). Sungrow’s ESS GPM have reached an unprecedented40% in 2025, up from 37% in 2024, driven by rapid growth in high-margin overseas sales.Overseas GPMs exceed 40%, a 10-15% premium over domestic margins, reflecting superiorpricing power. We have raised our ESS GPM forecast accordingly from 32% to 40% in 2026. We upgrade Sungrow to Outperform with a price target of RMB260/sh.We forecastearnings growth of 53% in 2025 and 30% in 2026. Our 2026 earnings estimates are 28%above consensus reflecting stronger than expected sales growth and higher margins. Wevalue Sungrow on a DCF basis which gives us a price target of RMB260/sh and impliesa 2026E target P/E of 24.7x. Key risks to monitor include a possibility of ESS demandslowdown driven by reduced AI spending and the risk of higher US tariffs. Nonetheless, weconsider these risks manageable, and the overall risk-reward profile remains attractive. Investment Implications We rate Sungrow at Outperform with price target of RMB260/sh. DETAILS We upgrade Sungrow to Outperform with a price target of RMB260/sh. We forecast earnings growth of 53% in 2025 and30% in 2026. Our 2026 earnings estimates are 28% above consensus reflecting stronger than expected sales growth andhigher margins. We value Sungrow on a DCF basis which gives us a price target of RMB260/sh and implies a 2026E targetP/E of 24.7x. Price target changes reflect the higher earnings expectations from ESS growth as well as a change in WACCassumptions from 7.7% to 8.6%. Key risks to monitor include a possibility of ESS demand slowdown driven by reduced AIspending and the risk of higher US tariffs. Nonetheless, we consider these risks manageable, and the overall risk-reward profileremains attractive. Driven by surging global demand for battery energy storage to support renewable integration and grid stability, ESS revenuegrew by over 100% y-o-y to RMB28.8bn in the first nine months, outpacing the company's overall revenue growth of 33% y-o-y at RMB66.4bn. ESS is now the largest segment within the company accounting for 43% of total revenue followed by invertersat 35%. Overseas ESS markets have been pivotal, contributing the majority of shipments and revenue, with higher pricing powerabroad bolstering margins. Driven by surging ESS demand and a robust order backlog, we anticipate Sungrow’s ESS shipmentsto grow by 60% in 2025, reaching 45 GWh, and further increase by 55% in 2026 to 70 GWh. EXHIBIT 1:Driven by surging ESS demand and a robust order backlog, we anticipate Sungrow’s ESS shipments togrow by 60% in 2025, reaching 45 GWh, and further increase by 55% in 2026 to 70 GWh The global lithium energy storage installed capacity reached about 170GWh in 9M25, up 68% y-o-y. Growth is fueled bythe expansion of renewable energy, the rise of spot markets, and improved storage economics. The market is diversifyingfrom concentrated hubs in China, the US, UK, and Australia to include Europe, the Middle East, and Asia-Pacific. Our monthlytrackers continue to show strong momentum and demand for ESS domestically and overseas. Battery tenders are a leadingindicator of battery installations. YTD, China’s ESS tenders grew significantly by 166% y-o-y to 343GWh. China’s market isshifting from policy-driven to value-driven growth, with improvements in spot markets, pricing mechanisms, and energy storagecompensation, leading to significant ESS growth. Demand