Investment Rating - The report assigns a Neutral rating to Sungrow with a price target of Rmb63.00 [3][7]. Core Insights - Management is optimistic about the demand outlook for energy storage systems (ESS) in Europe and the Middle East, while the US market faces uncertainties due to tariff hikes and potential changes to the Inflation Reduction Act (IRA) [2][4]. - Sungrow has resumed shipments of ESS to the US after tariffs dropped to approximately 41%, and management is confident in meeting its full-year shipment targets [2][4]. - Global solar demand is expected to grow by around 10% year-over-year in 2025, although uncertainties remain in the US market [2][4]. - The company anticipates a decline in engineering, procurement, and construction (EPC) revenue in 2025 due to regulatory changes, but limited impairment risks are expected [2][4]. Summary by Sections Demand Outlook - Europe: Management expects over 20 GWh of utility-scale ESS installations in 2025, up from 10 GWh in 2024, with potential growth exceeding 60% year-over-year into 2026 [4]. - US: Demand may decline significantly due to recent tariff hikes and uncertainties surrounding the IRA [4]. - China: Utility-scale ESS installations are expected to trend down in 2025 due to regulatory changes, while commercial and industrial (C&I) ESS installations may increase from 7 GWh in 2024 to 15 GWh in 2025 [4]. - Middle East: Optimism remains regarding ESS demand driven by government initiatives for data center deployment [4]. Financial Performance - Sungrow aims to meet a US ESS shipment target of 8 GWh in 2025, having already completed 4 GWh in the first quarter [4]. - The gross profit margin (GPM) for US ESS is expected to decrease from over 40% to around 30% due to cost pass-downs from tariff hikes [4][5]. - The inverter business is projected to grow by approximately 10% year-over-year, with a stable competitive landscape in the Middle East [6]. Revenue Projections - The report anticipates declining EPC revenue in 2025 due to reduced distributed generation solar demand [6]. - Management expects lower capital expenditures in the EPC segment and plans to expand overseas EPC business [6]. Valuation - The June 2026 price target of Rmb63 corresponds to a 12-month forward target price-to-earnings (P/E) ratio of 10.0x, using sum-of-the-parts (SOTP) valuations for different segments [8][9].