The photovoltaic industry is currently grappling with a significant challenge: overcapacityThis issue has left many major players struggling for stabilityHowever, amid this challenging landscape, Sungrow Power Supply Co., Ltd., known for its diversified product strategy, has distinguished itself from its competitorsIts impressive financial performance and stock price growth have established it as a formidable contender in the sectorThe company's recent achievement of securing the world's largest energy storage project further solidifies its position for future growth.

This “super contract” during what has been described as the darkest hour for the industry has undoubtedly bolstered Sungrow's confidence.

On July 16, Sungrow proudly announced that it had successfully entered into a partnership with the Saudi company ALGIHAZ for a massive energy storage project with a capacity of 7.8 GWh

This achievement sets a new record, surpassing the capacity of the largest off-grid energy storage project that Huawei Digital Energy signed in Saudi Arabia back in 2021.

Thanks to its diversified product lineup, Sungrow has managed to maintain its performance despite the rapid expansion of the photovoltaic industry in China, which has caused an imbalance in supply and demandYear to date, the company's stock price has climbed by 13.6%, and its market capitalization has exceeded 140 billion, earning it the title of the "new king" of the photovoltaic industry.

Signing the contract for the world's largest energy storage project in Saudi Arabia

Sungrow is continuously expanding its footprint in the Middle East.

Recently, Sungrow partnered with ALGIHAZ to sign a monumental contract for an energy storage project boasting a remarkable 7.8 GWh capacity

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This project will be sited across three locations in Saudi Arabia: Najran, Madaya, and Khamis MushaitIt is set to commence delivery in 2024, with full-scale operations expected in 2025, significantly enhancing the stability and reliability of the Saudi gridThis project is anticipated to operate for over 15 years once online.

By the end of the trading day on July 16, following this announcement, Sungrow's stock experienced a notable surge, closing at 70.31 yuan per share, reflecting a 9.84% increase, with a total market capitalization of 145.8 billion yuan.

Nevertheless, the project's enormity brings challenges such as tight deadlines, complex management logistics, and heightened operational expectations

The project must also contend with environmental challenges like high temperatures and land restrictions while ensuring rapid grid integration and system safety.

To tackle these obstacles, Sungrow plans to deploy over 1,500 units of its PowerTitan 2.0 liquid-cooled energy storage system solutions, utilizing an integrated design that enhances energy density and helps clients save 55% on land requirements.

This recent partnership with Saudi Arabia is not Sungrow's first venture into this market; the company has previously secured two energy storage contracts at the Red Sea project.

Additionally, in May 2024, Sungrow reached a collaboration agreement with Larsen & Toubro to provide a 160 MW/760 MWh energy storage system along with 165 MW photovoltaic inverters for the AMAALA luxury tourism project in Saudi Arabia.

Furthermore, the company has signed a memorandum of understanding with ACWA Power for the installation of a 536 MW/600 MWh battery energy storage system at the large Neom Future City project.

Sungrow’s aggressive strategy in Saudi Arabia is fuelled by the country's increasing demand for energy transformation

Saudi Arabia has unveiled its "Vision 2030" national transformation program aimed at diversifying its economy to reduce dependence on oil exports.

This ambitious plan includes a notable goal to enhance non-oil export income and considers renewable energy development as a vital pathway to achieve thisThe target to increase renewable energy production capacity was initially set at 58.7 GW by 2030, but has since been raised to 130 GW.

To promote renewable energy development, Saudi Arabia offers various incentives aimed at attracting foreign investors, particularly from China, into the photovoltaic sectorThese incentives include tax breaks, land use advantages, and long-term power purchase agreements.

In light of favorable conditions, numerous Chinese photovoltaic giants are pouring into the Saudi market

On the evening of July 16, two major players, JinkoSolar and TCL Zhonghuan, announced the latest developments regarding their respective projects in Saudi Arabia, each securing investments from the Saudi Public Investment Fund’s wholly-owned subsidiary RELC.

Sungrow emerges as the "new king."

In the competitive photovoltaic landscape, Sungrow's market capitalization has now surpassed that of Longi Green Energy, solidifying its status as the new king within the industry.

Sungrow Power's revenue primarily comes from three segments: inverters, new energy investment and development, and energy storage systems

With energy storage being the third largest segment, the company shipped 10.5 GWh of energy storage in 2023, marking a 36% year-on-year increase, and maintaining its position as the leading player in China for eight consecutive years.

Thus, this new contract with Saudi Arabia secures more than 70% of the energy storage volume targeted for 2023. Financial reports reveal that the gross profit margins for Sungrow’s inverters and energy storage systems are an impressive 37.93% and 37.47%, respectively, indicating a healthy profitability outlook.

Thanks to its diversified product portfolio, Sungrow continues to perform solidly even in a downward cycle within the new energy sector

In 2023, the company's revenue rose to 72.25 billion yuan, while net profit attributable to shareholders reached 9.44 billion yuan.

In the first quarter of 2024, Sungrow maintained its robust momentum, achieving a net profit attributable to shareholders of 2.096 billion yuan in stark contrast to Longi Green Energy, which reported a staggering loss of 2.35 billion yuan, establishing Sungrow as the profit leader in the photovoltaic industry for that quarter.

The sustained growth in Sungrow's profitability can be attributed not only to the increasing installed capacity of photovoltaics but also to deepening diversification throughout its business operations and declining raw material prices.

When delving deeper, it’s observed that revenue growth within the company's new energy development and investment segment has been particularly robust

In 2023, this segment generated 24.734 billion yuan in revenue, reflecting a remarkable year-on-year growth of 113.15%.

Sungrow's new energy development business encompasses investing in and constructing renewable energy generation stations, which inherently involves the use of components and inverters, thus stimulating growth across its inverter business.

Sungrow’s EPC business model entails constructing power stations and subsequently selling them post-completion.

Fortunately, owing to the significant oversupply within the photovoltaic industry over the past couple of years, prices for silicon materials, wafers, cells, and modules have plummeted, reducing procurement costs for raw materials, thereby creating additional profit opportunities for Sungrow.

Statistical data indicates that the gross profit margin from the company’s power station investment and development rose from 11.91% in 2021 to 16.36% in 2023.

However, remarkable growth in Sungrow's financial performance is shadowed by substantial accounts receivable and inventory, raising concerns as potential hurdles in the company’s growth trajectory.

According to Sungrow's 2023 annual report, as of December 31, the company recorded accounts receivable valued at 21.098 billion yuan, with a bad debt reserve of 2 billion yuan.

The report emphasized the potential increase in accounts receivable due to the substantial project values and lengthy payment cycles inherent to the photovoltaic industry, compounded by the company’s rapid business growth, incurring certain repayment risks.

Moreover, the substantial inventory write-downs present another considerable challenge

The annual report revealed that by December 31, inventory balances stood at 23.13 billion yuan, alongside a provision for inventory impairment of 1.689 billion yuan, resulting in a net inventory value of 21.442 billion yuan.

Despite Sungrow's acknowledgment of these issues in its annual report, its quarterly report for the first quarter of 2024 indicated a further increase in inventory value, which reached 23.11 billion yuan.

Buybacks ease the “growing pains.”

In response to the challenging market conditions, Sungrow, in addition to accelerating its diversification strategy, has also initiated significant share buybacks to bolster investor confidence.

On July 14, the company announced that it plans to buy back its shares on the stock market using its own funds within a 12-month timeframe, with a total investment amount ranging from 500 million to 1 billion yuan to support employee stock ownership or equity incentive plans.

On the same day as the announcement, Sungrow completed its previous buyback plan, purchasing a total of 11.512 million shares from September 2023 to July 14, 2024, with a total expenditure of 999.7 million yuan.

It's also noteworthy that many other photovoltaic giants are opting for buyback strategies to stabilize stock prices in this turbulent market

Since the third quarter of last year, companies like Trina Solar, Tongwei Co., Ltd., TCL Zhonghuan, and JA Solar have engaged in significant share repurchases.

For example, Trina Solar planned to buy back 1 to 1.2 billion yuan worth of shares in relation to convertible bond conversions; Tongwei planned to buy back 2 to 4 billion for employee shareholding or incentive schemes; Longi Green Energy aimed to repurchase between 300 million and 600 million yuan worth of its shares.

As of mid-2024, TCL Zhonghuan had repurchased 4.999 million shares, equating to an expense of 62.55 million yuan, against an initial plan of 500 million to 1 billion yuan, while JA Solar repurchased 25.9296 million shares for a total of 480 million yuan against a planned 400 million to 800 million yuan.

Despite these efforts, the buyback initiatives have yet to restore investor confidence within the beleaguered sector, as most listed photovoltaic companies have continued to see declines in stock prices

Currently, only Sungrow and Longi Green Energy maintain market capitalizations exceeding 100 billion yuan, while over 15 photovoltaic companies met this criterion just a year prior.

For Chinese photovoltaic companies facing production and sales imbalances, international expansion appears to be a viable alternative, though it presents a range of challengesAs noted by Liu Yiyang, deputy secretary-general of the China Photovoltaic Industry Association, countries like the U.Sand EU are pushing forward or developing new trade barriers, and efforts are underway worldwide to establish local supply chains, potentially complicating the landscape for Chinese exporters.

Consequently, photovoltaic companies are urged to enhance their trade responsiveness and solidify their competitive edge within the industry.