Shangneng Electric has been making a name for itself in the secondary market, showing remarkable performance and stock growth, especially when compared to industry giants like Sunlight Power and LONGi Green Energy. Despite its lower visibility, Shangneng Electric is a veteran in the energy storage sector, embodying the notion that “old soldiers never die; they just get better.”
01 A Veteran in the Energy Storage Industry
Founded in 2012, Shangneng Electric was initially the Chinese agent for Emerson’s photovoltaic inverter business. While Emerson is well-known today for its printers, it originally started as a manufacturer of AC motors. Over the years, Emerson grew into a global giant and a Fortune 500 company. A decade ago, Emerson was among the top three inverter suppliers in China. However, as competition from domestic inverter manufacturers intensified, Emerson decided to sell its inverter business, ultimately transferring it to Shangneng Electric.
After integrating Emerson’s energy storage operations in 2014, the company rebranded as Shangneng Electric in 2015 and accelerated its focus on energy storage. The Shangneng Industrial Park in Wuxi, Jiangsu Province, was completed the following year. In 2017, the company began expanding into international markets, particularly India. By 2018, Shangneng established its first overseas photovoltaic inverter manufacturing base in India and achieved over 1 GW in inverter shipments to India and Vietnam by 2019.
In 2020, the company successfully listed on the Shenzhen Stock Exchange, riding the wave of a booming photovoltaic market. This led to rapid growth, with the Ningxia manufacturing base starting operations in 2021 and expansions in Wuxi and India. By 2022, Shangneng became the leading domestic supplier of PCS (power conversion systems) with a steady shipment volume. The company continued to accelerate its overseas strategy, achieving UL certification for its string and centralized PCS products in 2023, and completing its first batch of PCS product deliveries in the first half of the year.
Shangneng’s development trajectory mirrors that of other energy storage companies. Due to the technical similarities between photovoltaic inverters and energy storage converters, most established inverter manufacturers have swiftly expanded into the energy storage sector, with many achieving considerable success. Shangneng Electric is no exception, leveraging Emerson’s photovoltaic technology and gradually moving into string inverter and energy storage converter businesses. Currently, its photovoltaic inverter business constitutes over 70% of revenue in the first half of 2024, with centralized inverters being the primary focus. The company’s inverter products consistently rank among the top five in domestic tender bids for centralized ground-mounted power stations. Additionally, over 26% of revenue comes from energy storage converters, which primarily serve large-scale storage stations, covering a power range of 125 kW to 8,000 kW, thus maintaining a strong competitive advantage in this field.
According to CNESA, Shangneng ranked first in domestic PCS shipments in both 2021 and 2022. As per EESA, the company’s shipments of high-power PCS units (215 kW and above) in the domestic market approached 5 GW in 2023, solidifying its position as the market leader.
02 A Veteran’s Perseverance and Future Prospects
The photovoltaic industry has faced significant challenges in recent years, especially in 2023, where many companies struggled as the main industry chain prices fell below cash costs, leading to cash flow issues for most firms. However, Shangneng Electric stood out with impressive performance. In the first three quarters, the company reported revenues of 3.069 billion yuan, a decrease of 7.3% year-on-year, yet net profit attributable to shareholders reached 302 million yuan, marking a 44.82% increase. Furthermore, its adjusted net profit was 300 million yuan, up 50.81% year-on-year. In Q3 alone, revenue reached 1.143 billion yuan, a 0.83% increase, while net profit soared by 92.59% to 141 million yuan.
The company’s gross margin also demonstrated strength, reaching 25.32% in the first three quarters, an increase of over six percentage points. Several factors contributed to this impressive performance. Firstly, Shangneng’s focus on centralized energy storage business has been beneficial. In 2021 and 2022, the high prices of silicon materials caused a decline in centralized photovoltaic installations. Consequently, companies specializing in distributed generation performed better, particularly those benefiting from the overseas energy crisis. However, with the recent decrease in photovoltaic industry chain prices, the internal rate of return (IRR) for large-scale ground-mounted photovoltaic plants has been improving, which has positively impacted Shangneng’s performance.
The company has also benefited from the trend of string inverters gradually replacing centralized solutions. Its large string inverters have reached a maximum power output of 350 kW, and the proportion of large string shipments has been steadily increasing. Secondly, Shangneng’s years of international market engagement have begun to pay off. As the domestic market has become increasingly competitive, overseas markets have gained importance. While the European and American markets faced challenges after two years of rapid growth and inventory reduction, Shangneng’s focus on countries like India, Spain, Germany, Greece, and Brazil has shielded it from these issues. Notably, India is seen as a highly promising market, and those who gain a foothold there can mitigate the impact of domestic competition. Consequently, the company’s foreign revenue has rapidly increased, soaring from 268 million yuan in 2020 to 690 million yuan in 2023, with the revenue share rising from less than 14% at the end of last year to nearly 25% in the first half of this year.
According to statistics from S&P Global and WoodMackenzie, Shangneng ranked fourth globally in photovoltaic inverter shipments in 2023, maintaining a position in the global top ten for eleven consecutive years. Furthermore, the company is expected to enter a growth phase in the North American market, particularly in the U.S., where its first batch of 22 string energy storage converters was successfully shipped in September last year.
03 Shangneng Electric’s Mid to Long-Term Outlook
While the domestic energy storage industry is becoming increasingly competitive, globally, photovoltaic energy remains a crucial component of new energy, with its share in the global energy mix still relatively low, just above 6%. This presents significant opportunities for all energy storage companies. Although the domestic market is facing intense competition, the inverter segment is less saturated compared to other sectors. Shangneng’s focus on centralized power stations is advantageous, especially as the industry chain prices decline and the IRR for photovoltaic cells improves, which helps mitigate the impact of downturns.
Most importantly, the company is reaping the benefits of its long-term investments in international markets. Shangneng is among the early players in the Indian energy storage market, where it has established a strong position. As one of the world’s most promising markets, India holds considerable growth potential, and Shangneng is well-positioned to benefit from this trend. Furthermore, as Saudi Arabia, the UAE, and other Middle Eastern countries accelerate their energy transition strategies and enter large-scale bidding phases, Shangneng’s previous groundwork positions it favorably as a leading PCS manufacturer. While it may be challenging to penetrate the highly competitive U.S. market, Shangneng is also poised to begin a growth phase there.
Objectively speaking, Shangneng Electric may not match the comprehensive strength of giants like Huawei or Sunlight. In a pressured industry environment, it may find it difficult to remain unscathed. However, as a relatively smaller company that is progressively reaping rewards from its overseas ventures, Shangneng Electric is poised to be one of the first companies in the industry to experience a turnaround, making it a noteworthy entity to watch. As for potential risks, the industry faces common challenges such as overcapacity and competitive pressures, as well as trade conflicts that could impact the company’s international market strategies. However, these are challenges that all energy storage companies must face.
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