Deye Technology (605117 CH, RMB 76.47, RMB 97bn) — Growth strategy on track

Citing the recent share price weakness, we are revisiting the investment thesis for Deye to assess whether the pullback presents any opportunity.   We are of the view that the company’s growth strategy is on the right track, while GPM may face near-term pressure, absolute profit growth remains highly sustainable.

Deye is a global leader in energy storage inverters and is evolving into an integrated energy storage system provider. It’s ranked first and second globally in residential and commercial & industrial (C&I) energy storage inverters, respectively.  

Bundling Sales Boost Higher-value Products: Capitalizing on rapidly growing global demand for battery storage, the company posted a robust 1H26 results, with revenue rising 92.2% YoY to RMB10.6bn.  Inverter sales went up 94.1% to RMB5.13bn while sales of battery packs grew 2.4x YoY to RMB4.9bn.  The sharp increase in battery packs sales is believed to be Deye’s successful cross-selling through its established distributor network by bundling the batteries with its industry-leading inverters.  As a result, implied ASP of inverter increased 29% YoY to around RMB4,450.  Residential storage remains the current growth engine.  In 1H26, shipment of residential units rose 109% YoY to 570k units.  C&I segment also saw a strong 41% YoY increase to 61k units.   

The Cost to Strong Growth: However, this rapid growth comes with near-term margin pressure.  Investors are focusing on 2Q26 GPM of 34.9%, down 6.5ppts QoQ and below the 1H26 GPM of 37.7%.  As the market estimates that the core inverter profitability remains resilient at around 48 – 50%, suggesting that margin pressure is mainly coming from the fast-growing battery packs segment.  The market estimates battery pack GPM in 1H26 declined by 6ppts YoY to around 29%, therefore, diluting Deye’s blended GPM.  Looking ahead, it is expected that this sales-mix driven dilution will continue as the storage business scales. 

Still Financially Sound:  Revenue increased 92% YoY and 59% HoH in 1H26, while A/R rose 50% YoY and 48% from end-2025 to RMB2.52bn, below the pace of revenue growth. As a result, A/R as a percentage of 1H revenue declined from 30% to 24% YoY. Net cash stood at RMB4.02bn. Overall, both cash flow and the balance sheet have improved materially from prior periods.

Our View: According to industry checks, overall demand is intact with a production schedule of around 150k and 200k energy storage units in August and September, respectively.  Europe is the main source of the incremental demand, particularly Spain, Italy, Eastern Europe and Ukraine. Geopolitical tensions and higher natural gas prices have pushed up European energy costs and keep electricity prices at a high level.  The Mgt has raised its FY26 revenue target from RMB20bn to RMB25bn, reinforcing the positive demand outlook.

We are positive on Deye’s long-term outlook, supported by its strong cost control, established global distribution network and brand equity. Moreover, the company’s Hong Kong listing is pending regulatory approval, expected to complete within this year. We consider the recent weakness as an opportunity for investors to accumulate. The counter is trading at 17x and 13x P/E for FY26E and FY27E respectively with an expected yield of 3.4% for FY26E. (Research Department)