Growatt In Pole Position To Benefit From U.S. Tariff Change As It Eyes IPO

The Chinese maker of photovoltaic inverters and energy storage systems has filed for an IPO in Hong Kong just as the U.S. is considering scrapping tariffs on some Chinese imports

Key Takeaways:

• Growatt has been growing rapidly to become the world’s biggest supplier of photovoltaic inverters, with the bulk of its revenue from overseas
• The Americas as a whole is the largest market for the company, although it’s geographically well-diversified

By Ken Lo

Growatt Technology Co. Ltd. may have a lot to thank U.S. President Joe Biden for as it looks to go public.

As the inflation rate in the U.S. surges, Biden is reportedly considering removing import tariffs on some Chinese goods. This is fueling expectations that Chinese makers of solar products such as Growatt, which specializes in photovoltaic inverters and energy storage systems, will be among the chief beneficiaries of the policy shift. Reflecting such optimism, stocks of solar-related companies have soared recently.

Should the U.S. really scrap tariffs on solar products or lower them, there could be no better time to go public for Growatt, which filed for an IPO in Hong Kong last Friday. The company has hired Credit Suisse and CICC as co-sponsors for the offering, from which it hopes to raise up to $500 million, according to a Bloomberg News report.

Growatt, founded in 2011, has grown fast over the years, quadrupling the number of customers to more than 1.4 million since 2019. And it’s now a global force with operations in more than 150 countries, deriving 75% of its total revenue from overseas sales. The company was the biggest supplier of photovoltaic inverters globally in terms of the volume of shipments last year, with a market share of about 20%, according to its IPO prospectus, which cites Frost & Sullivan data. By region, it holds the No. 1 position in the Americas and Asia.

Growatt’s financial performance has been just as impressive, with its revenue growing 69% to 3.20 billion yuan ($477 million) and its net profit jumping more than 50% last year.

The bulk of Growatt’s revenue comes from sales of photovoltaic inverters. The global market for such products is huge, estimated to be more than $12 billion last year, according to Frost & Sullivan. And it’s continuing to grow – Frost & Sullivan projects the industry will expand at a compound annual growth rate (CAGR) of about 18% in the coming years to hit $27.5 billion by 2026.

The market for energy storage systems, which currently make up a little more than 20% of Growatt’s revenue, is even more promising. Frost & Sullivan expects the global market for energy storage systems will grow at a CAGR of more than 60% to $250 billion by 2026.

Collective Casualty

China is a powerhouse when it comes to solar products. Six among the top 10 producers of photovoltaic inverter producers across the world in 2020 were Chinese companies.

But these companies became a collective casualty of trade tensions between the Donald Trump administration and China, which led to a huge hike in tariffs on photovoltaic inverters made in China to 25% from 10% in 2019.

Yet Growatt has been able to fare relatively well thanks to its geographic diversity. While the Americas is the largest market for Growatt, the region’s share in the company’s revenue is about 32%, only slightly larger than 31% for Europe and 25% for Asia excluding China.

Now, any increase in sales the U.S. following a tariff change would provide a nice profit boost for Growatt and its peers alike. As such hopes grow, shares in Sungrow Power Supply (300274.SZ), Ginlong Technologies (300763.SZ), GoodWe Technologies (688390.SH) and Sineng Electric (300827.SZ), all producers of photovoltaic inverters, have surged as much as about 50% since June.

Growatt has already attracted investment from IDG Capital. The U.S. venture capital firm bought a 6.52% stake in the company in early June for 900 million yuan, which put the company’s value at about $2 billion in dollar terms, close to the market value of No. 7 photovoltaic inverter maker Sineng Electric and about one tenth of the market value of No. 2 Sungrow Power Supply.

But if Growatt’s shares are priced at a level similar to sky-high valuations commanded by its listed rivals, it’s market capitalization can be much higher. The price-to-earnings (P/E) ratio of GoodWe Technologies is a whopping 140, while the figure for Ginlong Technologies is nearly 130. The multiple for Sungrow Power Supply is relatively modest but still exceeds 80. Assuming Growatt’s stock is priced at the three’s average PE ratio of 116, its market value would surpass $9 billion.

The question is whether Biden will actually deliver a tariff change.

To subscribe to Bamboo Works weekly free newsletter, click here