Weichai’s net profit in 1H25 dropped 4% YoY to RMB5.6bn, implying 11% YoY decline in 2Q25 profit (to RMB2.9bn). The profit decline in 2Q was due to the higher-than-expected distribution expenses as well as the gradual booking of restructuring cost (KION Group, KGX GR, NR). Weichai proposed an interim dividend of RMB0.358/shr (payout ratio 55%, same as full-year ratio in 2024). We fine-tune our 2025E-27E earnings forecast by -1 to -4%. We continue to like Weichai’s growth story, driven by (1) replacement-driven HDT demand growth (accelerated since Jun); (2) explosive growth of engines for data centres; (3) earnings recovery of KION Group as restructuring cost has been 75-82% recognized. Our SOTP-based TP for A/H is revised up to RMB19.9/HK$19.5, largely due to higher valuation of KION. Maintain BUY.

Total engine sales declined but large-bore engines were strong.

Weichai delivered total engine sales of 362k units in 1H25 (including 125k units of HDT engines), down 10% YoY. Exports of 37k units, which grew 14% YoY, accounted for 10% of total engines sales. Large-bore engines grew 41% YoY to 5k units, of which engines for data centres surged 4.9x YoY to 600 units.

Engine EBIT grew 13% YoY in 1H25. The segment revenue was stable YoY at RMB32.4bn, as higher ASP due to improving product mix offset the decline in sale volume. The segment EBIT grew 13% YoY to RMB5.5bn, driven by a 1.9ppt YoY expansion of segment margin (to 17.1%).

HDT segment EBIT dropped due to lower margin. Weichai delivered 73k units of HDTs in 1H25 (+14% YoY). Sales in China grew 39% YoY to 46k units, while exports dropped 10% YoY to 27k units. New energy HDTs surged 2.55x YoY to 10k units (13.7% of Weichai’s total HDTs sold). The segment EBIT dropped 21% YoY to RMB252mn, with segment margin contracting 0.2ppt YoY to 0.7%.

Forklifts & supply chain solution (KION Group) EBIT affected by one- off expenses. The segment revenue / EBIT dropped 2%/67%% YoY in 1H25. The high expenses were attributable to KION’s “efficiency program”. KION has recognized EURO197mn of related expenses in 1H25, which already accounted for 75-82% of the program target (EURO240-260mn). We expect the expenses will gradually normalize going forward.

Agricultural machinery revenue below our expectation. The segment revenue dropped 2% in 1H25 to RMB10.4bn (including exports of RMB1.15bn). The segment EBIT increased 1% YoY to RMB538mn.