Key takeaway

The company is a global leader in the heavy-duty truck industrial chain and equipment manufacturing. In recent years, it has accelerated its transformation into a leading AI power infrastructure provider, which is expected to drive explosive earnings growth and valuation re-rating. In 2026, the company’s large-bore diesel generator sets for AIDC are expected to accelerate volume expansion. Together with the steady operation of traditional businesses such as heavy-duty truck engines and the earnings recovery of subsidiary KION, overall earnings growth visibility remains strong. Against the backdrop of severe power shortages in North America and surging demand for primary power supplies for AIDC, Weichai’s gas generators and SOFC products are approaching mass production. Leveraging comprehensive advantages including short delivery cycles, North American certifications, and overseas channels, the company is expected to enter a new high-growth cycle. Considering that the company’s core growth engine has shifted from heavy-truck powertrains and complete vehicles to the high-growth AIDC power generation business, with related profit contribution expected to rise from 20% to over 40% in 2026–2028 and contribute more than 70% of incremental earnings, we are positive on Weichai’s valuation upside as it benchmarks against overseas leaders, with a Davis double play likely ahead.

Thesis

From the “chain leader” in the heavy-duty truck industry chain to a “new king” in AI power: Optimistic about Weichai’ s transformation and upgrading driving valuation re-rating WEICHAI POWER is a global leader in the heavy-duty truck industrial chain and equipment manufacturing. In recent years, it has continuously expanded its power and energy business centered on large-bore engines, gradually completing the transition in growth drivers from “heavy-duty truck powertrains and complete vehicles” to “AIDC power generation equipment”. Both earnings and valuation are expected to achieve simultaneous upside. 2026 will mark the first year of explosive earnings growth during the company’s transformation and upgrading phase. High-value AIDC products, including largebore diesel generators for backup power and small-batch gas generators for primary power, will become the core source of profit growth. Traditional businesses such as heavy-duty truck engines will maintain stable operations, while the earnings recovery of subsidiary KION will provide a solid earnings cushion.

AIDC diesel generators have become the business with the strongest profit elasticity, while two major primary power products, gas generators and SOFC, are nearing mass production. Weichai’s large-bore engine business originated from the acquisition of France-based Baudouin in 2009. After years of technological accumulation, its current product power range coverage (1,250-5,000kWe) is globally leading, and its highpower products are suitable for AIDC primary and backup power supplies. On one hand, benefiting from the global expansion of data center infrastructure, coupled with its comprehensive advantages in short delivery cycles, North American certifications and overseas channels, Weichai's AIDC diesel generator business continued to see strong production and sales, with sales volume reaching 1,400 units in 2025, up 259% YoY. In 2026, the company will become the only domestic manufacturer to enter a top-tier North American AIDC project; the fullyear diesel generator shipment target has been raised to 3,500-4,000 units, which will contribute the largest earnings increment at the company level. Meanwhile, amid intensifying power shortages in North America and tight gas turbine capacity, demand for prime power equipment such as gas-fired gensets (natural gas internal combustion engine units) and SOFCs (solid oxide fuel cells) has surged. Leading players such as CAT and BE have signed major orders, validating the growth outlook. Leveraging its earlier accumulation, Weichai will mass produce 2.5-3MW large-bore high-speed gas engines in 2026, with full-scale volume release expected in 2027- 2028; SOFC production capacity will expand to 30MW in 2026, with a mid-term target of 1GW annual capacity, and its entry into the primary power equipment market is also promising.

Earnings forecast and valuation:The company's net profit attributable to shareholders of the parent company is expected to reach RMB15bn and RMB18.5bn in 2026 and 2027, respectively, corresponding to current PE ratios of 15x and 12x. Considering the shift in the company's growth logic, the profit contribution from AIDC power generation is expected to exceed 40% within the next three years, while compared with overseas peers such as CAT (41x) and CMI (26x), there remains significant upside potential for valuation benchmarking, with a Davis double play expected. We maintain "Buy" rating on the company.