Yinlun (002126): JPMorgan initiates Yinlun at Overweight on an AIDC-led earnings and valuation re-rating

Overview

JPMorgan initiates coverage of Yinlun, a China-based thermal-management supplier, with an Overweight rating. Its central view is that AIDC-related genset cooling and liquid cooling can materially improve Yinlun’s growth, margins and valuation profile, while commercial-vehicle exports and electrification provide a resilient legacy earnings base.

Core views

JPMorgan’s core thesis is that the market still largely values Yinlun as a conventional thermal-management supplier, while underestimating its exposure to AI data-center power infrastructure and liquid cooling. The firm forecasts roughly 20% revenue CAGR and roughly 30% net-profit CAGR for 2025-28E, with net profit more than doubling by 2028E. Revenue is projected to rise from Rmb15.7bn in 2025 to Rmb26.6bn in 2028E, while net profit increases from Rmb957mn to Rmb2.17bn. The expected mix shift toward higher-margin Digital & Energy activities is central: this segment is forecast to grow at a 54% CAGR over 2025-28E and reach about 20% of group revenue in 2028E. The clearest near-term driver is Caterpillar genset cooling. JPMorgan argues that AI data-center construction is constrained by grid availability, increasing demand for backup diesel engines and prime-power gas engines. It cites Caterpillar order visibility toward 2030 and forecasts Caterpillar diesel and gas-engine capacity growth of roughly 25% CAGR between 2025 and 2030. Yinlun began volume supply of generator cooling packages to Caterpillar in 2H24. Its Mexico production, pricing estimated at 20-30% below Modine, and multi-year customer qualification process are presented as competitive advantages. Caterpillar’s cooling-package order volume to Yinlun reportedly rose to about 3,400 units in 2026, up 70% from about 2,000 at the start of the year, with around 5,000 units indicated for 2027. JPMorgan forecasts genset revenue of Rmb538mn in 2026E, Rmb1.5bn in 2027E and Rmb3.18bn in 2028E, or 3%, 7% and 12% of group revenue. With estimated gross margins of 36-38%, the business is projected to contribute 6%, 13% and 21% of group gross profit in 2026E-28E. Liquid cooling is the second AIDC growth leg, but JPMorgan explicitly treats Google-related business as upside rather than base-case revenue. Higher AI-server power density supports adoption of coolant distribution units, where high-power plate heat exchangers are a core component. JPMorgan estimates the global secondary-side CDU PHE market will grow from about Rmb3bn in 2025 to about Rmb13bn in 2028, a roughly 63% CAGR. Yinlun’s vacuum-brazing experience, self-designed furnace capability and planned China-Thailand manufacturing footprint are cited as advantages because customized furnace supply and yield ramp-up can make capacity expansion take two to three years for overseas competitors. Yinlun passed Google’s designated third-party laboratory certification in March 2026, but must still complete Tier-1 CDU module validation, a factory audit and purchase-order approval. The base case assumes no Google orders and forecasts liquid-cooling revenue rising from Rmb500mn in 2026E to Rmb840mn in 2028E. Successful conversion could lift 2028E revenue to about Rmb1.4bn and add approximately 4% and 6% to 2027E and 2028E net profit, respectively. Commercial vehicle and non-road operations provide the report’s resilient earnings foundation. The segment represented about 37% of 1H26 revenue, or Rmb3.32bn, and about 48% of gross profit, or Rmb785mn, with an approximately 24% gross margin versus about 13% for passenger vehicles. JPMorgan expects export demand, domestic heavy-duty truck replacement and electrification to support 28%/18%/12% segment growth in 2026E/27E/28E. China commercial-vehicle wholesale sales rose 7.2% year on year to 2.94mn units in 8M26, while exports increased 38.1% and heavy-duty truck sales including exports rose 16.1%. Electrification raises Yinlun’s thermal-management content per heavy-duty truck from about Rmb14,000-15,000 for ICE trucks to Rmb20,000-30,000 for electric trucks. The report expects HDT EV penetration to rise from about 25% in 2025 to about 50% by 2030E, above China’s stated 40% new-energy penetration target. The financial effect of the mix shift underpins the valuation argument. Passenger-vehicle gross margin fell to 13% in 1H26 from 14% in 2025 amid price competition, and group gross margin declined to 18% from 19%. JPMorgan nevertheless forecasts group gross margin to recover to about 21% by 2028E as higher-margin genset and liquid-cooling activities scale. It estimates ROE rises to about 21% by 2028E from 14% in 2025, driven by higher net margin and asset turnover; net debt/equity falls from 55% to 20%; and free cash flow reaches Rmb2.43bn by 2028E as operating cash flow grows and capital-intensity moderates. JPMorgan values Yinlun using a sum-of-the-parts framework to reflect the differing growth and margin profiles of legacy auto parts versus Digital & Energy. The base case applies 15x 2028E P/E to passenger- and commercial-vehicle auto parts and 35x to Digital & Energy, producing a Dec-27 Rmb51 target price, equivalent to blended 29x 2027E and 20x 2028E P/E. The target excludes Google orders. In the upside scenario, Google order conversion raises the SOTP valuation to Rmb55, or about 61% upside, while the valuation framework remains unchanged.

Analysis framework

JPMorgan first links AI data-center power constraints and rising server power density to demand for genset cooling and liquid cooling. It then assesses Yinlun’s customer qualifications, production footprint, technology, capacity plans and competitive positioning, models segment revenue and margin contributions, and values the company through segment-specific P/E multiples in an SOTP framework. The report also tests an upside scenario in which Google-related PHE qualification converts into orders.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation

  The report values mature passenger- and commercial-vehicle parts separately from the faster-growing Digital & Energy business, assigning 15x and 35x 2028E P/E multiples, respectively.

• Corporate Fundamentals and FinanceDuPont analysis

  DuPont analysis

  The report explains projected ROE improvement through rising net margin and asset turnover as higher-margin Digital & Energy activities expand.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AIDC power and liquid-cooling supply-chain analysis

  The report traces AI data-center demand through power generation, Caterpillar gensets, cooling packages, CDUs and PHEs to assess Yinlun’s revenue opportunity.

• Industry AnalysisVolume-price decomposition

  Commercial-vehicle volume and content-per-vehicle analysis

  The report combines commercial-vehicle exports and replacement demand with higher thermal-management content in electric heavy-duty trucks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Yinlun (002126.SZ)

  Primary covered company; expected beneficiary of AIDC power demand, liquid cooling and heavy-duty truck electrification.

  Strengths

  Caterpillar qualification, Mexico footprint, cost competitiveness, vacuum-brazing know-how, self-designed furnace capability and established CV thermal-management relationships.

  Weaknesses

  Passenger-vehicle pricing pressure and a large legacy ICE-based commercial-vehicle revenue base.

  Comparison

  JPMorgan sees Modine’s strategic shift toward data-center cooling as creating an opportunity for Yinlun to gain Caterpillar genset cooling share.

  Risks

  Dependence on Caterpillar, unconfirmed liquid-cooling orders and possible geopolitical localization pressures.

• Caterpillar (CAT)

  Key customer and demand transmission channel for Yinlun’s genset cooling packages and aftertreatment systems.

  Strengths

  AI- and data-center-related power demand provides long order visibility.

  Comparison

  Yinlun is estimated to have about half of Caterpillar’s cooling-package requirements and could exceed 50% by 2028E.

  Risks

  Changes in Caterpillar order schedules, sourcing, production plans, inventory policy or pricing could disproportionately affect Yinlun.

• Modine (MOD US)

  Competitor in Caterpillar cooling packages.

  Weaknesses

  JPMorgan states that capital allocation and management attention are increasingly focused on data-center cooling rather than conventional genset thermal management.

  Comparison

  Yinlun is estimated to price 20-30% below Modine and has Mexico-based localized manufacturing.

Key data

• Target priceRmb51.00Dec-27 SOTP-based target price; 49% upside from the last close.
• Genset revenueRmb538mn in 2026E; Rmb3.18bn in 2028E143% CAGR; projected to reach 12% of group revenue and 21% of group gross profit in 2028E.
• Liquid-cooling revenue, base caseRmb500mn in 2026E; Rmb840mn in 2028EBase case excludes potential Google-related orders.
• Liquid-cooling upsideRmb1.4bn revenue in 2028EIf Google qualification converts into orders; estimated net-profit upside of 4% in 2027E and 6% in 2028E.
• Commercial vehicle and non-road segmentRmb3.32bn revenue and Rmb785mn gross profit in 1H26Revenue was up 37% year on year; gross margin was about 24%.
• Group financial outlookRevenue Rmb26.63bn; net profit Rmb2.17bn in 2028EVersus Rmb15.68bn revenue and Rmb957mn net profit in 2025.
• Heavy-duty truck EV penetrationAbout 50% by 2030EJPMorgan forecast, compared with about 25% in 2025 and China’s 40% policy target.

Impact & implications

The report argues that Yinlun’s earnings mix can shift away from lower-margin legacy automotive components toward AIDC power infrastructure and liquid cooling. This is intended to support faster profit growth, margin expansion, stronger cash generation and a valuation premium relative to a conventional auto-parts framework.

Risks

• Caterpillar customer concentration leaves near-term genset growth exposed to changes in procurement cadence, sourcing decisions, pricing, production plans or inventory policy.
• Yinlun has no confirmed volume orders for Google-related PHE applications; delays or failure in CDU validation, factory audit or purchase-order approval could defer revenue conversion.
• New PHE lines are being added before confirmed order visibility, creating utilization, depreciation, staffing, yield-ramp and margin risks if qualification or conversion is delayed.
• Broader US localization or de-risking policies could raise compliance requirements, lengthen qualification cycles and constrain overseas opportunities despite Yinlun’s components not currently being direct policy targets.

What to watch

• Caterpillar’s cooling-package orders, Yinlun’s supply share and the ramp of higher-margin aftertreatment products.
• Progress through Google-related Tier-1 CDU validation, potential factory audit and purchase-order approval.
• Utilization and yield ramp-up at the 15,000-unit PHE line scheduled for 4Q26 and the planned South China and Thailand lines in 2027.
• Commercial-vehicle export demand, domestic HDT replacement activity and EV HDT penetration.
• Digital & Energy revenue and gross-profit contribution relative to the report’s forecasts.