JPMorgan maintains Overweight on Weichai Power A/H shares, viewing the price reset as creating an attractive entry point

Overview

This is a JPMorgan company research event commentary on Weichai Power A/H shares. The report focuses on the recent fireside chat, management updates, and the 1H26 earnings preview, with emphasis on the AIDC data center power cycle, Weichai's entry into the U.S. market, the gas engine and SOFC roadmap, capacity expansion, margin resilience, and the short-term share price volatility caused by the heavy-duty truck engine cycle. The report maintains a positive view on Weichai Power, believing the recent 20% to 25% share price pullback has created a more attractive entry point.

Core views

The core views include: first, upgrades in global data center architecture are driving higher rack power density, while power demand and equipment orders remain strong, making concerns over AIDC BTM oversupply potentially premature; second, Weichai continues to make progress in AIDC execution, U.S. certification, customer validation, order pipeline, and capacity buildout; third, diesel backup engines provide the basis for near-term shipments, while gas engines offer higher gross margins, and aftermarket and service revenue are expected to expand the long-term profit pool; fourth, although weak domestic ICE heavy-duty truck and LNG heavy-duty truck demand in May to June has weighed on 2Q26 sentiment, the AIDC business and the parent company's 1H26 performance outperformance provide positive read-through; fifth, DCF target prices indicate substantial upside remains for both A/H shares.

Analysis framework

The report uses a combination of event catalysts and fundamental validation: it first uses JPMorgan European capital goods analyst Phil Buller's views on the global AIDC cycle, BTM power solutions, and equipment supply-demand dynamics to validate industry-level demand; it then combines management updates from Weichai to track product certification, shipment guidance, orders, capacity, gross margin, and overseas customer progress; it subsequently uses the 1H26 earnings preview and parent company revenue performance to assess near-term earnings delivery; and finally provides A/H share target prices through a DCF valuation framework.

Methodology notes

• Industry cycle analysisAIDC power equipment supply-demand cycle

  Assess the prosperity and oversupply risk of BTM power solutions through data center rack power density, U.S. power demand, and the gap between orders and deliveries.

  The report cites information such as approximately 22% CAGR in AIDC power demand, orders exceeding deliveries, and persistent supply bottlenecks, arguing that current market concerns over oversupply reflect more of a sentiment reassessment, with actual oversupply risk skewed toward after 2030.

• Company fundamental trackingManagement update and order execution validation

  Use product certification, customer validation, shipment guidance, order pipeline, capacity expansion, and gross margin changes to validate the execution capability of the AIDC business.

  Weichai's 2.5MW gas engine has entered the U.S. EPA certification and customer validation stage; 2026 AIDC shipment guidance is 3,500 to 4,000 units, and capacity is targeted at 8,000 to 10,000 units by the end of 2027.

• Valuation methodDCF valuation

  Estimate A/H share target prices using discounted cash flow, combined with assumptions for WACC, cost of equity, beta, tax rate, terminal growth, and A/H discount.

  The Jun-27 target price is Rmb49 for A-shares and HK$52 for H-shares. Key assumptions include 8.1% WACC, 8.6% cost of equity, 0.9x beta, 5% cost of debt, 25% tax rate, 10% target debt-to-capital ratio, and 3% terminal growth; A-share valuation includes a 5% A/H discount.

Asset mapping & comparison

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

• Weichai Power A-share 000338.SZ

  Covered by the report, maintained at Overweight

  Strengths

  Progress in AIDC execution, high gross margins for gas engines, leadership in heavy-duty truck engines, positive parent company earnings read-through, and DCF target price indicating substantial upside.

  Weaknesses

  Recently affected by weak domestic ICE heavy-duty truck and LNG heavy-duty truck demand, concerns over 1H26 deliveries, and debate over the AIDC cycle, resulting in large share price volatility.

  Comparison

  Pulled back about 20% to 25% from the early-May peak, versus about a 7% decline in MSCI China over the same period; still significantly outperforming MSCI China year to date.

  Risks

  Heavy-duty truck sales recover more slowly than expected, weaker-than-expected market share gains, weaker-than-expected Kion performance, or AIDC orders/certification progress falling short of expectations.

• Weichai Power H-share 2338.HK

  Covered by the report, maintained at Overweight

  Strengths

  Shares the same AIDC, gas engine, SOFC, and aftermarket service growth logic as the A-share, with the H-share target price implying about 75% upside.

  Weaknesses

  Affected by A/H market risk appetite, Hong Kong market liquidity, and company-specific short-term delivery concerns.

  Comparison

  The target price of HK$52.00 implies about 75% upside versus the current price of HK$29.66.

  Risks

  Same as the A-share, including heavy-duty truck cycle, market share, Kion performance, and AIDC execution risks.

• Global AIDC power equipment supply chain

  Upstream demand backdrop and comparable industry cycle for Weichai's growth story

  Strengths

  Rising data center rack power density, growing power demand, supply bottlenecks, and order backlog support equipment suppliers' pricing power.

  Weaknesses

  There is debate in the market over supply catch-up and oversupply risk, and valuations and share prices are easily affected by sentiment swings.

  Comparison

  The report states that last year's approximately 55GW of deliveries corresponded to about 100GW of new orders, while this year 110 to 120GW of new orders are expected against 64 to 65GW of deliveries.

  Risks

  If data center capex slows, supply is released faster than expected, or the path to easing grid bottlenecks changes, the industry's pricing power may weaken.

Key data

• A-share rating and target priceOverweight; Rmb49.00Current price is Rmb24.29, target price expiry date is 2027-06-30, implying about 80% upside.
• H-share rating and target priceOverweight; HK$52.00Current price is HK$29.66, target price expiry date is 2027-06-30, implying about 75% upside.
• Recent share price performancePulled back about 20% to 25% from the early-May peakMSCI China fell about 7% over the same period; however, on average A/H shares are still up about 50% year to date.
• AIDC shipment guidance3,500 to 4,000 units in 2026The report says the company is still advancing in line with guidance, with shipments skewed toward the second half.
• AIDC-related capacity target8,000 to 10,000 units by the end of 2027Flexible production lines support both diesel and gas products.
• Gas engine gross marginAbout 40% to 50%Above the roughly 35% to 40% gross margin range for diesel backup engines.
• SOFC capacity plan30MW in 2026; 200MW in 2027Management believes SOFC can break even at 100MW scale, and after scaling up, gross margin potential is 30% to above 40%.
• 1H26 profit preview2Q26 and 1H26 profit expected to grow 12% to 15% year over yearThe report believes market expectations are too low, leaving room for upside on margins.
• Parent company 1H26 performanceRevenue exceeded Rmb200B, up 22% year over yearPower and energy revenue increased 30% year over year, and data center product revenue increased 140% year over year.
• Heavy-duty truck engine market positionAbout 40% domestic market shareWeichai remains a leading heavy-duty truck engine supplier, and its traditional engine business provides a stable profit base.

Impact & implications

In terms of investment implications, the report believes Weichai Power is transitioning from a traditional cyclical engine company into a multi-year growth platform driven by AIDC and new energy solutions. If AIDC orders, U.S. certification, shipment ramp-up, and gross margin delivery materialize, valuation at the current roughly 12x FY27E P/E and roughly 4% dividend yield still has room for re-rating. The key short-term tension is whether 2Q26 and 1H26 deliveries and domestic heavy-duty truck demand will weigh on sentiment; the medium- to long-term key lies in the sustainability of the data center power equipment cycle, overseas expansion of gas engines and SOFC, and the release of the aftermarket service profit pool.

Risks

• Heavy-duty truck sales recover more slowly than expected.
• Weichai's market share gains are weaker than expected.
• Kion performs weaker than expected.
• AIDC customer validation, U.S. EPA certification, or initial shipment progress falls short of expectations.
• The sustainability of the data center power equipment demand cycle is lower than expected, or market oversupply emerges earlier than the report expects.
• Weak domestic ICE heavy-duty truck and LNG heavy-duty truck demand continues to weigh on near-term earnings and valuation sentiment.

What to watch

• Whether U.S. EPA certification and customer validation for the 2.5MW gas engine are completed on the expected 2 to 3 month timeline.
• Whether the second-half ramp-up delivers against the 2026 AIDC shipment guidance of 3,500 to 4,000 units.
• Progress in 2027 gas engine orders, volume ramp of the 5.5MW product, and expansion with major North American customers.
• Whether gross margins for AIDC diesel backup engines and gas engines remain in the 35% to 40% and 40% to 50% ranges.
• Progress of AIDC-related capacity buildout to 8,000 to 10,000 units by the end of 2027.
• SOFC capacity plans of 30MW in 2026 and 200MW in 2027, as well as progress toward breakeven.
• Domestic heavy-duty truck, LNG heavy-duty truck, construction machinery sales, and Weichai's official 1H26 results.
• The parent company's full-year Rmb400B revenue target and the sustainability of data center product revenue growth.