Weichai Power: AI Data Center Power Generation Becomes Core Driver; Maintain Buy

Overview

This Goldman Sachs report, based on an NDR (Non-Deal Roadshow) conference call on April 30, 2026, summarizes Weichai Power's latest progress in the AI data center power generation business. The core conclusion is that Weichai's investment narrative has shifted from heavy-duty trucks to AI data center power generation. This segment is expected to account for 12% of net profit in 2025, growing 8.6x by 2030 to contribute 40% of profits, driving approximately 60% of incremental EPS growth. Based on this shift, Goldman Sachs maintains a Buy rating with an H-share target price of HKD 41 and an A-share target price of CNY 38.

Core views

Power generation business has become the core growth engine. Large-bore engine sales in 1Q26 exceeded 3,000 units (+20% YoY), including over 500 units for data center applications (+240% YoY). Management reiterated the full-year 2026 data center application target of approx. 3,500 units; due to order delivery schedules, most shipments will be concentrated in the second half. Current capacity is running at full load, with year-end capacity set to expand from 3,500-4,000 units to 5,000-6,000 units. The medium-term goal is to capture 25%-30% of the global large-bore engine market, with at least 30% share in data center applications. Gas generator sets are progressing faster than expected. The 1.6MW product is already on the market; the 2-3MW high-speed gas engine is expected to launch in June-July and enter mass production in September-October, with medium-speed models planned for late 2026 or early 2027. The order pipeline is basically saturated, with capacity being the key bottleneck; currently, about one-quarter of capacity is allocated to gas generator sets. Sales guidance for 2026 is 100-200 units, with higher sales in 2027 as capacity ramps up. Pricing represents a discount of approx. 5%-10% relative to the Caterpillar benchmark, with a unit price of approx. CNY 10 million. SOFC business involves deep cooperation with Ceres Power. Pricing benchmarks against Bloom Energy at approx. USD 3,000/kW, offering a cost advantage through local manufacturing; profitability is expected when sales reach 100MW. Phase I investment is CNY 300-400 million (30MW capacity by end-2026), with total investment of approx. CNY 4-5 billion required to expand to 1GW. Currently in the early commercialization stage, while no orders are confirmed, inquiry volume is high. Target customers include microgrids and industrial parks, with active discussions in Southeast Asia and Europe. Traditional businesses remain stable. Heavy-duty truck engine sales in 1Q26 saw slight YoY growth, with LNG engine market share recovering significantly by quarter-end. The YoY gross margin decline was mainly due to promotional policies in 2025, but QoQ recovery in 1Q26 has been strong, and similar pressure is not expected to persist. Full-year industry demand is expected to grow 5%-10% to 1.2-1.3 million units, with incremental demand mainly from overseas markets. KION achieved stable growth in 1Q26 with continuous margin improvement. Off-highway business (mining trucks, large excavators) and new energy business are in the incubation stage, with the latter's profitability still weaker than traditional engines.

Analysis framework

Goldman Sachs' analysis logic revolves around an 'investment narrative shift': from a traditional heavy-duty truck cyclical stock to a high-growth AI data center power generation story. In terms of valuation, H-shares are priced at 22x 2026E PE, representing a premium of approx. 100% over the long-term mid-cycle average of 11x, to reflect the high-growth attributes of the power generation business. This re-rating magnitude references the re-rating patterns of global engine peers over the past year, while also considering that Weichai's power generation business growth profile is stronger than peers. The target PE multiple is also consistent with the average of global power equipment peers. For A-shares, assuming no discount/premium to H-share equity value and referencing trading patterns over the past 2-3 quarters, a 12-month target price of CNY 38 is derived. From a business breakdown perspective, the AIDC power generation business is expected to account for 12% of net profit in 2025, growing 8.6x by 2030 to contribute 40% of profits, driving approx. 60% of incremental EPS growth. This structural change is viewed as the core rationale for the valuation re-rating.

Methodology notes

• Valuation MethodPE/PEG valuation

  Pricing H-shares at 22x 2026E PE, representing a premium of approx. 100% over the long-term mid-cycle average of 11x

  PE valuation is a common stock pricing method, deriving a multiple by dividing share price by earnings per share. When a company's growth prospects improve, the market is willing to assign a higher PE multiple. This report uses a 22x PE (vs. long-term average of 11x) to reflect the valuation re-rating driven by the high growth of the power generation business.

• Event Trading & Behavioral FinanceExpectation Gap/Expectation Management

  Investment narrative shifts from heavy-duty trucks to AI data center power generation, driving valuation re-rating

  When the market's perception of a company's core business changes, the valuation logic also shifts. Weichai is being repositioned from a cyclical heavy-duty truck engine company to a high-growth AI data center power supplier; this narrative shift is the core source of the valuation premium.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Capacity in the power generation business is the core bottleneck; order pipeline is saturated but constrained by capacity

  In a market where demand exceeds supply, the speed of capacity expansion determines the short-term performance ceiling. The report notes that the order pipeline for gas generator sets is basically saturated, with capacity being the key bottleneck. Currently, about one-quarter of capacity is allocated to gas generator sets, which dictates the sales pace for 2026-2027.

• Company Fundamentals & Financial Framework

  Business Breakdown Valuation: AIDC power generation business profit share rises from 12% to 40%

  Analyzing different business segments of the company separately to assess changes in each segment's contribution to overall profit. When the proportion of high-growth business increases, the overall valuation center moves up. This report uses this method to illustrate how power generation business growth drives the company's overall valuation re-rating.

Asset mapping & comparison

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

• Weichai Power (000338.SZ / 02338.HK)

  Core beneficiary: Rapid growth in AI data center power generation business, with profit contribution rising from 12% to 40% between 2025-2030

  Strengths

  Mature large-bore engine technology, data center application shipments up +240% YoY; gas generator sets progressing faster than expected; deep cooperation with Ceres Power on SOFC; service response and after-sales support superior to foreign competitors

  Weaknesses

  Brand awareness remains a key gap; supply bottlenecks for key components such as injection systems and crankshafts; new energy business still in incubation stage with weaker profitability

  Comparison

  Product specifications, performance, and customer feedback are broadly comparable to international peers; gas engine pricing is close to foreign brands; valuation at 22x 2026E PE is consistent with the global power equipment peer average

  Risks

  Slower macroeconomic activity, weak global economic growth, accelerated penetration of powertrain electrification, poor performance in HDT engine market share, slower-than-expected development of power generation business

Key data

• 1Q26 Large-Bore Engine Sales3,000+ units+20% YoY, including 500+ units for data center applications (+240% YoY)
• 2026 Data Center Application TargetApprox. 3,500 unitsMost shipments concentrated in the second half
• 2026 Gas Generator Set Sales Guidance100-200 unitsHigher sales in 2027 as capacity ramps up
• SOFC Pricing BenchmarkApprox. USD 3,000/kWBenchmarked against Bloom Energy; profitability expected when sales reach 100MW
• AIDC Power Generation Business Profit Share2025E 12% → 2030E 40%Expected to grow 8.6x, driving approx. 60% incremental EPS growth
• H-Share Valuation Multiple22x 2026E PEPremium of approx. 100% over long-term mid-cycle average of 11x
• Large-Bore Engine CapacityCurrent 3,500-4,000 units → Year-end 5,000-6,000 unitsCapacity expanding; injection systems and crankshafts are key bottlenecks
• SOFC Capacity PlanEnd-2026 30MW → 2027 100-200MW → 2030 1GWPhase I investment CNY 300-400 million; total investment of approx. CNY 4-5 billion required to expand to 1GW
• Large-Bore Engine Market Share TargetMedium-term 25%-30%Data center application share at least 30%
• Heavy-Duty Truck Engine Industry DemandFull-year 2026 expected growth 5%-10%Trending towards 1.2-1.3 million units, with incremental demand mainly from overseas

Impact & implications

For Weichai Power, this means the company is transforming from a cyclical heavy-duty truck engine manufacturer into a core supplier of AI infrastructure. The high growth and increasing profit share of the power generation business will support an upward shift in the valuation center; the H-share 22x PE, representing a premium of approx. 100% over the long-term average of 11x, reflects this transition. For the industry, there is rapid growth in demand for data center backup power and onsite generation, with market space for large-bore engines, gas generator sets, and SOFC technology routes. For investors, key watch items include the progress of capacity expansion, the mass production schedule of gas generator sets, SOFC commercialization progress, and cyclical fluctuations in the traditional heavy-duty truck business.

Risks

• Macroeconomic activity slower than expected, especially in road freight, infrastructure, and real estate sectors
• Global economic growth weaker than expected
• Higher penetration of powertrain electrification, decline in LNG penetration rate
• Heavy-duty truck engine market share performance weaker than expected
• Power generation business development slower than expected

What to watch

• 2Q26 large-bore engine shipment pace (expected to be back-end loaded)
• Progress on mass production of 2-3MW gas generator set models in September-October
• Progress on confirmation of SOFC commercialization orders
• Execution of large-bore engine capacity expansion to 5,000-6,000 units
• Sustainability of market share recovery for heavy-duty truck engine LNG products