Nomura Initiates Coverage of Weichai Power: AIDC and New Energy Drive Growth; Buy Rating

Overview

This report is Nomura's company research and earnings outlook report on Weichai Power. It believes Weichai Power remains a leader in the traditional internal combustion engine value chain while benefiting from demand for backup power at AIDC data centers, rising penetration of new energy commercial vehicles, and potential long-term commercialization opportunities for SOFCs. Based on these growth drivers, Nomura initiates coverage with a Buy rating and a target price of CNY36.30.

Core views

The core views are threefold: first, rising AIDC investment will drive higher shipments of large-bore engines for data-center backup power and improve the product mix; second, rising new energy heavy-truck penetration will support continued volume growth in new energy businesses such as electric drives, batteries, and electronic controls; third, the traditional ICE business's high market share and relative resilience during cyclical downturns provide a solid operational foundation. The report also notes that SOFCs will make limited contributions to near-term profits, but commercialization progress could become a valuation catalyst and a long-term growth runway.

Analysis framework

The report uses segment-level growth forecasts, margin improvement assumptions, peer valuation comparisons, and a P/E valuation framework. The analysis focuses on AIDC large-bore engine demand, new energy commercial vehicle industry trends, traditional heavy-truck engine market share, company revenue and net profit forecasts, and valuation comparisons with comparable companies including Hengli Hydraulic, Tianrun Industry Technology, and Sinotruk Jinan Truck.

Methodology notes

• Valuation methodsRelative P/E Valuation

  Target P/E Multiple

  The report applies a target P/E of 22x, below the comparable companies' 2026 average P/E of 26.4x, to reflect that AIDC and new energy contributions are still ramping up, SOFCs have limited near-term profit contributions, and Weichai Power's estimated 2026-28F EPS CAGR is expected to be below that of its peers.

• Earnings ForecastSegment Revenue and Margin Forecast

  Revenue CAGR, Gross Margin, and Net Profit Forecast

  The report forecasts revenue and gross margin by segment, including powertrain, complete vehicles, engines and key components, and other components, and derives 2026-28F revenue and net profit by incorporating operating leverage from the expense ratio.

• Relative PerformanceBenchmark Index Comparison

  Relative Return to the CSI 300

  The report uses the CSI 300 as the A-share benchmark index and notes that Weichai Power underperformed the CSI 300 by approximately 4.0 percentage points over the month ended July 7, 2026.

Asset mapping & comparison

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

• Weichai Power 000338.SZ

  Core covered security

  Strengths

  Rapid growth in large-bore engines for AIDC backup power, expanding new energy business, leading market share in the traditional ICE business, diversified business mix, and relatively stable shareholder returns.

  Weaknesses

  AIDC and new energy contributions are still in the ramp-up phase, SOFCs have limited near-term earnings contributions, and estimated 2026-28F EPS CAGR is expected to be below that of some peers.

  Comparison

  The report selects Hengli Hydraulic, Tianrun Industry Technology, and Sinotruk Jinan Truck as comparable companies; the comparable companies' 2026 average P/E is 26.4x, while Weichai's target P/E is 22x.

  Risks

  Macroeconomic and industry-cycle downturns, slower-than-expected development in emerging markets or the industry, rising raw material costs, and foreign-exchange fluctuations.

Key data

• RatingBuyBuy rating initiated with first-time coverage.
• Target PriceCNY 36.30Based on a target P/E of 22x and 2026F EPS of CNY1.65.
• Implied Upside22.1%Calculated based on the report's closing price of CNY29.72.
• 2026F/2027F/2028F RevenueCNY255,926mn / CNY277,119mn / CNY298,396mnCorresponding to a 2026-28F revenue CAGR of approximately 9%.
• 2026F/2027F/2028F Net ProfitCNY14,274mn / CNY16,753mn / CNY18,733mnCorresponding to a three-year net profit CAGR of approximately 20%.
• Large-Bore Engine Sales for Data CentersApproximately 1,400 units in 2025; over 500 units in 1Q26Year-over-year growth of approximately 259% and over 240%, with ASP above CNY500,000.
• New Energy Business RevenueCNY3.04bn in 2025; CNY1.69bn in 1Q26Year-over-year growth of approximately 100% and 200%, respectively.
• China New Energy Heavy-Truck Sales102,600 units in the first five months of 2026Up 68% year over year, according to CVWorld.
• Heavy-Truck Engine Market Share32.2% in 2022; 34% in 2025Demonstrating the resilience of the traditional ICE business's market share.
• 2026 Average P/E of Comparable Companies26.4xWeichai's target P/E is 22x, below the industry average.

Impact & implications

If the report's judgments materialize, Weichai Power's valuation narrative will shift partially from that of a traditional commercial vehicle cyclical stock toward a growth-oriented equipment manufacturer driven jointly by AIDC infrastructure, new energy commercial vehicles, and long-term SOFC technology optionality. In the near term, the focus will be on large-bore engine orders and the scale effects of the new energy business; over the medium to long term, attention will turn to SOFC customer acquisition and commercialization progress.

Risks

• Macroeconomic and industry headwinds could cause the recovery of the traditional heavy-truck and internal combustion engine businesses to fall short of expectations.
• Slower-than-expected customer development or industry growth for large-bore engines, new energy, and SOFCs could constrain business growth and valuation.
• Rising raw material prices could compress the gross margin of the manufacturing business.
• A relatively high share of overseas revenue means RMB appreciation could affect translated revenue, export gross margins, and foreign-exchange gains and losses.

What to watch

• Sustainability of AIDC infrastructure investment.
• Orders and shipments of large-bore engines for data-center backup power.
• New energy heavy-truck penetration and improvement in Weichai's new energy business revenue and gross margin.
• SOFC commercialization progress and customer acquisition.
• Recovery of the traditional heavy-truck cycle and changes in Weichai's engine market share.
• Raw material prices and RMB exchange-rate trends.