AI Data Center Power Opens Second Growth Curve

Overview

This report changes Weichai Power's valuation method from traditional mixed P/E to Sum-of-the-Parts (SoTP) to better capture the company's massive potential in AI data center (AIDC) power supply business. The report argues that as global gas turbine supply remains tight, reciprocating internal combustion engines (RICE) and solid oxide fuel cells (SOFC) are rapidly becoming primary on-site power solutions for data centers. Weichai, possessing a full product portfolio (large diesel engines, gas units, fuel cells), is the best proxy target in Asia. Despite YTD gains of 129%/81% for H/A shares, they remain undervalued relative to the global AIDC supply chain. Goldman Sachs maintains "Buy" and raises 12-month target prices to 56 HKD for H-shares and 48 yuan for A-shares.

Core views

Demand Side: Global AI capex remains highly prosperous; latest US cloud vendor earnings reports confirm the peak in data center construction. Supply Side: Gas turbine delivery bottlenecks will persist at least until 2030, triggering explosive demand for RICE and SOFC. Since Q3 2025 alone, approx. 15GW of RICE data center orders have been disclosed globally. Business Breakdown: 1) Large Diesel Engines (Backup): Supply-demand tightness through 2028, assign 25x 2028E P/E. 2) RICE (Primary Power): Benefit from gas turbine gaps, assign 30x 2030E P/E. 3) SOFC (Fuel Cells): Benchmark against global peers Ceres Power and Bloom Energy, assign 51x 2030E P/E. Profit Outlook: Expected net profit from 2025-2030 to increase from 10.9 billion yuan to 29.2 billion yuan, CAGR 22%. Among which, AIDC power business contributes 1.14 billion yuan -> 11 billion yuan, accounting for 62% of incremental profit, 43% of total profit by 2030. Valuation Conclusion: New SOTP shows reasonable equity value of approx. 301.8 billion yuan, with AIDC power accounting for 68%. H-shares include some RICE value, A-shares do not reflect any new business yet, offering greater revaluation space.

Analysis framework

The institution first confirmed the urgent need for on-site primary power supply in AI data centers via industry chain research, then compared technical feasibility and delivery cycles of gas turbines, RICE, and SOFC to identify Weichai as a scarce Asian target. Next, the company's business was segmented into six areas: traditional engines, large diesel backup, RICE primary power, SOFC primary power, smart logistics, and agricultural machinery. Each segment uses 2028 or 2030 as the end point for profit visibility, referencing global comparable company valuation multiples, discounted to mid-2027 per share value. Finally, combined with A/H share historical premium/discount spreads, target prices were issued.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  SOTP (Sum-of-the-Parts) Valuation

  Price different business segments of the company individually using valuation methods suitable for their growth stage and profit model, then sum them to derive overall value, avoiding single multiples failing to reflect multi-business differences.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Substitute Demand Driven by Gas Turbine Supply Bottleneck

  By analyzing global gas turbine capacity and delivery cycle, judge the logic of penetration rate improvement for RICE and SOFC as data center primary power sources.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Mapping of Earnings Structure Changes to Valuation

  Break down future five-year profit increments by business segment to quantify the pulling effect of high-growth, high-margin AIDC power business on overall valuation.

Asset mapping & comparison

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

• Weichai Power A-share (000338.SZ)

  New business value not yet included, valuation lowland

  Strengths

  High elasticity of AIDC power business; valuation still lower than global comparables

  Weaknesses

  Cyclical fluctuation of traditional heavy truck business

  Comparison

  6% discount relative to H-share, larger upside space

  Risks

  Macro demand falling short of expectations; new business implementation slower than expected

• Weichai Power H-share (02338.HK)

  Partially reflects RICE value, still underestimating SOFC

  Strengths

  Good liquidity; already attracting overseas fund attention

  Weaknesses

  Significant gains YTD, possible short-term volatility

  Comparison

  Premium relative to A-share, but still cheap relative to global peers

  Risks

  Exchange rate fluctuation; Hong Kong stock systemic risk

Key data

• 2025E Net Profit10.9 billion yuanBase Year
• 2030E Net Profit29.2 billion yuanCAGR 22%
• AIDC Power 2030E Net Profit11.0 billion yuan43% of total profit, 1.3 billion yuan in 2025 only
• H-share Target Price56 HKDCorresponds to 2027E 24x P/E
• A-share Target Price48 YuanCorresponds to 2027E 23x P/E, 6% discount vs H-share
• YTD GainH-share +129%, A-share +81%Significantly outperforming HSCEI/CSI300

Impact & implications

The report argues the market still underestimates Weichai's earnings elasticity in the AI data center power sector. As the company further updates RICE and SOFC capacity guidance subsequently, both earnings and valuation are expected to be revised higher. A-shares have greater potential revaluation space as they have not yet factored in new business value.

Risks

• Slower macroeconomy leading to below-expectation heavy truck demand
• Global economic growth slowdown
• Over-anticipated commercial vehicle electrification penetration, compressing gas engine space
• Decline in heavy truck engine market share
• AIDC power business development falls short of expectations

What to watch

• Company capacity guidance following high-speed RICE product launch in second half of 2026
• Progress of SOFC project collaboration with Ceres-Centrica
• Generac order landing status and 2027 delivery guidance