Nomura initiates coverage on Weichai Power: AIDC and new energy drive growth, while ICE remains stable

Overview

This is Nomura's first coverage research on Weichai Power. The core thesis is that the company's traditional ICE business remains a leading franchise, while large-bore engines tied to AIDC backup power demand, new-energy commercial vehicle components, and the long-term commercialization potential of SOFC together will open room for revenue and valuation.

Core views

Nomura believes Weichai Power benefits from rising global AIDC demand, with large growth in large-bore engine sales for data-center backup power. New-energy revenue is growing quickly in 2025 and Q1 2026 and is expected to benefit from higher electrification penetration of new-energy heavy trucks in China. SOFC contributes limited profit in the near term, but if commercialization progresses smoothly, it could become a long-term valuation catalyst. On the traditional ICE side, the company leads share in heavy-duty truck engines, gas power, and large-to-medium bus engines, which supports operating resilience in downturns.

Analysis framework

The report combines fundamental forecasting with relative valuation, deriving 2026-28 projections for revenue, profit and EPS by focusing on AIDC demand, expansion in new-energy business, ICE share advantages, gross margin expansion, and operating leverage from expense ratios, and then sets a target multiple using the peer group average 2026 P/E.

Methodology notes

• Valuation methodologyRelative P/E valuation

  By multiplying forecast 2026 EPS of CNY1.65 by a target P/E of 22x, a target price of CNY36.30 is obtained.

  The 22x target P/E is below the peer average of 26.4x, mainly reflecting that AIDC and new-energy are still ramping, SOFC has limited near-term profit contribution, and Weichai Power's forecast 2026-28 EPS CAGR is expected to be lower than some peers.

• Earnings forecastSegment-based revenue and profit forecasting

  Revenue growth, gross margin and expense ratios are forecast by business segment and then aggregated to consolidated net profit.

  The report expects the powertrain, complete vehicle and key components segment to be driven by large-bore engines, while new-energy revenue in other components is expected to rise through electrification and scale effects.

• Risk assessmentDownside risk identification

  Evaluates the risk to the target price from four angles: macroeconomic cycle, commercialization of emerging businesses, raw-material costs, and FX risk.

  Because the company is exposed simultaneously to heavy-duty trucking cycles, manufacturing cost levels, and offshore revenue translation, these risk factors could affect revenue, gross margins and net profit.

Asset mapping & comparison

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

• Weichai Power 000338.SS

  Report subject and recommended security

  Strengths

  Leading market share in traditional ICE; large-bore engines benefit from AIDC backup power demand; expansion in new-energy components; relatively strong cash flow and dividend capacity.

  Weaknesses

  AIDC and new-energy contributions are still in the ramp-up phase, SOFC has limited near-term profit contribution, and EPS growth is expected to be below some peers.

  Comparison

  Target P/E is 22x, below the peer average 2026 P/E of 26.4x; current trading is at about 18.0x 2026F P/E.

  Risks

  Heavy-duty truck cycle, slower AIDC investment, underperformance in new-energy customer expansion, rising raw-material prices, and RMB appreciation.

• 02338.HK

  Hong Kong security code of the same company

  Strengths

  Shares the same company fundamentals as the A-share entity.

  Weaknesses

  The report's target price and rating disclosure mainly focuses on 000338 CH.

  Comparison

  Benchmark disclosed in the report is CSI300, and the main framework is based on A-share coverage.

  Risks

  In addition to company-level risks, it may also be affected by Hong Kong market liquidity and valuation differences.

Key data

• Investment ratingBuyFirst coverage with Buy rating.
• Target priceCNY36.30Based on target P/E of 22x for 2026.
• Closing priceCNY29.72Closing price disclosed on the report cover.
• Implied upside22.1%Calculated from target price relative to current price.
• 2026F EPSCNY1.65Used in the target price calculation.
• Peer average 2026F P/E26.4xAverage valuation of comparable companies.
• Target P/E22xA discount relative to peers.
• 2026-28F RevenueCNY255,926mn / CNY277,119mn / CNY298,396mnApproximately 9% three-year CAGR.
• 2026-28F Net profitCNY14,274mn / CNY16,753mn / CNY18,733mnApproximately 20% three-year CAGR.
• Large-bore engine sales for data centersabout 1,400 units in 2025; over 500 units in 1Q26YoY growth of around 259% and over 240%.
• New-energy revenueCNY3.04bn in 2025; CNY1.69bn in 1Q26YoY growth of about 100% and about 200%.

Impact & implications

If AIDC investment continues, data-center backup power orders are converted, and new-energy commercial vehicle penetration keeps rising, Weichai Power's share of higher-value products and gross margin may improve, leading the market to reassess the value of its transition from a traditional ICE leader to a diversified power solutions company.

Risks

• Downside macro and industry-cycle conditions could weigh on heavy-duty truck and traditional business recovery.
• Lower-than-expected customer rollout for large-bore engines, SOFC, or other emerging businesses could weaken growth and valuation leverage.
• A slowdown in AIDC investment could lead to backup power demand falling short of expectations.
• Rising raw-material prices may compress manufacturing gross margins.
• A higher share of overseas income means RMB appreciation could affect revenue translation, export margins, and foreign exchange gains/losses.

What to watch

• The pace of global and China AIDC infrastructure investment.
• Orders and shipments of large-bore engines for data-center backup power.
• Sales of new-energy heavy trucks and growth in Weichai's new-energy electric-drive, battery, and power electronics revenues.
• SOFC customer expansion, licensing partnerships, and commercialization progress.
• Whether gross margin in the powertrain and components segment improves as forecast.
• Whether the company can sustain its payout ratio and shareholder return policy.