Power generation guidance raised; Weichai Power's 2027 AIDC power generation earnings could triple

Overview

The report reviews Weichai Power's better-than-expected second-quarter 2026 results and its August 28 analyst conference call, focusing on how management's raised AIDC power generation guidance affects orders, capacity, earnings forecasts, and valuation. Goldman Sachs believes the company's core investment narrative is shifting from the heavy-duty truck cycle to AI data center power infrastructure and reiterates Buy ratings on both the A-shares and H-shares.

Core views

Following better-than-expected second-quarter 2026 results, Weichai Power held an analyst conference call on August 28. Goldman Sachs believes the most important change was management's raised guidance for the AIDC power generation business: by Goldman Sachs' estimates, the business will generate more than RMB10 billion in earnings in 2027, specifically RMB11.3 billion, roughly tripling from RMB3.4 billion in 2026 and contributing about half of company net profit earlier than expected. Management estimates that the power shortfall arising from AIDC could reach 100–160GW during 2026–2030. Given the long commercialization cycle for nuclear power, the company believes demand for diesel and gas generator sets as backup or on-site primary power solutions could continue through 2030. Contract liabilities increased by approximately RMB3 billion quarter-on-quarter in the second quarter of 2026, mainly due to customer prepayments for power generation products, supporting demand and order visibility. Large diesel engines are primarily used as backup power for data centers. Shipments reached 1,400 units in the first half of 2026, more than doubling year-on-year. Management raised its 2026 shipment guidance from more than 3,500 units to more than 4,000 units, a significant increase from the 1,400 units delivered in full-year 2025, and provided guidance of 6,000 units for 2027. Goldman Sachs views this upgrade as an important foundation for near-term earnings growth in the power generation business, while the 6,000-unit guidance for 2027 is also at the upper end of prior market expectations of 5,000–6,000 units. Reciprocating gas engine generator sets are used for behind-the-meter on-site primary power or backup power, forming a steeper second growth curve. Initial shipments are expected to begin in September–October 2026. Guidance for 2026 was raised from 100–200 units to 200–300 units, while 2027 shipments are expected to exceed 2,000 units, representing nearly tenfold growth. Management stated that these volumes are covered by framework orders and that customers have also paid deposits. AIDC is expected to account for 90%–95% of relevant shipments, with customers typically reserving capacity through supply assurance framework agreements. In terms of products, the 2.5MW model has already been launched, the 3.0MW model is expected to be released by the end of 2026, and products above 5.0MW are expected to have prototypes delivered by the end of 2026 and be launched in 2027. Pricing is benchmarked against peers at approximately US$600,000–700,000 per MW. The demand outlook for SOFC has not been lowered, but earnings realization depends more heavily on capacity ramp-up. The company plans to reach 30MW of capacity and conduct demonstration deliveries by the end of 2026, complete commissioning of a 200MW fully automated production line by the end of 2027, and make its first small-scale deliveries by the end of the first quarter of 2027. It has currently signed orders for 15MW, with potential incremental orders depending on the commissioning progress of the new production line. Management stated that the main constraint at present is capacity rather than customer demand. The company has deferred signing some formal large orders because contracts may impose penalties for delayed delivery. Cost remains another constraint: competitors' prices are approximately US$2,700/kW after subsidies and approximately US$4,000/kW before subsidies. Weichai may still face cost-reduction challenges at a scale of 200MW, but management believes it could approach peers' post-subsidy pricing once production exceeds 1GW. The aftermarket could expand the profit pool beyond one-time equipment sales. Management noted that more than 50% of overseas peers' profits come from after-sales services. Weichai is shifting toward a full-ecosystem solution covering equipment and services, with after-sales profit contribution potentially ranging from 10% to 60%, depending on the scope of service agreements. If this model is gradually implemented, installed-base growth could further translate into recurring service revenue, although the report does not incorporate all unverified long-term incremental service earnings into its near-term forecasts. The earnings mix is therefore changing significantly. Goldman Sachs forecasts AIDC power generation net profit to rise from RMB1.3 billion in 2025 to RMB3.4 billion in 2026, RMB11.3 billion in 2027, RMB12.9 billion in 2028, RMB14.9 billion in 2029, and RMB17.5 billion in 2030. Its corresponding share of company net profit rises from 12% to 22%, 50%, 51%, 52%, and 54%. The report also expects the business to grow roughly tenfold by 2028 versus 2025 and contribute more than 80% of incremental EPS through 2028. In comparison, the traditional business's share of profit is expected to decline from 79% in 2025 to 41% in 2027, indicating that the valuation logic is shifting from the heavy-duty truck and traditional engine cycles toward growth in data center power infrastructure. Goldman Sachs raised its 2026–2028 EPS forecasts by 1%–13% to RMB1.77, RMB2.62, and RMB2.94, respectively, from prior forecasts of RMB1.74, RMB2.33, and RMB2.91. The corresponding net profit forecasts are RMB15.364 billion, RMB22.592 billion, and RMB25.180 billion. The new EPS forecasts are 6%, 22%, and 12% above Visible Alpha consensus, respectively, with the largest revision in 2027. Forecasts beyond 2027 were raised by only 0%–1%, because Goldman Sachs is still awaiting further capacity plans and believes data center power supply and demand continue to evolve. The report forecasts revenue of RMB263.178 billion, RMB292.074 billion, and RMB315.332 billion for 2026–2028, respectively, with EPS growth of 41.4%, 47.9%, and 12.1%. The valuation uses a SOTP approach to reflect the differing growth stages of the traditional business, diesel power generation, gas power generation, and SOFC. The traditional business is valued at 10 times average 2026–2027 EPS, with Weichai's attributable share of KION's market capitalization added. Large diesel engines are valued at 20 times 2028 P/E, while gas generator sets and SOFC are each valued at 25 times 2030 P/E, with all three discounted to mid-2027 using a 9% cost of equity. In the SOTP, AIDC power generation accounts for 73% of H-share equity value, including 25%, 38%, and 8% for large diesel engines, gas generator sets, and SOFC, respectively. The traditional business and KION account for 23% and 4%, respectively. This method yields a 12-month H-share target price of HK$55.00 per share. Based on the trading pattern over the past six months, the A-shares are valued at a 5% discount to the H-share equity value, resulting in a target price of RMB48.00 per share. The report notes that the H-shares have begun to price in potential upside from reciprocating engines but do not yet reflect SOFC potential, while the A-shares do not yet fully price in either. The main text summarizes the current valuation as approximately 10 times 2027 P/E with a 6.6% dividend yield, while the forecast table shows corresponding figures of 10.5 times and 6.5%. Key risks include weaker-than-expected macroeconomic activity, especially in road freight, infrastructure, and property; weaker global economic growth; a shift in power systems toward greater electrification and lower LNG penetration; weaker-than-expected heavy-duty truck engine market share; and slower-than-expected development of the power generation business.

Analysis framework

The report first extracts management's latest shipment, order, customer prepayment, product, and capacity guidance from the post-second-quarter-results conference call, and then separately assesses the realization paths for diesel backup power, gas on-site primary power, and SOFC. Based on this, Goldman Sachs re-estimates sales volumes and earnings contributions for each business, compares the revised EPS forecasts with Visible Alpha consensus, and finally applies a SOTP valuation using different forecast years and maturity assumptions for each business, calculating target-price upside based on August 28, 2026 closing prices.

Methodology notes

• Valuation methodologySOTP valuation

  Segment valuation based on business maturity

  Goldman Sachs separately values the traditional business, KION, large diesel engines, gas generator sets, SOFC, and PSIX, and then combines them into company equity value to avoid applying a single valuation multiple to businesses at different stages of growth.

• Valuation methodologyP/E and PEG valuation

  Forward P/E-based valuation with discounting

  The traditional business is valued at 10 times average 2026–2027 EPS; large diesel engines are valued at 20 times 2028 P/E, while gas generator sets and SOFC are valued at 25 times 2030 P/E, with the latter three discounted to mid-2027 using a 9% cost of equity.

• Industry/sector analysis frameworkSupply-demand framework

  Matching the AIDC power shortfall and order demand with equipment capacity

  The report uses a potential AIDC power shortfall of 100–160GW during 2026–2030 to explain demand for power generation equipment, while using customer prepayments, framework orders, production-line capacity, and commissioning schedules to assess whether demand can translate into actual deliveries and profits.

• Industry/sector analysis frameworkVolume-price decomposition

  Analyzing the power generation business by shipment volume, unit power pricing, and service contribution

  The report separately tracks shipment guidance for diesel and gas generator sets, pricing per MW, SOFC capacity and costs, and the profit contribution of after-sales agreements, thereby linking product volume growth to earnings growth.

• Event-driven strategy and behavioral financeExpectation gap/expectation management

  Comparing management's raised guidance with market consensus

  Goldman Sachs compares its updated earnings forecasts year by year with prior forecasts and Visible Alpha consensus, using 2027 EPS being 22% above consensus as important evidence that the market may not yet fully reflect the earnings change.

Asset mapping & comparison

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

• Weichai Power A-shares (000338.SZ)

  One of the report's primary covered securities; Goldman Sachs reiterates Buy and maintains its 12-month target price of RMB48.00.

  Strengths

  AIDC power generation order and shipment guidance was raised, and the 2027 earnings forecast is significantly above market consensus; the company also has a product portfolio spanning diesel generator sets, gas generator sets, and SOFC.

  Weaknesses

  The traditional business remains exposed to the heavy-duty truck, road freight, infrastructure, and property cycles, while SOFC still faces capacity ramp-up and cost-reduction challenges.

  Comparison

  Goldman Sachs believes the A-shares do not yet price in the potential upside from RICE and SOFC; the target price applies a 5% discount to the H-share equity value.

  Risks

  Slower-than-expected development of the power generation business, weak macroeconomic demand, electrification substitution, declining LNG penetration, and weaker-than-expected heavy-duty truck engine market share.

• Weichai Power H-shares (2338.HK)

  Buy is reiterated alongside the A-shares, with a 12-month target price of HK$55.00.

  Strengths

  Provides exposure to Weichai Power's complete AIDC power generation product portfolio and the 2027 earnings growth thesis.

  Weaknesses

  SOFC order realization remains constrained by the progress of commissioning the 200MW production line and reducing costs.

  Comparison

  Goldman Sachs' SOTP analysis suggests that the H-shares have begun to price in potential RICE upside but still do not reflect SOFC potential.

  Risks

  As with the A-shares, the main risks arise from macroeconomic conditions, changes in the power-system mix, market share, and the execution pace of the power generation business.

Key data

• Report and conference call datesReport dated August 31, 2026; analyst conference call held August 28, 2026The conference call was held after the release of better-than-expected second-quarter 2026 results
• Potential AIDC power shortfall100–160GW during 2026–2030Management's estimate of the power shortage driven by AI data centers
• Large diesel engine shipments1,400 units in 2025; 2026 guidance of more than 4,000 units; 2027 guidance of 6,000 unitsPrevious 2026 guidance was more than 3,500 units; 1,400 units were shipped in the first half of 2026, more than doubling year-on-year
• Gas generator set shipments200–300 units in 2026; more than 2,000 units in 20272026 guidance was raised from 100–200 units; initial shipments are expected in September–October 2026, and 2027 volumes are covered by framework orders
• Gas generator set AIDC exposure and pricingAIDC accounts for 90%–95% of shipments; approximately US$600,000–700,000 per MWPricing is benchmarked against peers
• Customer prepaymentsContract liabilities increased by approximately RMB3 billion quarter-on-quarter in the second quarter of 2026Mainly attributable to customer prepayments for power generation products
• Gas generator set product milestones2.5MW already launched; 3.0MW expected to launch by the end of 2026; products above 5.0MW expected to have prototypes delivered by the end of 2026 and launch in 2027Corresponds to expansion of the on-site primary power product portfolio
• SOFC capacity and orders30MW by the end of 2026; commissioning of the 200MW production line completed by the end of 2027; 15MW of signed ordersSmall-batch deliveries are expected to begin by the end of the first quarter of 2027, with the main constraint being capacity ramp-up
• SOFC cost benchmarkApproximately US$2,700/kW after subsidies and approximately US$4,000/kW before subsidies for peersManagement believes Weichai could approach peers' post-subsidy pricing after reaching scale above 1GW
• After-sales profit contributionMore than 50% for overseas peers; 10%–60% under Weichai's service agreementsThe specific contribution depends on the scope of service agreement coverage
• AIDC power generation net profit2025A/2026E/2027E/2028E/2029E/2030E: RMB1.3/3.4/11.3/12.9/14.9/17.5 billionAccounts for 12%/22%/50%/51%/52%/54% of company net profit, respectively
• EPS forecast revisions2026E/2027E/2028E: RMB1.77/2.62/2.94Prior forecasts were RMB1.74/2.33/2.91, representing upgrades of 2%/13%/1%; 6%/22%/12% above consensus, respectively
• Revenue and net profit forecasts2026E/2027E/2028E revenue of RMB263.178/292.074/315.332 billion; net profit of RMB15.364/22.592/25.180 billionNet profit is stated before exceptional items
• Growth and profitability2026E/2027E/2028E EPS growth of 41.4%/47.9%/12.1%; EBITDA margins of 13.4%/16.0%/16.5%2027 is the year with the most pronounced acceleration in earnings forecasts
• Current valuation2027E P/E of 10.5 times and dividend yield of 6.5%The main text summarizes this as approximately 10 times P/E and a 6.6% dividend yield
• Target prices and upsideA-shares RMB48.00, 73.7% upside; H-shares HK$55.00, 67.9% upsideBased on August 28, 2026 closing prices of RMB27.64 and HK$32.76
• SOTP value compositionAIDC power generation 73%; traditional business 23%; KION 4%Within AIDC, large diesel engines, gas generator sets, and SOFC account for 25%, 38%, and 8% of total valuation, respectively

Impact & implications

Goldman Sachs believes that raised order and capacity guidance is accelerating the shift in Weichai Power's earnings center of gravity from the traditional heavy-duty truck and engine businesses toward AIDC power generation. If diesel generator sets, gas generator sets, and SOFC are delivered as planned, AIDC power generation will contribute approximately half of net profit in 2027 and dominate incremental EPS through 2028, while current A-share and H-share valuations do not yet fully reflect the potential of the entire power generation business.

Risks

• Macroeconomic activity may be slower than expected, particularly in road freight, infrastructure, and real estate.
• Global economic growth may be weaker than expected.
• Power systems may shift more rapidly toward electrification, while LNG penetration may be lower than expected.
• Weichai's heavy-duty truck engine market share may perform below expectations.
• Product development, capacity deployment, or commercialization of the AIDC power generation business may proceed more slowly than expected.

What to watch

• Track whether large diesel engine shipments can meet guidance of more than 4,000 units in 2026 and 6,000 units in 2027.
• Monitor whether gas generator set deliveries can begin in September–October 2026 and exceed 2,000 units in 2027.
• Watch whether customer prepayments in contract liabilities can be successfully converted into revenue and profit.
• Track small-batch SOFC deliveries by the end of the first quarter of 2027 and the commissioning progress of the 200MW production line by the end of 2027.
• Monitor the company's subsequent capacity plans beyond 2027 and changes in AIDC power supply and demand.
• Watch SOFC cost reductions at the 200MW stage and progress toward scale above 1GW.