Yinlun (002126): J.P. Morgan initiates Yinlun at Overweight on AIDC power, liquid cooling and truck-electrification growth.

Overview

J.P. Morgan initiates coverage of China-based thermal-management supplier Yinlun with an Overweight rating. Its thesis centers on a shift from traditional auto parts toward higher-growth AIDC power infrastructure, liquid cooling and commercial-vehicle electrification, supported by a Dec-2027 SOTP target price of Rmb51.

Core views

J.P. Morgan expects Yinlun to deliver about 20% revenue CAGR and about 30% net-profit CAGR over 2025-28E as digital and energy activities become a much larger contributor. It forecasts revenue rising from Rmb15.7bn in 2025 to Rmb26.6bn in 2028E and net profit from Rmb957mn to Rmb2,173mn. The central premise is that the market still values Yinlun principally as a conventional thermal-management supplier, while its exposure to AI data-center power and cooling offers structurally stronger growth and margins. Digital and energy is forecast to grow at a 54% CAGR in 2025-28E and account for about 20% of revenue by 2028E, versus 9% in 2025. The report expects group gross margin to expand from 18% in 1H26 to about 21% by 2028E as this mix improves. The clearest near-term driver is genset cooling supplied to Caterpillar. AI data-center construction is constrained by grid availability, which is raising demand for backup diesel and prime-power gas engines. J.P. Morgan forecasts global data-center power installed base to rise from about 117GW in 2025 to 242GW in 2028, while AI data-center power rises from about 37GW to 148GW. Caterpillar customers are placing power-generation orders as far out as 2030, and the report cites projected expansion in Caterpillar diesel and gas-engine capacity. Yinlun began volume supply of cooling packages in 2H24; supplier qualification typically takes two to three years, creating a barrier to entry. Caterpillar’s 2026 order volume to Yinlun was increased to about 3,400 units from roughly 2,000 at the start of the year, with about 5,000 units indicated for 2027. Yinlun’s cost is estimated to be 20-30% below Modine’s, while Mexico production and planned capacity expansion support local delivery. J.P. Morgan estimates Yinlun’s share of Caterpillar cooling-package requirements could rise by about 10 percentage points to above 50% by 2028E. Accordingly, genset-related revenue is forecast to increase from Rmb538mn in 2026E to Rmb1.5bn in 2027E and Rmb3.18bn in 2028E, a 143% CAGR from 2026-28E. The business is projected to rise from 3% to 12% of group revenue and from 6% to 21% of group gross profit over that period, helped by estimated 36-38% gross margin. The report also identifies gas-engine aftertreatment as an additional contributor: deliveries to Caterpillar are expected to start in 4Q26, with 700-800 units in 2027 and ASP of about US$130,000 per unit. Liquid cooling is the second AIDC growth leg. Higher AI-server power density is making air cooling less adequate and supporting CDU adoption; PHEs transfer heat between server-side and facility-side cooling loops. PHEs account for about 10-20% of CDU cost, with roughly three units per CDU and Rmb120k-150k of PHE content. J.P. Morgan estimates the global secondary-side CDU PHE market will expand from about Rmb3bn in 2025 to about Rmb13bn in 2028, a 63% CAGR. The report argues that Yinlun’s four decades of PHE manufacturing, vacuum-brazing know-how and self-designed furnace capability provide an advantage because customized furnace and yield ramp-up requirements can make overseas capacity expansion take two to three years. Yinlun plans three 15,000-unit PHE lines, including South China and Thailand, implying about Rmb1.8bn of annualized output value at full utilization. Yinlun passed Google’s designated third-party laboratory certification in March 2026 but still needs Tier-1 CDU module validation, a potential factory audit and purchase-order approval. J.P. Morgan explicitly excludes Google-related orders from its base case, forecasting liquid-cooling revenue to rise from Rmb500mn in 2026E to Rmb840mn in 2028E. If qualification converts into orders, revenue could instead reach about Rmb1.4bn in 2028E, raising 2027E and 2028E net profit by about 4% and 6%, respectively. The report treats this as upside optionality rather than secured revenue. The third driver is commercial vehicle and non-road thermal management. The segment generated about Rmb3.32bn of revenue in 1H26, up 37% year on year, and about Rmb785mn of gross profit at roughly 24% gross margin, above the company average and passenger-vehicle margin. Export demand, domestic heavy-duty-truck replacement and electrification support the report’s modeled segment growth of 28%, 18% and 12% in 2026E, 2027E and 2028E. Electric heavy-duty trucks require Rmb20-30k of thermal-management content per vehicle versus about Rmb14-15k for ICE trucks. J.P. Morgan expects China EV heavy-duty-truck penetration to rise from about 25% in 2025 to about 50% by 2030E, above the national 40% target, supporting both unit demand and content expansion. Valuation uses a sum-of-the-parts framework because traditional passenger and commercial vehicle parts have different growth and margin profiles from digital and energy businesses. J.P. Morgan applies 15x 2028E P/E to passenger and commercial vehicle parts and 35x to digital and energy, producing a Rmb51 base-case Dec-2027 target and implied blended 29x 2027E and 20x 2028E P/E. The upside case, which includes Google-related PHE orders but retains the same segment multiples, yields Rmb55 and about 61% upside. The report expects ROE to improve from 14% in 2025 to about 21% by 2028E, net debt/equity to fall from 55% to 20%, and free cash flow to rise to Rmb2.425bn as operating cash flow grows and capex moderates.

Analysis framework

The report assesses Yinlun by separating its legacy vehicle businesses from higher-growth digital and energy activities, then links demand drivers, customer qualification, capacity, revenue and margin assumptions to earnings. It values the segments separately using a sum-of-the-parts P/E approach and presents a base case excluding Google orders alongside an upside case including them.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation

  J.P. Morgan applies different 2028E P/E multiples to mature vehicle-parts operations and higher-growth Digital & Energy operations to reflect their differing growth and margin profiles.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI data-center power and cooling supply-chain analysis

  The report traces AI data-center power shortages and server-density growth through gensets, CDUs and PHE demand to Yinlun’s product opportunities.

• Corporate Fundamentals and FinanceDuPont analysis

  DuPont analysis of return on equity

  The report attributes projected ROE improvement to higher net margin and faster asset turnover as higher-margin digital and energy businesses scale.

Asset mapping & comparison

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

• Yinlun (002126.SZ)

  Primary covered company; beneficiary of AIDC power demand, liquid cooling and commercial-vehicle electrification.

  Strengths

  Established heat-exchanger and vacuum-brazing capability, Mexico production, PHE furnace design and long-term OEM relationships.

  Weaknesses

  Legacy passenger-vehicle margins face pricing pressure; liquid-cooling orders remain unconfirmed.

  Comparison

  The report applies premium valuation to Digital & Energy versus mature passenger and commercial vehicle parts.

  Risks

  High Caterpillar concentration, delayed PHE qualification or capacity underutilization.

• Caterpillar (CAT)

  Customer and primary demand linkage for Yinlun’s genset cooling and aftertreatment systems.

  Strengths

  AI and data-center-related power demand has extended customer order visibility toward 2030.

  Weaknesses

  Caterpillar retains sourcing control and can adjust supplier allocations.

  Comparison

  Yinlun is positioned to gain share as Modine shifts resources toward data-center cooling.

  Risks

  Changes in Caterpillar order timing, production plans, sourcing or pricing could materially affect Yinlun.

• Modine (MOD)

  Competitor in genset cooling packages.

  Strengths

  Historically Caterpillar’s largest cooling-package supplier.

  Weaknesses

  The report says capital and management attention are increasingly focused on data-center cooling rather than genset thermal management.

  Comparison

  Yinlun is estimated to offer pricing 20-30% below Modine and has Mexico-based production.

  Risks

  Modine or other suppliers could remain competitive or regain share.

Key data

• Target priceRmb51.00Dec-2027 SOTP target; 49% upside from the last close.
• Genset revenueRmb538mn in 2026E; Rmb3,179mn in 2028E143% CAGR; projected to reach 12% of group revenue in 2028E.
• Liquid-cooling revenueRmb500mn in 2026E; Rmb840mn in 2028EBase case excludes Google-related orders.
• Google upside scenarioRmb1.4bn liquid-cooling revenue in 2028ECould add approximately 4% to 2027E and 6% to 2028E net profit.
• Group net profitRmb957mn in 2025; Rmb2,173mn in 2028E31% CAGR over 2025-28E.
• EV heavy-duty-truck thermal-management contentRmb20-30k per vehicleVersus roughly Rmb14-15k for an ICE truck.

Impact & implications

The report argues that the scaling of higher-margin genset and liquid-cooling products should improve Yinlun’s earnings mix, margins, return on equity and cash generation. It views Google order conversion as incremental upside, while the base valuation rests primarily on Caterpillar-linked genset growth and resilient commercial-vehicle demand.

Risks

• Near-term genset growth is highly dependent on Caterpillar; changes in its order cadence, sourcing, production or pricing could disproportionately affect earnings.
• Google-related PHE opportunities remain in system validation, and delays or failed qualification could defer revenue conversion.
• PHE capacity is being added before confirmed orders; slower conversion could reduce utilization and pressure margins through depreciation, staffing and yield-ramp costs.
• Broader US localization or de-risking policies could increase compliance requirements, lengthen qualification cycles or limit overseas order opportunities.

What to watch

• Caterpillar cooling-package and aftertreatment order volumes, supply share and pricing.
• Completion of Tier-1 CDU validation, a potential Google factory audit and purchase-order approval.
• Ramp-up and utilization of the 4Q26 PHE line and planned South China and Thailand capacity.
• Commercial-vehicle export demand, domestic heavy-duty-truck replacement and EV truck penetration.
• Digital and energy margin expansion and the pace of free-cash-flow improvement.