Northeast Securities has issued a research report initiating coverage on Weichai Power (02338) with an "Add" rating. The firm forecasts the company's revenue for 2025-2027 to reach RMB 231.0 billion, RMB 245.5 billion, and RMB 260.2 billion, respectively, with net profit attributable to shareholders of RMB 12.2 billion, RMB 14.4 billion, and RMB 16.0 billion. This corresponds to a price-to-earnings (PE) ratio of 20x, 17x, and 15x for those years. Significant progress in overseas market expansion is expected to drive gross margin to a new level. With primary power supply for AI data centers (AIDC) in North America facing constraints, the company's long-term market potential is substantial. Key viewpoints from Northeast Securities are outlined below.

Revenue has demonstrated steady growth, while profitability continues to improve. For the first three quarters, the company achieved revenue of RMB 170.571 billion, a year-on-year increase of 5.32%. In the third quarter alone, revenue reached RMB 57.419 billion, up 16.08% year-on-year. In terms of profit, net profit attributable to shareholders for the first three quarters was RMB 8.878 billion, rising 5.67% year-on-year, though the growth rate has moderated compared to the previous two years. Net profit for the third quarter was RMB 3.234 billion, surging 29.49% year-on-year. The gross margin for the first three quarters stood at 21.91%, up 0.05 percentage points year-on-year, while the net profit margin was 6.36%, down 0.03 percentage points year-on-year. By product segment, the gross margin for the smart logistics business in the first half of the year was 27.38%, an increase of 0.51 percentage points year-on-year. The gross margin for the vehicle and key components business was 19.15%, up 0.87 percentage points year-on-year.

Overseas market expansion has yielded significant results, and gross margin is poised to reach a new level. In 2024 and the first half of 2025, the gross margin for overseas products was 23.51% and 24.36%, respectively, both notably higher than the 21.09% and 19.92% for domestic products. As the company continues to develop its international presence, gross margin is expected to remain stable with potential for increase. In overseas markets, the subsidiary Shaanxi Heavy-Duty Automobile Co., Ltd. intensified efforts to expand its commercial vehicle business abroad during the first half of the year, resulting in significant volume growth in scaled markets. Sales in markets such as Guinea, Saudi Arabia, and Algeria doubled year-on-year. Overseas subsidiary KION Group reported new orders of €6.21 billion in the first half of the year, a 22.2% year-on-year increase, with total revenue of €5.5 billion and a net profit of €47.9 million.

North America's AIDC sector is experiencing explosive growth in energy demand. According to Utility Dive, new electricity demand from data centers could reach 90 GW by 2030. However, due to lengthy grid expansion cycles and insufficient distributed power generation capacity, a significant energy gap exists. Weichai Power is accelerating its transformation into a comprehensive supplier of power generation equipment for AIDC. Its AIDC power energy business is growing rapidly, with nearly 600 engines sold for data centers in the first half of the year, a 491% year-on-year increase. As the domestic supply chain matures and the company's production capacity gradually increases, future order volumes are expected to expand at an accelerated pace, indicating substantial long-term growth potential.

Risk factors include potential underperformance in AIDC investment, significant increases in raw material prices, and earnings forecasts and valuations falling short of expectations.