Morgan Stanley: Weichai Power: Data center power targets unchanged as gas engine expansion faces capacity trade-offs

Why is management confident in its data center engine targets?

The company maintains its 2027 artificial intelligence data center (AIDC) engine targets of 6000 diesel engines and 2000 gas engines; the corresponding 2026 targets are 4000 and 200 units, respectively.
Management is “highly confident” of exceeding the 2027 targets, citing robust data center electricity demand, limited concerns about industry oversupply, product capabilities comparable to those of major international manufacturers, and healthy order intake. Management sees limited impact from concerns related to the Chinese supply chain.

The company maintains its guidance for sales of 200 gas engines in 2026, but it needs to allocate capacity between diesel and gas engines in the near term, and gas engine shipments may fall short of the target.
Management expects gas engine sales in 2027 to ramp up at a pace similar to that of data center diesel engines in 2026: sales of the latter were approximately 500, 800 and 1300 units in the first, second and third quarters, respectively. The average selling price of a 2.5-megawatt gas engine is stable at approximately 10 million yuan.
Solid oxide fuel cell (SOFC) capacity targets remain unchanged: 30 megawatts by the end of 2026 and 200 megawatts by the end of 2027.

The traditional engine business faces near-term pressure. The company believes overseas sales, expansion into areas such as construction machinery and agricultural equipment, and market share gains could ease the pressure; exports accounted for more than 50% of heavy-duty truck engines in the first nine months.
Growth in the new energy vehicle powertrain business is accelerating: revenue was 4.9 billion yuan in the first nine months and 2.6 billion yuan in the first half; sales volumes were 9.3 gigawatt-hours and approximately 4.7 gigawatt-hours in the respective periods.
Morgan Stanley said Weichai Power’s third-quarter 2026 results were in line with its expectations.

The bank rates Weichai Power’s Hong Kong-listed shares Overweight, with a target price of HK$46; the closing price on 29 October 2026 was HK$24.24.
In its sum-of-the-parts valuation, the bank assigns the data center business a 2027 forward price-to-earnings multiple of 25 times to reflect its faster growth, while taking into account the company’s short operating track record in the field; for the traditional business excluding KION and PSI, it applies a 2027 forward price-to-earnings multiple of 10 times.
Downside risks listed by the bank include slower-than-expected delivery of data center products to US customers and declines in engine and heavy-duty truck market share.