How will the power generation business change the earnings mix?

  • Goldman Sachs expects Weichai Power’s AI data center power generation business to grow to approximately 10 times its current size by 2028 and contribute more than 50% of the company’s total earnings. As the business accounts for a larger share, the company’s earnings mix will shift toward supplying power to data centers.
  • Goldman Sachs estimates that by 2028, the business will drive more than 80% of the company’s incremental earnings per share, making it both a new business and the main source of earnings growth in the bank’s forecast.

What power generation equipment do data centers need?

  • The business identified by Goldman Sachs includes large diesel engines for backup power, gas generator sets for on-site primary or backup power, and solid oxide fuel cells for on-site power supply. The three product categories serve different data center power supply needs.
  • The bank’s growth outlook is based on U.S. data center demand, capacity constraints in the generator supply chain, and a shift toward higher-power generator set configurations. Together, these factors support its expectation that Weichai’s related businesses will expand.

How does Goldman Sachs view the valuation?

  • Goldman Sachs says Weichai Power’s shares trade at less than 10 times expected 2027 earnings and offer a dividend yield above 7%. On that basis, the bank believes the valuation reflects only a limited amount of the potential growth in AI data center power generation.
  • Goldman Sachs has set 12-month price targets of HK$55.50 for the Hong Kong-listed shares and RMB 50 for the A-shares.