Why did adjusted profit continue to grow despite the decline in net profit?

  • In the third quarter of 2026, Weichai Power’s revenue was 58.01 billion yuan, up 1.03% year on year and down 4.28% quarter on quarter. Net profit was 2.96 billion yuan, down 8.56% year on year and 35.93% quarter on quarter.
  • The sharp quarter-on-quarter decline in net profit was mainly because the sale of its stake in Ballard Power Systems generated more than 1.3 billion yuan in nonrecurring gains in the second quarter. Excluding nonrecurring items, third-quarter adjusted net profit was 3.22 billion yuan, up 13.9% year on year and 2.83% quarter on quarter. Both revenue and adjusted net profit were in line with Nomura Orient International’s expectations.

What drove the improvement in margins?

  • The company’s third-quarter gross margin was 22.9%, up 1.5 percentage points year on year and 1.4 percentage points quarter on quarter. Nomura Orient International attributed the improvement mainly to rapid sales growth of high-value-added products, including engines for artificial intelligence data centers.
  • According to the company’s investor relations activity record dated 30 October 2026, shipments of diesel generator sets for artificial intelligence data centers exceeded 2700 units in the first three quarters, up nearly 200% year on year. The firm believes this improved the powertrain business’s product mix.
  • The third-quarter adjusted net margin rose to 5.55%, up 0.63 percentage points year on year and 0.38 percentage points quarter on quarter. Meanwhile, the expense ratio was 13.41%, up 0.09 and 0.38 percentage points year on year and quarter on quarter, respectively. The year-on-year increase mainly reflected a higher finance expense ratio due to exchange losses, while the quarter-on-quarter increase mainly reflected higher administrative and R&D expense ratios.

How does the firm view future earnings and valuation?

  • Based on operating performance in the first three quarters and the growth outlook for the data center business, Nomura Orient International maintained its net profit forecasts for 2026–2028 at 15.048 billion yuan, 18.285 billion yuan and 20.89 billion yuan, respectively.
  • The firm maintained its buy rating and target price of 40.10 yuan, based on forecast 2026 earnings per share of 1.74 yuan and a target price-to-earnings ratio of 23 times. Its main downside risks include slower-than-expected development of emerging businesses, rising raw material costs and exchange-rate fluctuations.