潍柴动力：仍全速运转

Weichai delivered strong 1Q26 results, with rev up 8.9% YoY to RMB62.6bnand net profit up 13.8% YoY to RMB 3.1bn; core earnings rose 20.3% YoYto RMB 3.0bn. Financial expense ratio was 0.6% (+0.9ppt YoY), implying~RMB 320mn FX loss. Meanwhile, the company announced RMB500mnto its large-bore engine project to accelerate overseas expansion, furtherunderscoring its ambition to evolve into a global power equipment platform. 1Q results came in line with solid earnings quality.In 1Q26, Weichai delivered rev of RMB62.6bn (+8.9% YoY, +2.2% QoQ), driven by strong HDT demand and large-bore engine ramp-up. GPM declined 0.8ppt YoY but was up 1.2ppt QoQ to 21.4%, mainly due to higher rebatesin truck engines and a mix shift toward lower-margin NEV powertrains. Cost control was akey support, with selling and administrative expense ratios down 0.82ppt and 2.52ppt YoY to4.8% and 4.6%, respectively, partly due to a high base from one-off KION efficiency programexpenses last year. Financial expenses rose 275% YoY due to FX movements, mainly on the~RMB 320mn FX loss (vs. ~RMB 130mn gain last year), by our est. AIDC momentum unfolds beyond expectations. •Large bore engines:In 1Q26, Weichai’s large bore engine sales surpassed 3k units (+20%YoY). AIDC demand accelerated with sales exceeding 500 units, more than tripling YoYand marking a clear inflection, as per mgmt.The company also announced to raiseinvestment in its high-end large bore engine project to RMB 1.74bn, including anadditional RMB500mn.The project is targeted for completion by Dec-27 and is expectedto generate RMB 11.9bn in rev, with ~51% post-tax IRR and a 6.2-year payback, indicatingattractive project economics.• Nature gas gensets:Weichai plans to launch its 2-3MW natural gas gensets by mid-2026(including North American certification and customer validation), with deliveries set toramp in 2H26. Higher-power models (4-6MW and ≥7MW) are slated for validation inlate-26, paving the way for broader rollout from 2027. With global OEMs facing tightcapacity and extended lead times, Weichai is well positioned to gain share through fasterdelivery and stronger local channel access. Pricing will remain deal-specific, with ordervisibility improving into 2H26. Traditional business stabilizing.Weichai delivered 38k HDT engines in 1Q (-1% YoY, +1%QoQ), with LNG HDT engines reaching 28k units (+12% YoY, +3% QoQ). M/s rebounded to26%/58% for total HDT/LNG HDT engines in March. respectively. AI tailwinds remain in full stride.Weichai’s positioning in the AIDC backup power market isfurther strengthened by its partner Generac, which highlighted a sharp ramp in data centerbacklog (>US$700mn), advancing hyperscaler certifications and exclusive supply dynamics.We fine-tuned our 2026/27E earnings to RMB14.7/21.2bn, as we raise our AIDC engineshipment forecasts to 3.8k/6.1k units and also forecasts for LNG HDT engines. Our SOTP-derived PTs are raised to RMB40.4/HKD46.4.Reiterate Buy as our top pick. The Long View: Weichai Power Investment Thesis •NS6 deployment to enhance strong demand for diesel engines•Mix shift to high-displacement engines will improve operationalefficiency and GPM•LNG engines and non-road machinery engines are new growth drivers•Overseas demand recovery and low base effect from Kion Downside Scenario,CNY23.9, -23% Base Case,CNY40.4, +29% Upside Scenario,CNY47.3, +52% •Weichai’s total large bore engine shipmentsare expected to reach 13.6k/16.2k units in2026/27, including 2.8k/4.2k units for AIDCapplications.•We expect HDT sales in China to reach 1.1mnunits in 2026•Product mix of the company's HDT enginesshifts to high-margin products.•AIDC gas engines are scheduled for release bymid-26•Our PTs of RMB40.4/HKD46.4 are based onSOTP valuation, assigning RMB21.3/HKD24.2per share to the power generation business. •HDT sales came in ahead of marketexpectations.•Large-boreengineshipmentsexceededexpectations.•Gas genset orders were stronger thanexpected.•KIONdeliveredabetter-than-expectedearnings recovery.•Our PTs of RMB47.3/HKD54.4 are based on aSOTP valuation, assigning RMB26.3/HKD29.9per share to the power generation business. •HDT sales fall short of market expectations•Large-boreengineshipmentsmissexpectations•Gas genset orders underperform•KION’s earnings recovery proves weaker thanexpected•Our PTs of RMB23.9/HKD27.5 are based ona SOTP valuation, assigning RMB7.4/HKD8.4per share to the power generation business. Sustainability Matters Catalysts •Higher-than-expected HDT sales volume•Increased adoption of LNG engines•Deepening cooperation with Sinotruk•Overseas demand recovery and US capexcycle revival•More aggressive infrastructure fixed-assetinvestment Top Material Issue: 1.Technology & innovation: Technological R&D and innovation are critical to WeichaiPower's sustainable development. Weichai Power cooperated with Sinotruk andSJTU to establish a joint research center for future commercial vehicle innovation.2.Safe production is the basic guarantee for