Morgan Stanley: Expects Weichai Power's AIDC business to contribute over 35% of profits in 2028, raising target price to HK$47.

Morgan Stanley released a research report stating that they maintain a positive outlook on the demand for Artificial Intelligence Data Center (AIDC) equipment industry. They expect Weichai Power (02338)s AIDC business to have a compound annual growth rate of approximately 130% in revenue and profits from 2026 to 2028. The bank expects that by 2028, the AIDC business will contribute 10% of the company's revenue and over 35% of profits, while continuously gaining market share. Based on the forecasted P/E ratio for the AIDC business in 2026 being adjusted from 60 times to 90 times, and for the traditional engine and truck business from 10 times to 13 times, Morgan Stanley has raised the target price of Weichai's H shares from HK$32 to HK$47 with a "hold" rating. Morgan Stanley believes that Weichai is transitioning from a traditional truck engine company to a more extensive power and energy equipment platform. They expect the demand for heavy trucks to increase by 5% to 1.2 million units in 2026, and to maintain the same level in 2027, while the company's market share in the heavy truck engine market will remain stable. Considering the performance in the first quarter of this year, Morgan Stanley has raised revenue forecasts for 2026 to 2028 by 4%, 8%, and 14%, but lowered gross margin forecasts for 2026 to 2027 by 0.7 and 1.3 percentage points, while raising the gross margin forecast for 2028 by 2 percentage points. In terms of profit forecasts, there is a 5% decrease in 2026, but increases of 3% and 7% in 2027 and 2028 respectively.