[Zhongyuan Automobile] Weichai Power ( 000338 ) Annual Report Review: Short-term performance pressure, AIDC power generation business begins value re-evaluation

Event:

The company released its 2025 annual report. In 2025, the company achieved operating revenue of RMB 2318.1 billion, up 7.5% year over year; it achieved net profit attributable to shareholders of RMB 109.3 billion, down 4.2% year over year; and non-recurring net profit attributable to shareholders of RMB 96.6 billion, down 8.2% year over year. Net cash flow from operating activities was RMB 286.8 billion, up 9.9% year over year. Basic earnings per share (EPS) were RMB 1.27, down 3.05% year over year. Return on net assets on a weighted average basis was 12.08%, down 1.61 percentage points year over year. The company plans to distribute cash dividends of RMB 3.74 per 10 shares to all shareholders (including tax).

Of which: In Q4, operating revenue was RMB 612.4 billion, up 6.7% quarter over quarter, and up 14.0% year over year. Net profit attributable to shareholders was RMB 20.5 billion, down 36.5% quarter over quarter, and down 31.6% year over year.

Investment highlights:

Steady growth in revenue across product lines, with multiple businesses maintaining growth.

In 2025, the company achieved operating revenue of RMB 2318.1 billion, up 7.5% year over year; in 25Q4, operating revenue was RMB 612.4 billion, up 6.7% quarter over quarter, and up 14.0% year over year. All of the company’s product volumes achieved steady growth, including: engine sales of 743,000 units, up 1.3% year over year; engine exports of 75,000 units, up 8% year over year; Han De truck axles sales of 1.0 million pieces, up 25% year over year; Fast-Set transmissions sales of 911,000 units, up 7% year over year; the “three electrics” business achieved revenue of RMB 3.04 billion, more than doubling. Battery sales increased 162% year over year, independent motor sales increased 219% year over year, and independent motor controller sales increased 56% year over year.

The efficiency plan has higher expense recognition in this period, leading to a decline in net profit attributable to shareholders.

In 2025, net profit attributable to shareholders was RMB 10.93 billion, down 4.2% year over year; non-recurring net profit attributable to shareholders was RMB 9.66 billion, down 8.2% year over year. In 25Q4, net profit attributable to shareholders was RMB 2.05 billion, down 36.5% quarter over quarter and down 31.6% year over year. The main reason for the year-over-year decline in profit attributable to shareholders is that the company’s controlling subsidiary, KION GROUP AG (Kion Group), recognized related expenses of RMB 1.276 billion in connection with its efficiency plan in this period, which affected net profit attributable to listed company shareholders by RMB 0.393 billion. In addition, the reversal amount of impairment provisions for accounts receivable that were separately tested for impairment among non-recurring gains and losses increased significantly compared with 2024 by RMB 0.698 billion (RMB 0.738 billion in July 2025, RMB 0.041 billion in 2024), which had some impact on non-recurring net profit.

Due to factors such as expense recognition, profitability declined slightly.

In 2025, the company’s gross margin was 21.48%, down 0.95 percentage points year over year. By product category, powertrain, complete vehicles and key components declined by 1.62 percentage points; smart logistics declined by 0.35 percentage points, which may be related to intensifying market competition. In 2025, the company’s net profit margin was 5.90%, down 0.72 percentage points year over year. Regarding period expenses, the company’s period expense ratio in 2025 was 14.43%, down 0.08 percentage points year over year. Among them, selling, administrative, R&D, and financial expense ratios were 0.94%, 2.60%, 5.06%, and 0.37%, respectively; year over year they were +0.09, +0.42, -0.28, and -0.31 percentage points, respectively. The increase in administrative expenses was mainly due to the controlling subsidiary KION GROUP AG (Kion Group) recognizing related expenses under the efficiency plan. The decrease in financial expenses was mainly due to changes in foreign exchange gains and losses.

The traditional core business rebounds steadily, with structural highlights.

With the heavy truck industry recovering, global heavy truck industry total sales in 2025 rose significantly, and the share of new-energy sales increased markedly. The company’s commercial vehicle sales reached 153,000 units, up 29.41% year over year. Its heavy truck market share remained among the top in the industry. In China, sales of complete vehicles were 94,000 units, up 60.2% year over year. Exports performed strongly: the company achieved 59,000 units exported for the full year, and high-end vehicle models received EU certification. The company actively plans its new-energy “three electrics” business. In 2025, the company’s three electrics business achieved revenue of RMB 3.04 billion, more than doubling. By setting up Weichai-Fordy in a joint venture with BYD, the company obtained core resources in the field of power batteries. In March 2025, the first battery product line rolled off, and it is expected to offset the impact of electrification on the company’s traditional engine business. Smart logistics (Kion) and agricultural equipment deliver stable contributions: Kion Group’s 2025 revenue was EUR 11.3 billion, including EUR 8.27 billion from forklift business and EUR 3.07 billion from supply chain solutions business. Although its efficiency plan’s recognized expenses of RMB 1.276 billion affected net profit attributable to shareholders in 2025, once the plan is completed, 2026 is expected to see a significant recovery in profit margin, contributing positive earnings. The agricultural equipment business (Weichai Lovol) continues to improve market share comprehensively, and its industry-leading position remains firmly established.

AIDC business demand is strong, and the power and energy business has become the core growth engine.

Benefiting from the global AIDC (artificial intelligence data center) construction wave and power shortages in North America, the company has demonstrated strong growth potential in both backup power supply and main power supply domains. The company’s power business covers power generation equipment and solid oxide fuel cells (SOFC):

1）Power generation equipment (backup power): In 2025, the company’s data center backup power supply unit sales increased 259% year over year. This included M-series large-bore engine sales, which for the first time exceeded 10,000 units, up 32% year over year, and revenue increased 65% year over year. The company launched the world’s first 5-megawatt-class high-speed diesel power generation product 20M61, with the highest power output in the industry; core parameters such as startup speed and on-load capability are all at the world-leading level. 2）SOFC (main power supply): The company has proactively deployed SOFC technology and worked closely with a UK partner, Hlyz. The SOFC power generation system successfully passed the EU CE certification. The highest power generation efficiency exceeds 65%, and its performance is internationally leading; the company is accelerating the construction of battery and electrode stack production lines.

As an important subsidiary, PSI in the U.S. has production lines for generation products covering gas and diesel engines with displacement from 22L to 110L. In 2025, PSI closely seized opportunities in the North American power and energy market to achieve significant growth in revenue and profit. Revenue contribution from power generation-related products accounts for 81%, strengthening the company’s competitiveness in overseas data center markets and pushing the power and energy business toward higher-endization and internationalization on a steady basis.

Initial coverage, assigning a “Buy” investment rating.

We expect that in 2026, 2027, and 2028, the company can achieve net profit attributable to shareholders of RMB 14.063 billion, RMB 15.305 billion, and RMB 16.219 billion, respectively. Corresponding EPS is RMB 1.61, RMB 1.76, and RMB 1.86. Corresponding PE is 14.56x, 13.38x, and 12.62x, respectively. With the heavy truck industry rebounding and the AIDC power and energy business rapidly growing, the company is transforming from a cyclical heavy truck leader into a global high-end equipment group. The traditional core business remains steady, and the AIDC power business opens up new room for growth and valuation flexibility. Initial coverage, assigning a “Buy” investment rating.

Risk disclosures: Heavy truck market demand may fall short of expectations; industry competition intensifies; data center construction may fall short of expectations; significant fluctuations in raw material prices.

Securities analyst commitment:

The signed securities analyst of this report holds the qualifications for practice as a securities analyst granted by the China Securities Association, and my employment complies with relevant regulatory compliance requirements. Based on a diligent and prudent professional attitude, professional and rigorous research methods and analytical logic, I independently and objectively prepared this report. This report accurately reflects my research viewpoints. I am responsible for the contents and viewpoints of the report, and ensure that the information sources of the report comply with legal and compliance requirements.

Important statement:

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