Morgan Stanley boosted its price target for Weichai Power (02338.HK) by 47% to HKD47, citing a major earnings contribution from the company's growing artificial intelligence data center business.
The bank expects Weichai’s AIDC business to deliver a revenue and earnings compound annual growth rate of about 130% from 2026 to 2028, Morgan Stanley said in a report maintaining its "Overweight" rating.
The new HKD47 target implies 13.3% upside from Weichai's recent price of HKD41.48. The valuation re-rating is supported by a higher 2026 forecast price-to-earnings multiple for the AIDC business, which the bank raised to 90x from 60x, and an increase for the traditional engine business from 10x to 13x.
By 2028, Morgan Stanley forecasts the AIDC segment will account for 10% of revenue but over 35% of earnings, marking a significant transformation from a traditional engine maker into a key player in the AI infrastructure supply chain.
The bank's updated model reflects this transition. While it raised overall revenue forecasts for 2026 through 2028, it also adjusted margin expectations, cutting them for 2026 and 2027 before forecasting a 2-percentage-point lift in 2028, coinciding with the AIDC segment's maturation. Consequently, the 2026 earnings forecast was trimmed by 5 percent, but the 2027 and 2028 projections were increased by 3 percent and 7 percent, respectively.
The bullish outlook on Weichai's AI arm comes even as its core business remains steady. Morgan Stanley expects demand in the heavy-duty truck industry to grow 5 percent year-over-year to 1.2 million units in 2026 and hold at that level in 2027, with Weichai maintaining a stable market share.
The re-rating highlights a broader market trend of rewarding traditional industrial companies that successfully pivot to high-growth technology sectors. The valuation expansion for Weichai's AI unit mirrors similar sentiment seen for semiconductor firms like AMD and GlobalFoundries. Investors will watch Weichai's upcoming earnings reports for concrete evidence of AIDC market share gains.
This article is for informational purposes only and does not constitute investment advice.
