UOB Kay Hian
Date of Report: September 2, 2025
Weichai Power (2338 HK) 2Q25 Results: Margin Pressure, Asset Provisions, and a Path to Earnings Recovery
Overview: Weichai Power Faces Margin Challenges But Poised for Recovery
Weichai Power, a global leader in engines, vehicles, and industrial machinery, reported its second-quarter 2025 results, revealing a mix of margin pressure, asset write-downs, and emerging growth in new business segments. While 2Q25 earnings missed expectations, the outlook for the second half is optimistic, driven by innovations in heavy-duty trucks (HDT), electric powertrains, and large-bore engines.
Key Stock Data & Performance Snapshot
- Sector: Automobiles
- Share Price: HK\$16.01
- Target Price: HK\$19.00 (Upside: 18.7%)
- Market Cap: HK\$29.53 billion (US\$3.79 billion)
- Shares Issued: 1,943 million
- Major Shareholder: Weichai Holding Group (17.72%)
- 52-week High/Low: HK\$18.10 / HK\$10.60
- FY25 Net Asset Value/Share: HK\$9.00
- FY25 Net Cash/Share: HK\$5.98
Price performance YTD: +34.8%
2Q25 Financial Results: Misses on Margins and Provisions
Weichai Power’s Q2 net profit fell short, impacted by lower margins and substantial provisions for asset write-downs. However, revenue was largely in line, supported by strong growth in large-bore engines and electric powertrains, which offset declines in traditional diesel engine sales.
| Metric |
2Q25 |
QoQ Change |
YoY Change |
1H25 |
YoY Change |
2025F |
YoY Change |
Comments |
| Revenue (Rmbm) |
55,688 |
-3.1% |
-0.8% |
113,152 |
+0.6% |
231,276 |
+7.2% |
Engine sales fell, truck sales grew |
| Gross Profit (Rmbm) |
12,324 |
-3.5% |
+0.6% |
25,097 |
+2.6% |
53,194 |
+9.9% |
Weichai did not join price war |
| Gross Margin (%) |
22.1 |
-0.1ppt |
+0.3ppt |
22.2 |
+0.4ppt |
23.0 |
+0.6ppt |
Sales mix optimization |
| EBIT (Rmbm) |
4,395 |
+34.5% |
-5.4% |
7,663 |
-13.2% |
20,108 |
+11.5% |
KION efficiency gains |
| EBIT Margin (%) |
7.9 |
+2.2ppt |
-0.4ppt |
6.8 |
-1.1ppt |
8.7 |
+0.3ppt |
Efficiency, asset provisions |
| Net Profit (Rmbm) |
2,933 |
+8.2% |
-11.2% |
5,643 |
-4.4% |
13,041 |
+14.4% |
Dragged by asset write-downs |
| Net Margin (%) |
5.3 |
+0.5ppt |
-0.6ppt |
5.0 |
-0.3ppt |
5.6 |
+0.4ppt |
Provisions impact |
| Operating Cash Flow (Rmbm) |
11,484 |
n.a. |
+2.6% |
6,838 |
-46.6% |
7,992 |
-69.4% |
Cash flow held up |
| Free Cash Flow (Rmbm) |
9,383 |
n.a. |
+1.3% |
3,282 |
-65.0% |
-1,008 |
n.a. |
Despite profit decline |
Business Segment Analysis: Engines, Electric Powertrains, and KION
Engines
- Sales volume dropped 9.5% year-on-year to 362,000 units in 1H25.
- Heavy-duty truck (HDT) engines fell sharply to 125,000 units (-22% YoY), with Weichai’s market share in China’s HDT engine segment dropping by 9 percentage points to 23%. Notably, Weichai did not engage in aggressive pricing, which impacted share but preserved margins.
Large-Bore Engines
- Revenue surged 71% YoY to Rmb2.52 billion in 1H25.
- Sales volume: 5,100 units (+41% YoY); Average selling price: Rmb494,000 (+20% YoY).
- Key demand drivers: power generation, shipping, mining, and data centres (10% of sales volume).
Electric Powertrain
- Revenue grew 37% YoY to Rmb1.21 billion, significantly outpacing overall company growth, reflecting the rapid expansion of China’s electric HDT market.
Heavy-Duty Truck (HDT) Segment
- Sales volume rose 14.6% YoY to 73,000 units, broadly in line with the market.
KION Group
- Revenue dropped 5.9% YoY to €2.71 billion, underperforming expectations.
- KION’s efficiency program drove EBIT margin improvements despite revenue softness.
Margins, Asset Provisions, and Dividend Policy
- Gross margin: 22.1% in 2Q25, up 0.3ppt YoY, but slightly below estimates due to competitive market dynamics.
- EBIT margin: 7.9% in 2Q25, rebounded 2.2ppt QoQ, reflecting KION’s cost efficiencies.
- Provisions: Rmb711 million for asset write-downs (inventories, receivables, fixed assets), a substantial 353% YoY increase.
- Dividend: Interim dividend of Rmb0.358 for 1H25, sustaining a 55% payout ratio.
Stock Impact: Drivers and Guidance
Weichai Power is set for earnings recovery in the second half of 2025, supported by:
- Government policy tailwinds, including equipment renewal subsidies and the phasing out of National 4 HDTs.
- Significant infrastructure investment domestically and overseas, boosting demand for HDTs, heavy machinery, and logistics solutions.
- New product launches: diesel and gas engines aimed at regaining market share.
- Strong demand for large-bore engines, especially driven by global data centre expansion.
- Transition to new energy, with investments in hydrogen fuel cell engines, electric drivetrains, and hybrid systems.
Forecast Revisions: Scaling Up Large-Bore Engines, Optimizing Sales Mix
- 2025-2027 engine sales volume cut by 9% per year, reflecting lower truck engine volumes but higher large-bore engines.
- 2025-2027 large-bore engine sales volume raised by 10%, 8%, and 12.5% respectively, to 11,000, 14,000, and 18,000 units, implying a 30% CAGR over three years.
- Average selling price assumptions for 2025-2027 increased by 3% each year, driven by a shift toward higher value-added products.
- Gross margin assumptions for 2025-2027 trimmed to 22% (from 23%), reflecting recent performance.
- Net profit forecasts for 2025-2027 cut by 7-8%, now projected at Rmb12.04b, Rmb13.80b, and Rmb15.47b, with an 11% CAGR.
Valuation and Recommendation: BUY Maintained, HK\$19 Target Price
- Valuation anchored by a 12x forward PE (historic mean), rolled over to 2026.
- BUY rating reaffirmed, target price unchanged at HK\$19.00 despite revised earnings outlook.
Key Financials Summary
| Year |
Net Turnover (Rmbm) |
EBITDA (Rmbm) |
Operating Profit (Rmbm) |
Net Profit (Reported) (Rmbm) |
Net Profit (Adj.) (Rmbm) |
EPS (fen) |
PE (x) |
Dividend Yield (%) |
Net Margin (%) |
ROE (%) |
| 2023 |
213,958 |
26,058 |
14,069 |
9,014 |
8,080 |
92.6 |
15.9 |
3.5 |
3.8 |
10.6 |
| 2024 |
215,691 |
30,755 |
18,029 |
11,403 |
10,527 |
120.6 |
12.2 |
4.5 |
4.9 |
12.7 |
| 2025F |
221,890 |
29,056 |
17,866 |
12,043 |
11,043 |
126.5 |
11.6 |
4.7 |
5.0 |
12.3 |
| 2026F |
242,820 |
31,444 |
20,254 |
13,802 |
12,802 |
146.7 |
10.0 |
5.4 |
5.3 |
13.2 |
| 2027F |
267,164 |
33,440 |
22,250 |
15,467 |
14,467 |
165.8 |
8.9 |
6.0 |
5.4 |
13.8 |
Balance Sheet and Cash Flow Highlights
- Healthy cash position, ending cash and equivalents projected at Rmb74.57 billion by 2027F.
- Net cash to equity ratio remains robust, projected to improve to -68.4% by 2027F.
- Dividend payments expected to rise steadily, supporting shareholder returns.
Profitability and Growth Metrics
- EBITDA margin expected to stabilize around 12.5% by 2027F.
- ROE projected to increase to 13.8% by 2027F.
- Net profit growth forecast at 11% CAGR for 2025-2027.
Conclusion: Strategic Positioning for the Future
Weichai Power’s second quarter results underscore a challenging environment, especially in the traditional diesel engine business. However, strategic decisions to avoid price wars, focus on efficiency, and invest in high-growth segments like large-bore engines and electric powertrains position the company for a strong rebound. Government policy support, new product launches, and the ongoing energy transition add tailwinds for future growth.
The stock remains attractive at current levels, with a solid balance sheet, resilient margins, and a commitment to returning value to shareholders. UOB Kay Hian maintains its BUY rating and HK$19 target price, expecting Weichai Power to deliver robust performance as it adapts to evolving market dynamics.
