Net profit in 2Q26 +57% YoY helped by other income and expense control; Rising AIDC power contribution

　　潍柴动力(000338)

　　Weichai’s net profit in 1H26 grew 36% YoY to RMB7.7bn, which implies netprofit of RMB4.6bn in 2Q26 (+57% YoY). The growth in 2Q26 was driven byinvestment income and sound expense control. While revenue grew only 9%YoY in 1H26, we continue to see rising contribution of power-related engines,with AIDC backup power engine sales surging 1.3x YoY. We maintain ourpositive stance on Weichai’s AIDC backup engine and SOFC. Maintain BUYwith unchanged SOTP-based TP of HK$45.1/RMB40.2 for Weichai H/A.Weichai remains a key pick in the Capital Goods sector.

　　Improved mix in engine segment. Weichai’s total engine sales grew 15%YoY to 415k units in 1H26. Exports of 44k units, which grew 18% YoY,accounted for 11% of total engines sales in 1H26. Large-bore enginesgrew 31% YoY to 6.7k units, of which engines for AIDC surged 1.3x YoYto 1.4k units. Total power-related engine sales volume grew 31% YoY to65k units, which accounted for 16% of total engine sales in 1H26.

　　Engine EBIT dropped 2% YoY in 1H26. Engine segment revenue grew15% YoY to RMB37.3bn. However, the segment profit decreased 2% YoYto RMB5.4bn in 1H26 (segment margin -2.5ppt YoY to 14.6%), which isslightly weaker than our expectation.

　　Strong HDT segment margin despite slow volume growth. Weichaidelivered 76k units of HDTs in 1H26, up only 4% YoY. Sales in Chinadropped 2% YoY to 45k units, while exports grew 15% YoY to 31k units.The segment EBIT surged 4.6x YoY to RMB1.4bn, with segment marginsharply expanding 3.2ppt YoY to 3.9%.

　　Forklifts & supply chain solution (KION Group) EBIT continued torecover. The segment EBIT in 1H26 surged 2.1x YoY to RMB3bn, helpedby a low base arising from the high expenses related to the “efficiencyprogram” in 1H25. The segment margin reached 6.6% in 1H26.