With the strong demand for downstream AIDC construction, several foreign manufacturers are extending their schedules, and a clear supply-demand gap is anticipated in the coming years, with the gap likely to be primarily filled by domestic manufacturers.
According to the GT Investment APP, GF SEC released a Research Report stating that Datacenters generally adopt a combination of Uninterruptible Power Supply (UPS) and Diesel Generator Sets, with diesel power serving as an emergency backup Battery group to ensure power supply. AIDC has higher electrical requirements than traditional IDC, and the accelerated capital expenditure for AIDC Datacenters has widened the supply-demand gap for Diesel Generator Sets, leading to a state of insufficient supply. With robust demand for downstream AIDC construction, the supply-demand gap is clearly defined in the next few years; however, foreign capital generally lacks the willingness to expand production, and the gap in some production capacity is expected to be filled by domestic manufacturers, driving domestic companies to achieve a breakthrough from 0 to 1.
GF Securities' main points are as follows:
The capital expenditure for AIDC Datacenters is accelerating, and the supply-demand gap for Diesel Generator Sets is widening.
Datacenters generally adopt a combination of Uninterruptible Power Supply (UPS) and Diesel Generator Sets, with diesel power serving as an emergency backup Battery group to ensure power supply, typically using 1.6-2MW of power. The reliability and stability of Diesel Generator Sets directly relate to the electrical safety of Datacenters. According to Schneider Electric's official website, generator sets account for about 5%-10% of the construction costs for Datacenters. Companies like Byte are planning a relatively positive capital expenditure expansion next year, coupled with an increase in single rack power, which is expected to bring significant growth potential for domestic Diesel Generator Sets over the next 3-5 years.
AIDC has higher electrical requirements than traditional IDC, leading to a state of insufficient supply for Diesel Generator Sets.
Generator Sets consist of a diesel engine, a generator, and a Control System, with the engine being the most core component and also the most barrier to entry. The power density of traditional IDC single racks typically ranges from 4 to 8 kilowatts, limiting the number of server devices that can be loaded and resulting in relatively low computing power density; however, the power density of new type AIDC single racks usually ranges from 20 to 100 kilowatts. Due to the surge in downstream capital expenditure, orders from leading foreign diesel engine manufacturers are experiencing rapid growth. According to Mitsubishi Heavy Industries' Earnings Reports, the revenue from the energy system in H1 2024 is expected to increase by 71% year-on-year, with orders increasing by 225.6% year-on-year.
Foreign brands dominate the market, and the landscape may change due to the tight capacity.
Foreign brands in engines include Cummins, MTU, Carter's, Mitsubishi, etc., while domestic brands are mainly Weichai and Yuchai. Due to the high reliability requirements of AIDC for engines, AIDC has mostly used foreign brands in the past, making it difficult for domestic manufacturers to get verified and enter the whitelist.
As downstream AIDC construction demands are robust, schedules for several foreign manufacturers are extending. In the coming years, the supply-demand gap is clear, but foreign companies generally have no willingness to expand production. Therefore, the capacity for the gap is expected to be primarily filled by domestic manufacturers, driving domestic companies to achieve breakthroughs from 0 to 1. Domestic OEM manufacturers for Generators include Weichai Heavy Machinery, Shanghai Cooltech Power, Tellhow Sci-Tech, and Sumec Corporation, among which Weichai Heavy Machinery's generators use Weichai Power engines.
Investment suggestion: Pay attention to significant changes in industry trends and new opportunities for domestic breakthroughs.
Recommendations to focus on: The Generator Sector benefits from accelerating domestic substitution, and the medium-speed engine sector benefits from subsidies for the renewal of inland Ships, both enjoying an upward cycle at Weichai Heavy Machinery (000880.SZ); OEM manufacturers such as Shanghai Cooltech Power (300153.SZ) and Tellhow Sci-Tech (600590.SH) benefit from expanded capital expenditure in the industry.
Risk warnings: Fluctuations in downstream AIDC capital expenditure; the verification and substitution progress of domestic brand engines not meeting expectations; fluctuations in supply chain prices.
