Announcement The company released the 2012 semi-annual performance forecast. In the first half of 2012, the company expects to achieve operating income of 2,567 billion yuan to 2,689 billion yuan, an increase of 5%-10% over the previous year; it is expected to achieve net profit attributable to shareholders of listed companies of 30.65 million yuan to 22.99 million yuan, a decrease of 20%-40% over the previous year. Investment points: There is a clear positive trend. In the first quarter of 2012, the company's operating income fell 17.36% year on year, and net profit attributable to shareholders of listed companies fell 43.12% year on year. We can see that the positive trend in the company's performance in the second quarter is very obvious. The main reason why the company's revenue continued to increase year-on-year is that the agricultural machinery business sector gradually passed the cultivation period of new stores in the early stages, and agricultural machinery business sales in Liaoning, Heilongjiang, Jilin, Chongqing, Yunnan and other places increased significantly year on year. The main reasons for the year-on-year decline in the company's profit are: 1) The construction machinery and automobile business sector was impacted by the dual factors of the slowdown in macroeconomic growth and cyclical adjustments in the industry. The entire industry continued to be sluggish, and the company's business sales in this sector declined significantly; 2) As the number of new stores increased, the company's management expenses ratio and financial expense ratio increased. Subsidies for the purchase of agricultural machinery were increased in 2012. In March 2012, the Ministry of Agriculture announced specific policy rules for the state to support increased grain production and farmers' income in 2012. Among them, subsidies for agricultural machinery purchases will be further strengthened. This year's subsidies are expected to reach 20 billion yuan, an increase of 2.5 billion yuan over last year. The Ministry of Agriculture said that the subsidized equipment types cover 180 items in 12 categories, 46 subcategories, and 180 items, and on this basis, each region can add another 30 items on its own. According to regulations, the central financial administration applies uniform subsidy standards for agricultural machinery of the same type and grade within the province. Specifically, the maximum subsidy limit for stand-alone machines is 50,000 yuan; for large tractors with 100 horsepower or more, high-performance green fodder harvesters, large no-till planters, milking machines, large combine harvesters, large-scale rice soaking and germinating program control equipment, and dryers, the stand-alone subsidy limit for sugar cane harvesters and tractors with 200 horsepower or more can be raised to 200,000 yuan; the stand-alone subsidy amount for large cotton pickers can be raised to 300,000 yuan. Policies protect, and the industry is growing at a high rate. The operation and implementation process of the national agricultural machinery purchase subsidy policy will be piloted in 2012 from the original “differential purchase” and the subsidy “target system” to the “full purchase of machinery” and the “general preferential system” of subsidies, respectively. According to the “12th Five-Year Plan” agricultural machinery industry development plan, the total output value of China's agricultural machinery industry will reach more than 400 billion yuan in 2015, and there is huge room for growth. Judging from the 12th Five-Year Plan announced by the Ministry of Agriculture, the total power of agricultural machinery reached 1 billion kilowatts in 2015, the level of mechanization of large crops increased markedly, the level of comprehensive mechanization of cultivation and harvesting reached more than 60%, and is expected to reach 65% in 2020. According to the “12th Five-Year Plan” for construction machinery, it is predicted that the sales scale of the entire industry will reach 900 billion yuan in 2015, with an average annual growth rate of about 17%. Investment advice. It is estimated that the company's EPS for 2012 and 2013 will be 0.19 yuan and 0.24 yuan respectively, and the corresponding dynamic PE will be 38 times and 30 times, respectively. We are optimistic about the huge future development potential of the industry and the room for increased industry concentration. Due to the company's current high valuation, we are temporarily giving the company a “neutral” rating based on the principle of prudence. risk factors. 1. Policy risk of agricultural machinery purchase subsidies; 2. Risk of low quality competition and market demand fluctuations in the agricultural machinery industry; 3. Business risk in the process of nationwide expansion; 4. Management risk of rapid company expansion and insufficient internal control; 5. Force majeure risk of agricultural machinery products being affected by natural disasters and seasonality; 6. Risk of shortage and loss of human resources.