The basic market of maintaining stability in agriculture, food security and price expectations have both increased, the holding of large and medium-sized wheel trailers has dropped to the low level in recent years, the peak period of scrapping of large and medium-sized ships is expected to bring a renewal cycle, and the conversion of national standards will continue to stimulate industry demand. tractor industry may continue to improve: in 2020, agriculture has been paid more attention by the state under the current epidemic environment, and a number of policies have been issued to strengthen the basic market of agriculture. The hard constraints of the farming red line, the land circulation and the expectation of rising grain prices have all brought greater positive support to the industry. After nearly four years of downturn, the industry has rebounded slightly. According to the data of the National Bureau of Statistics, the output of large and medium-sized trailers in 2019 is 277600, an increase of 13.99% compared with the same period last year. In March and April 2020, large and medium-sized wheel towed achieved sales of 41200 units and 41700 units, an increase of 9% and 62%. A total of 111200 sets were sold from January to April, with a positive growth of 2.6% against the trend. At the same time, there are signs that many small enterprises have withdrawn from the market. The number of wheel trailers in large and medium-sized enterprises has dropped to the lowest level in recent years, and the gap between annual report waste and annual new sales has led to a downward trend in the number of large and medium-sized wheel trailers. Under pressure, it is estimated that the number of large and medium-sized wheel trailers will be about 5.9 million in 2020, compared with 6.7 million in 2017. Considering that the renewal peak is expected to come, GB conversion and other factors, based on the judgment that the prosperity of the agricultural machinery industry begins to pick up, the industry may continue to pick up in the next few years.

Benefit from agricultural intensification, rural labor outflow and aging, horsepower moving up, long-term good for the leading wheel towing industry: according to demographic yearbook data over the years, the aging rate of the rural labor force (45-64 years old) rose from 25.4% in 2010 to 29.8% in 2018, with 44% of the rural working population over 45 years old. The number of people employed in agriculture fell from 689 million in 2009 to 552 million in 2019, a drop of nearly 20%. Taking into account the statistical impact of migrant workers, the proportion of young workers actually employed in rural areas may be even lower. Agriculture is changing from "small-scale farming" to intensive farming such as large households, cooperatives, small farms and large farms. Data from the Ministry of Agriculture and villages show that by the end of 2018, there were 600000 family farms in the agricultural and rural sector, a more than four-fold increase from 2013, with an average labor force of 6.6 people per family farm, of which 1.9 were employed. With the decline and aging of agricultural employees, the per capita arable land area in China is also showing an upward trend, from 7 mu / person in 2009 to 9.7 mu / person in 2017. According to the "High-quality Development Plan of New Agricultural operators and Service subjects (2020-2022)" of the Ministry of Agriculture and villages, it is pointed out that if 1 million family farms will be built in 2022, the demand for large and medium-sized agricultural machinery will also be guaranteed. It will also promote the horsepower section of tractor demand to move up, which will be good for the leader of the medium and large wheel towing industry in the long term.

The return of the king of tractors, grasp the market outside, promote reform internally, reduce costs, increase efficiency and improve quality, the market share and gross profit margin are expected to usher in a long-term steady increase, and then play a strong voice: the company, as a key tractor manufacturer for the production of the first tractor in New China, has an indisputable leading position in the field of wheel tractors in Zhongda. According to data from the China Agricultural Machinery Industry Association, the company sold 41900 large and medium-sized tractors in 2019. The growth rate was 10.78%, and Zhongda tuo's market share in the backbone enterprises increased by 21.88%, an increase of 0.83 percentage points. although there was an epidemic in the first quarter of 2020, the number of production days decreased, and the company adopted products and services that are closer to the market. Increase the competitive advantage of technological research and development and the layout of the whole industry chain of core components, and the market share is expected to increase steadily. The company relies on reform to reduce costs, increase efficiency and improve quality, and only nearly 4000 employees have been reduced in the past two years. The improvement of management has brought about a significant improvement in gross profit margin and net profit margin. The total number of employees of the company was 11622 / 7609 in 2016 / 2019, with a cumulative layoff of 34.5%. In 2018 and 2019, the company laid off 954, 2180, 879 employees respectively, with the largest number of layoffs in 2018.

Through the external grasp of the market, stimulate vitality, internal reform, increase efficiency, the company's market share and gross profit margin are expected to increase steadily in the next few years.

The industrial chain is complete, the second mobile phone value preservation rate is high, the brand quality is recognized by customers, and the product popularity is high: the company's industrial chain is complete, the core parts are all self-produced, and it has the most complete core parts manufacturing system in the domestic tractor industry. with the car body, castings and forgings, engines, gears and other tractor core parts manufacturing capacity to achieve full coverage of core components. Dongfanghong second-hand tractors have a high value preservation rate, and the brand quality has been recognized by customers. according to the statistics of China Road Machinery Network, Dongfanghong second-hand tractors have the largest number of transfers / purchases, accounting for 20.86%, 53.28% respectively. As of May 13, 2020, agricultural machinery second-hand network transaction data show that the total number of second-hand tractors listed for transfer is 1520, while Dongfanghong and John Deere occupy the top two, with 317 and 117. accounting for 20.86% and 7.7% of the total transfer volume, the second-hand tractor market can better reflect the value preservation rate of tractor brands and the love of customers.

Under the epidemic in the first quarter, the performance exceeded expectations, and the sales volume in the second quarter was still optimistic: in the first quarter of 2020, the company realized a net profit of 198 million, an increase of 341.54% over the same period last year, and a net profit of 190 million, an increase of 2305.79% over the same period last year. Mainly due to the recovery of the industry, the company's reform and cost reduction, optimizing the sales structure, etc., the gross profit margin and net profit margin improved significantly, and the sales gross profit margin reached 18.57% in the first quarter of 2020. Year-on-year 5.55pct Achieve a net sales interest rate of 8.88%, an increase in 6.96pct compared with the same period last year. From March to May, the industry continued to improve significantly, showing a booming situation of production and sales, and sales are expected to remain optimistic in the second quarter.

Investment suggestion: based on the judgment that the prosperity of the agricultural machinery industry is expected to pick up and the management improvement of the company's reform to promote efficiency, according to the model, the company's income and gross profit margin are expected to continue to rise, covering and giving a "highly recommended" rating for the first time. It is estimated that the operating income from 2020 to 2022 will be 7.102 billion yuan, 8.755 billion yuan and 10.37 billion yuan, and the net profit will be 423 million yuan, 567 million yuan and 748 million yuan, respectively. The EPS was 0.43,0.58,0.76 yuan respectively, and the corresponding PE was 21 times, 16 times and 12 times respectively.

Risk hints: the support policies such as agriculture and agricultural machinery subsidies are lower than expected, the industry competition intensifies the risk, the reform effect is not as expected, the impact of public health emergencies, the risk of substantial increase in the cost of materials and components, statistical errors, forecast parameters, assumptions are not as expected, and so on.