Semi-annual report results forecast better than expected, the industry continues to be better than expected, grasp the market outside, promote reform internally, reduce costs, increase efficiency and improve quality, and the market share and gross profit margin are expected to rise steadily for a long time: from January to June 2020, the company's sales of large and medium-sized tractors increased by about 23% compared with the same period last year, diesel engine sales increased by about 20%, and sales growth accelerated in the second quarter compared with the same period last year. From January to June, the net profit is expected to be 266.7 million yuan to 400 million yuan, an increase of 1260% to 1940% over the same period last year, with a profit range of 68.2 million yuan to 201.51 million yuan in the second quarter, compared with a loss of 25.34 million yuan in the second quarter of last year.

The performance continues to be much better than expected, mainly due to the fact that the company has grabbed the spring ploughing market and effectively increased the sales volume of leading products by optimizing the product mix, innovating marketing models and strengthening channel management. At the same time, we will continue to improve product quality and strengthen cost control, and related costs and expenses have dropped significantly compared with the same period last year, and may continue to be better than expected in the second half of 2020. The company's market share and gross profit margin are expected to increase steadily in the next few years.

The basic market of maintaining stability in agriculture, as the basic guarantee of the internal circulation of the economy, food security and price expectations have increased twofold, the holding quantity of large and medium-sized wheel trailers has dropped to the low level in recent years, and the peak period of scrapping of large and medium-sized ships is expected to bring about a renewal cycle. the conversion of GB will continue to stimulate the concentration of industry demand to the leader, and the tractor industry may continue to improve: agricultural modernization, as the basic guarantee of economic internal circulation, has been paid more attention by the state. The introduction of a number of policies to strengthen the basic market of agriculture, the hard constraints of the farming red line, land circulation and the expectation of rising food prices have all brought greater positive support to the industry, which rebounded slightly after nearly four years of downturn. according to the National Bureau of Statistics, the output of large and medium drag was 277600 in 2019, an increase of 13.99% over the same period last year. In March, April, May and June 2020, the number of units reached 41200, 41700, 31200 and 24200 respectively, an increase of 9%, 62%, 79% and 72% respectively over the same period last year, with a cumulative total of 167200 units in January-June, with an increase of 15.65% against the trend. At the same time, there are signs that more small and medium-sized enterprises have withdrawn from the market, and the number of procrastination in medium and large enterprises has dropped to the lowest level in recent years. The gap between annual report waste and annual new sales has led to a decline in the number of large and medium-sized wheel trailers, which is under pressure. it is estimated that the number of large and medium-sized wheel trailers will be about 5.9 million in 2020 and 6.7 million in 2017. considering 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.

Investment suggestion: based on the judgment that the prosperity of the agricultural machinery industry is expected to pick up and the company's management improvement in grasping reform to promote efficiency, according to the model, the company's income and gross profit margin are expected to continue to rise, considering that the company's operating data in the first half of the year are higher than expected. the company will continue to give a "strong recommendation" rating, with an estimated operating income of 7.152 billion yuan, 8.755 billion yuan and 10.37 billion yuan from 2020 to 2022. The net profit of homing is 456 million yuan, 567 million yuan and 748 million yuan respectively, and the EPS is 0.46,0.58,0.76 yuan respectively, and the corresponding PE is 30 times, 24 times and 18 times.

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.