Event: the company issued a forecast for its semi-annual report in 2020, saying that the company realized a net profit of 266.7 million-400 million yuan, an increase of 1260% 1940% over the same period last year, deducting non-net profit of 239.7 million-373 million yuan.
After the epidemic, the company accelerated the resumption of work and production, and the company reported that its performance exceeded expectations: 2020H1 achieved a net profit of 266.7 million-400 million yuan, an increase of 1260% Murray 1940% over the same period last year, of which 68.2 million yuan to 201 million yuan was achieved in the second quarter, exceeding market expectations. The main reason is that the company accelerated the resumption of work and production after the epidemic and grabbed the spring ploughing market. From January to June, the company's sales of large and medium-sized tractors increased by about 23% compared with the same period last year, diesel engine product sales increased by about 20%, and revenue increased significantly.
At the same time, the company continues to promote cost control work, related costs to achieve a substantial reduction.
After the epidemic, attention was paid to food production, and sales in the tractor industry rebounded sharply: according to the Agricultural Machinery Association, the sales of large and medium-sized tractors in backbone enterprises increased by 9.2% from January to May, especially from March to May. Tractor sales broke out centrally, we think there are mainly several reasons: 1) it is difficult for farmers to go out to work and return to farming. 2) due to the influence of the epidemic situation and grain export controls in some countries, the prices of grain and cash crops are expected to rise; 3) in some areas, especially in the paddy areas of the south, double-cropping rice is encouraged and given certain planting subsidies and financial policy support. Looking forward to the second half of the year, under the influence of the recent floods, the problem of food security in the second half of the year is still prominent, and the overall demand for tractors is expected to be better than the same period last year, with an increase of 5-10%.
Large-scale planting is expected to promote the demand for agricultural machinery, and food price is the core driver of medium-and long-term demand for agricultural machinery: according to data from the Ministry of Agriculture, by the end of 2016, small-scale farmers with a scale of less than 50 mu in agricultural production and operation accounted for about 82% of the country's total arable land. With the acceleration of land transfer and the absorption of rural labor force by the new urbanization, the moderate scale operators with a business scale of more than 50 mu in the future (including professional large households, family farms and farmers' professional cooperatives) will continue to expand. it is conducive to the release of demand in the agricultural machinery industry. In the long run, the grain income brought by grain prices to grain growers is still the core factor driving the demand for agricultural machinery, and the changes of grain prices need to be tracked later.
Profit forecast and investment advice: we expect the company's net profit from 2020 to 2022 to be 475 million, 510 million and 554 million, respectively, corresponding to 29 times, 27 times and 24 times PE, respectively, maintaining a "buy" rating.
Risk tips: agricultural machinery purchase subsidies, intensified competition in the industry, etc.