The company is the leader of the domestic agricultural machinery industry, including a full range of tractors, dryers, industrial handling machinery, and related parts, with the manufacturing capacity of key parts of tractors such as body, castings and forgings, engines and so on.

The company's domestic tractor business started early, product technology, manufacturing capacity, talent, marketing channels and other accumulation, brand added value continues to improve. The level of automation and intelligence of agricultural machinery in China has a large gap compared with the developed countries, and the core components need to be broken through and there is plenty of room for improvement. The switching of agricultural machinery "national fourth" standard brings users' purchase demand and inventory clearance forward, the short-term market is expected to usher in a rapid rise in demand, the company's "national fourth" new products and sales channels layout is early, the service system layout is comprehensive, and the long-term growth space is huge. We are optimistic about the short-term and long-term development of the company.

Company profile: the company established Yituo shares through shareholding reform in 1997, issued H shares in the Hong Kong stock market, and listed on the Shanghai Stock Exchange in 2012. Business: the company's products include a full range of tractors, dryers, industrial handling machinery, and related core components and spare parts for agricultural production, and has become a leader in China's agricultural machinery industry. Finance: the company's revenue in 2021 / 2022Q1-3 was 9.33 billion yuan, an increase of 23.1% over the same period last year, 25.4% year-on-year growth, a net profit of 4.4%, 910 million yuan, a year-on-year increase of 56.4%, a gross margin of 16.3%, a 3.3pcts/-0.2pct of 16.6%, and a net profit of 4.7%, 8.9%, respectively. Respectively year-on-year + 1.0pct/+0.7pct.

An overview of the industry. Market size: Access Wire predicts that the global agricultural machinery market will reach US $374 billion in 2030, corresponding to about 8.2% of CAGR in 2021-2030. The Ministry of Agriculture and villages predicts that China's agricultural machinery market will reach 719.6 billion yuan in 2027, corresponding to about 5.2% of CAGR in 2021-2027. In 2021, tractors accounted for the highest proportion of agricultural machinery sales in China, accounting for about 34%, of which large and medium-sized tractors increased well. Development trend: the degree of automation and intelligence of agricultural machinery in China is relatively backward. China's tractors need to make a breakthrough in core technologies such as CVT variable speed technology and vehicle electro-hydraulic control. The policy continues to support the development of the agricultural machinery industry, and agricultural machinery subsidies play a significant positive role in the development of the agricultural machinery industry.

Competition pattern. Domestic: the number of agricultural machinery enterprises in China shows a downward trend, and the trend of industry concentration is obvious.

Domestic brands of traditional agricultural machinery have occupied the mainstream in the domestic market, while overseas brands have taken the lead in the high-end market. The domestic market share of CR3 in tractors is more than 30%, and the highest share of Oriental red market in Zhongda horsepower tractors is 11.8%. Overseas: large-scale competition among giants in developed countries and professional competition for small and medium-sized enterprises coexist. John Deere, case New Holland and Aike account for about 30% of the global agricultural machinery market; these three share nearly 70% of the global tractor market share with Klaas and Kubota. Among them, John Deere leads other manufacturers in terms of revenue and net profit.

advantage in competition. Products and technology: the company has the most complete manufacturing system from the whole machine to the core parts in the domestic tractor industry, and has core technology patents such as tractor power shift and continuously variable transmission technology, intelligent driving technology, complete machine and parts electronic control technology. Brand and service: with more than 60 years of market ploughing, the company has accumulated a good market reputation, and through laying in the national and overseas service points, we can provide customers with the whole agricultural machinery chain service of "6 hours in place and 12 hours of repair".

Growth motivation. Environmental protection: off-road mobile machinery fourth stage standard ("national fourth") switching will bring user demand and inventory clearance forward, the company is expected to usher in rapid sales growth in the short term. The company's environmental protection layout is early, and the strategic layout of product development and sales of the "fourth National" is early, which is expected to further consolidate its leading position in the long term. New products: the company launched "Dongfanghong"-LX1604 professional version, LD2104 crawling block and other new models to better meet the personalized and differentiated farming needs of users. Major technical renovation projects such as the quality improvement and intelligent transformation of medium horsepower tractors and the intelligent manufacturing of YTN3 diesel engines have been started, which is expected to promote new products and new profit points.

Risk factors: the risk of adjusting the subsidy policy for the purchase of agricultural machinery; the risk of rising raw material prices and labor costs; the risk of intensified competition in the domestic market; the operating risk of the company's overseas market; the risk of the company's product technology upgrading is not as expected; the risk of a single product.

Profit forecast, valuation and rating: in view of the full coverage of the company's agricultural machinery products, especially the tractor series products, and has a complete agricultural machinery manufacturing system, the brand has obvious first-mover advantages and strong product market competitiveness. We expect the company to achieve a homing net profit of 9.0 billion yuan in 2022-23-24, corresponding to a forecast of 0.8ppm for EPS and a multiple of 14-12-10 for the current share price corresponding to PE. We select Zoomlion Heavy Industry Science and Technology and Weichai Power as comparable companies, and the average PE valuation of the comparable company in 2023 is 12 times (Zoomlion Heavy Industry Science and Technology forecast data comes from CITIC research department forecast, Weichai Power forecast data comes from wind consensus expectation); in addition, according to PEG valuation method (PEG=PE/ profit growth rate), the company's PEG in 2023 is less than 1, and the reasonable valuation of the company in 2023 should be more than 12 times PE. Combined with PE valuation method and PEG valuation method, and considering that the company has strong product research and development capability, complete manufacturing system, and the gross profit margin is better than that of comparable companies, the reasonable valuation of A shares in 2023 should be higher than 12 times PE of comparable companies, and the stock price should have some room to rise. The company's current stock price corresponding to the A-share PE level is similar to that of the comparable company, but the current Amax H premium rate of the company is about 2.5 times the average level of the comparable company. We think that the company's Hong Kong stock price also has some room to rise.