Key points of investment:
Yituo Co., Ltd. released its semi-annual report for 2023. The company achieved operating income of 7.243 billion yuan during the reporting period, an increase of 10.57% over the previous year; net profit attributable to shareholders of listed companies was 754 million yuan, an increase of 29.7% over the previous year.
The interim report exceeded expectations. Revenue from tractor structural upgrades bucked the trend. Companies with high export growth achieved revenue of 7.243 billion yuan, an increase of 10.57% over the previous year in the 2023 mid-year report; realized net profit attributable to shareholders of listed companies of 754 million yuan, an increase of 29.7% over the previous year; net profit attributable to shareholders of listed companies was 726 million yuan, an increase of 19.68% over the previous year. The performance exceeded expectations.
On a quarterly basis, the revenue of Q1 and Q2 companies in 2023 was 4.194 billion and 3,054 billion, respectively, up -1.28% and 28.23%, respectively; the net profit of Q1 and Q2 companies was 486 million and 268 million respectively, up 1.06% and 166.21%, respectively; the net profit of Q1 and Q2 companies after deducting non-attributable net profit was 479 million and 247 million, respectively, up 6.36% and 58.16% year-on-year respectively.
Look at the 2023 mid-year report by business:
1) Agricultural machinery achieved revenue of 6.695 billion dollars, an increase of 9.72% year on year, and achieved revenue growth under the premise that sales volume fell nearly 10% year on year. The main reason was that sales prices of the company's products increased after the country 4 switch, and at the same time, overseas sales growth drove revenue growth against the trend.
2) Power machinery achieved revenue of 1,783 billion yuan, a year-on-year increase of 34.85%, a significant increase. Among them, the export revenue of diesel engines in the first half of 2023 was 770 million yuan, an increase of 24% over the previous year.
Gross margin declined slightly, and net interest rate increased
At 2023H1, the company's gross margin was 15.85%, down 0.44 pct from the previous year; the net profit margin was 10.55%, up 1.67 pct from the previous year. The main reason for the increase in net interest rate was last year that the company reported losses due to changes in fair value and credit impairment, which had an impact on net interest rate of 2.42%.
Leading domestic tractor companies, the four beneficiary countries are in a more stable position as leaders in emissions promotion, and exports continue to grow at a high level
The company is a leading enterprise in China's tractor industry. It is committed to becoming an “excellent agricultural equipment manufacturing service provider”, focusing on advanced agricultural machinery equipment manufacturing, adhering to technological upgrading and structural optimization of the industrial chain, and continuing to provide a higher level of agricultural mechanization guarantee for China's agricultural development.
2023 is the first year that China's agricultural machinery industry has fully entered the fourth era. Due to a shift in market demand, rising user purchase costs, increased operation and maintenance costs after the country 4 switch, and new products from country 4 have yet to be further tested and accepted by the market, demand in the domestic agricultural machinery market experienced adjustments and fluctuations expected at the beginning of the year, and sales of large and medium-sized tractor products in the industry declined. According to data from the China Agricultural Machinery Industry Association, key enterprises in the industry sold 189,300 units of large and medium-sized tractors in the first half of 2023, a year-on-year decrease of 10.98%. At the same time, the upgrade of tractor emission standards has also put forward higher production and manufacturing technology requirements for agricultural machinery companies. Market resources have been further concentrated with leading enterprises with strong comprehensive strength, and industry concentration continues to increase.
During the reporting period, the company sold 48,900 units of large and medium towing products, a year-on-year decrease of 8.94%, and a market share of 25.83%. It continued to maintain its first position in the industry. The average unit price of tractors was 136,900 yuan, an increase of 23,300 yuan over the previous year. The company optimizes the layout of overseas marketing networks, continues to promote product adaptability improvements in key markets, and actively carries out product export certification. In the first half of the year, the company's export sales volume continued to rise, with a year-on-year increase of 70.27%. (Last year, exports of 2,478 tractors were reported, an increase of 44.7% over the previous year).
After the implementation of the national four emission standards for non-road machinery, as technical requirements became higher and higher and subsidies declined year by year, there was obvious pressure on small and medium-sized enterprises, which clearly raised the competition threshold and helped leading enterprises increase their market share. Furthermore, there is a clear upward trend in the tractor power segment. First, the share of sales of large wheel trailers is gradually increasing, and second, the product horsepower segment of both large and medium horsepower models is expanding upward. The continuous optimization of the tractor product structure also helps the company continue to improve its average unit price and profitability.
Tractor exports are another growth point. In recent years, the company has increased its export certification efforts and continued to promote exports to key markets. Exports have continued to show high growth, driving the company's tractor business to open up new space.
The implementation of national four standards has led to significant growth in the diesel engine business
The company's “Dongfanghong” national four diesel engines have an obvious first-mover advantage. They have good stability and operating performance, and can better meet the supporting needs of external users for national four diesel engines. During the reporting period, the company's overseas sales volume of diesel engines increased by 19.05% year-on-year. In the 2023 mid-year report, the company's power machinery business achieved revenue of 1,783 billion yuan, an increase of 34.85% over the previous year. With the implementation of national four emission standards, foreign sales of the company's power machinery business are expected to usher in new growth, establishing a second growth point for the company's business.
Profit forecasting and valuation
The company is a leading domestic tractor enterprise. Benefiting from national policy requirements such as food security and agricultural machinery and equipment safety, combined with the company's product upgrades, the tractor market share is expected to increase further. At the same time, the company continues to enhance product competitiveness and expand export space through active research and development. Despite the obvious downturn in the industry in 2023, the company achieved growth exceeding expectations in operating income and net profit. We slightly raised the company's revenue forecast for 2023 to 2025 to 13.949 billion, 15.651 billion, and 17.593 billion, slightly raised the company's net profit for 2023-2025 to 873 million, 1,054 million, and 1,285 million respectively. The corresponding PE was 15.26X, 12.65X, 10.37X. The company is the absolute leader in the industry. The valuation is reasonable, and continues Maintain the company's “increase in holdings” rating.
Risk Reminder: 1: Macroeconomic prosperity falls short of expectations; agricultural machinery subsidy policies fall short of expectations; 3: market competition intensifies and gross margin is under pressure; 4: raw material prices have risen sharply; 5: new product development falls short of expectations; 6: foreign market development risks.