The company is a leader in the domestic agricultural machinery industry. It has supporting capabilities for the systematic production of core components for tractors. The “National Four” new products and sales channels have been laid out early, and the service system has a comprehensive layout. “Aging+high-standard farmland construction” is expected to accelerate the increase in the horsepower range and intelligent upgrading of agricultural machinery. The “National Four” switch will accelerate the reshuffle of the industry, and there is a clear trend of increasing market share of leading enterprises in the industry. Given that Yituo Co., Ltd. has leading technology and R&D capabilities in the domestic agricultural machinery industry, strong capital strength, obvious first-mover advantage for “national four” products, complete manufacturing systems, and perfect sales and after-sales service systems, industry prosperity is expected to gradually recover. The company is expected to use the industry upgrade trend to further gather market resources and expand industry leadership; furthermore, the company has already laid out overseas markets early, and is expected to open up the company's second growth curve. We are optimistic about the company's short-term and long-term development trends, which gave the company a “buy” rating for A/H shares for the first time.

“Outstanding”: Against the backdrop of a downturn in the industry, the sluggish performance of the industry is superior to that of the industry, and the market share of the leading market has once again increased. 2023Q1-Q3 had operating income of 10.252 billion yuan (-0.66% year-on-year) and net profit of 1,085 billion yuan (+36.36%). The revenue situation remained stable; profit remained high. According to data from the China Agricultural Machinery Industry Association, affected by the “National Four” switch, the sales volume of large and medium-sized tractors of key enterprises in the 2023H1 industry reached 189,300 units, a year-on-year decrease of 10.98%, and the sales volume of large and medium traction products in 2023H1 was 48,900 units, a year-on-year decline of 8.94%, less than the level of key enterprises in the industry; the company's largest towing market share remained number one in the market, and its leading position is becoming more stable. The company's 2022-H1 backbone tractors have a sales market share of 26.31%, and according to the agricultural mechanization station of the Ministry of Agriculture and Rural Affairs, Domestic procrastination There are more than 200 commercial enterprises. We believe that the “National Four” switch will accelerate market reshuffle, and there is still huge room for leading companies to penetrate.

“Spring blossoms”: Industry prosperity is expected to gradually recover, and overseas geopolitical conflicts will reshape the importance of food security. The double decline in market production and sales in the first year of the “National Four” switch (since 2023) is in line with expectations. According to data from the National Bureau of Statistics and the China Agricultural Machinery Distribution Association, from January to October 2023, China's agricultural machinery development level is 3091,000 units and sales volume is 3012,000 units, down 9.92% and 23.00% respectively from the previous year. Considering the demand side holding coins, actual demand for agricultural machinery will not decrease after a year. In addition, the trend of rural aging is obvious. In addition, there is an obvious trend of rural aging, and the demand for convenient farmland and high standard farmland construction continues to advance. It is expected that the current level of agricultural machinery development in China and overseas developed countries will continue to rise; moreover, the current level of agricultural machinery development in China and overseas developed countries is expected to continue to rise; moreover, the current level of agricultural machinery development in China and overseas developed countries is expected to accelerate again. The value of stand-alone agricultural machinery is expected to continue to rise. Recent incidents of overseas geopolitical conflicts have once again highlighted the importance of food security, and the importance of agricultural development has once again been raised to a new level.

“Accumulate thin hair”: The “National Four” product pioneering layout creates a first-mover advantage, and long-term overseas exports are expected to open up a second growth curve. Comparing the products of similar companies horizontally, “Dongfanghong” has the richest product range. There are corresponding product segments within each power range, with excellent operational performance and stability, and high market pricing; furthermore, the company's cash flow situation is superior to that of peers, its ability to cope with risks far exceeds that of competitors in the same industry, and its financial health is excellent. In addition, the company has achieved sales in many overseas regions. In 2022, the company's overseas market revenue growth rate reached 81.68%, and since 2018, the company has focused on markets such as South America. High-horsepower tractors are in high demand in the South American market, and the value of stand-alone tractors is high. According to Emergen Research statistics, the Asia-Pacific region accounts for 37.8% of the tractor market, while the non-Asia-Pacific region accounts for 62.2%.

Risk factors: agricultural machinery purchase subsidy policy adjustment risk; risk of rising raw material prices and labor costs; risk of increased competition in the domestic market; risk of increased competition in the domestic market; risk of the company's overseas market operations; risk that the company's product technology upgrade falls short of expectations; risk that the company's product technology upgrade falls short of expectations; risk of the company's product being the only one.

Profit forecast, valuation and rating: Given that the company's agricultural machinery products, especially tractor series products, have a complete agricultural machinery manufacturing system, and have a complete agricultural machinery manufacturing system, the “National Four” first-mover advantage is obvious, and the product market competitiveness is strong. We expect the company to achieve net profit of 9.2/12.1/1.58 billion yuan in 2023/24/25. The corresponding EPS forecast is 0.82/1.08/1.40 yuan, and the current stock price corresponding to PE is 16/12/9 times. We selected Zhonglian Heavy Industry and Weichai Power as comparable companies. The average PE valuation of comparable companies in 2024 was 14 times (Zhonglian Heavy Industries forecast data from CITIC Securities Research Department; Weichai Power's forecast data came from Wind's unanimous expectations); furthermore, according to the PEG valuation method (PEG = PE/profit growth rate), the company's 2024 PEG was far less than 1, and the company's reasonable valuation in 2024 should be greater than 13 times PE; Combining the PE valuation method with the PEG valuation method, and considering that the company has strong product development capabilities and a complete manufacturing system, it is given The company's PE is 16 times PE in 2024, corresponding to a target price of 18 yuan. Considering the company's recent average A/H premium of about 3.3 times, the company was given a target price of HK$6 for Hong Kong stocks, covering the company's A/H shares with a “buy” rating for the first time.