Incident: Recently, the company released its annual report for 2023. In 2023, the company achieved operating income of 11,528 billion yuan, a year-on-year decrease of 7.44%; realized net profit attributable to shareholders of listed companies was 997 million yuan, an increase of 46.39% over the previous year; and realized net profit attributable to shareholders of listed companies after deduction was 926 million yuan, an increase of 20.02% over the previous year.

Strive for steady progress and broaden overseas markets. In terms of profitability, in 2023, the company's gross sales margin was 15.89%, up 0.17pct year on year; the net sales margin was 8.58%, up 3.43pct year on year. Among them, it mainly involved cost reduction and cost control in all aspects of the company. The cost reduction results were significant. At the same time, cost control was strengthened, and cost control was strengthened, and the gross margin was stable and the profit level increased in the face of declining revenue. In terms of cash flow, net cash flow from operating activities in 2023 was 1,056 billion yuan, a year-on-year decrease of 70.68%. The main reason was to meet the financial regulatory requirement that “one enterprise group can only establish one finance company”, delayed financial company restructuring, financial operations were gradually stopped, and large sums of money such as loans were recovered. In terms of core competitiveness, the company focused on improving core manufacturing capabilities, promoting intelligent, flexible and green transformation, putting into use the company's new YTN3 diesel engine intelligent production line, and starting construction on intelligent manufacturing projects such as improving the capacity of intelligent multi-purpose tractors, laying the foundation for enhanced quality, improved efficiency, and cost reduction.

Overall demand in the domestic agricultural machinery industry declined due to multiple factors such as moving forward in demand and rising machine purchase prices due to the upgrade of the four national emission standards. In this context, the upgrading of emission standards has also accelerated the transformation of the industry to green, intelligent, and high-end. Leading companies in the industry are quickly seizing the market, and industry concentration has increased. The company also took the lead in seizing the “Dongfanghong” tractor to take the lead in fully implementing the national four switch and batch launch. It sells 72,300 large and medium towing products throughout the year, and continues to lead the industry in market share. In terms of international market development, the company continues to cultivate key export regions such as Russian-speaking regions and South America. The overseas market layout continues to expand, and the export sales volume of tractor products increased by 43% year-on-year throughout the year. In terms of power machinery business, the company's Guosi diesel engine products sold 151,1,000 diesel engines throughout the year, of which 82,500 units were exported, an increase of 7.69% over the previous year.

The “large-scale equipment renewal” policy is expected to drive industry optimization, and leading industries will benefit from high-end transformation. According to the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in” issued by the State Council, it is mentioned to support the renewal of old agricultural machinery, continue to implement the agricultural machinery scrapping and renewal subsidy policy, take into account agricultural production needs and the level of agricultural mechanization development, steadily promote the scrapping and upgrading of old agricultural machinery, and speed up the structural adjustment of agricultural machinery. We believe that it is proposed to promote the upgrading of old agricultural machinery, etc. in an orderly manner to form a large-scale effect of upgrading. This policy is expected to benefit the agricultural machinery industry. The plan mentions increasing fiscal, tax, financial and other policy support, which may reduce the cost for farmers and enterprises to upgrade agricultural machinery and equipment. At the same time, it is also beneficial to promote the agricultural modernization process and improve agricultural production efficiency and sustainability. Furthermore, the trade-in method will also stimulate demand and expand market size. As a leading enterprise in the agricultural machinery industry, the company will benefit from the development trend of the industry.

Investment advice: Considering the policy support of the agricultural machinery market, the impact of state-owned enterprise reforms, and the growth of the CUHK horsepower tractor market, the company, as a leading enterprise, is expected to continue to increase in revenue and gross margin in the future, maintaining a “buy” rating. The net profit to the mother is estimated to be RMB1,143, RMB1,272 billion, and RMB1,431 billion for EPS, 1.02, 1.13, and RMB1.27, respectively.

Risk warning: Risks such as agricultural and agricultural machinery subsidies falling short of expectations, increased risk of industry competition, falling short of expectations, impact of public health emergencies, risk of a sharp increase in material and component costs, statistical errors, prediction parameters, assumptions, etc. falling short of expectations.