Key points of investment

Results for the first half of 2024:20% year-on-year increase; the share of high horsepower continued to increase, driving a steady increase in profitability 1) Performance: Revenue of 7.81 billion yuan, up 7.7% year on year; net profit to mother was 0.905 billion yuan, up 20% year on year. In the Q2 quarter, revenue was 3.15 billion yuan, up 3.2% year on year; net profit to mother was 0.31 billion yuan, up 14% year on year. Against the backdrop of a slight decline in overall demand in the domestic tractor market compared to the same period last year, double-digit performance growth was maintained.

2) Profitability: gross profit margin 17%, up 1.2pct year on year; net profit margin 11.8%, up 1.2pct year on year. In Q2 alone, gross profit margin was 16.6%, up 0.6 pct year on year; net profit margin was 9.9%, up 1.15 pct year on year. We expect the core to be due to the continued increase in the company's share of high-horsepower tractors.

3) Tractor sales: The company's large and medium-sized tractors achieved sales of 0.051 million units, an increase of 4.25% year on year, of which 4,209 units of export products were sold, an increase of 3.1% year on year. Among them, the share of sales of large wheel towing products continues to increase.

4) R&D side: 0.205 billion yuan in the first half of the year, up 13.8% year-on-year, accounting for 2.6% of revenue. The company continues to do a good job of testing and verifying high-end intelligent agricultural machinery equipment such as 240 and 320 horsepower stepless variable speed tractors and 220 horsepower hybrid tractors, and does a good job of “repairing shortcomings” in agricultural machinery equipment, such as improving 80 horsepower and 50 horsepower hilly mountain tractor products.

Yituo Co., Ltd.: Tractor leader, benefiting from high horsepower, increased overseas demand, and large room for growth 1) Agricultural machinery industry: The global agricultural machinery market reached 162 billion US dollars (trillion yuan market) in 2022, and CAGR = 5.4% in the past 5 years; looking at the structure, the global agricultural tractor market size in 2024 is expected to be 70.4 billion US dollars (about 500 billion yuan), and the market space is large.

2) Technical side: The company has acquired French agricultural machinery companies, strengthened the technical heritage of high horsepower, and became the leading medium to large tractor. At the same time, the integrated layout of the company's complete machine+core components (the core of expanding to high-end), diesel engines were simultaneously recognized by the export market.

3) Market side: In 2022, the domestic market share of the company's medium and large tractors reached 24%, with sales volume of 0.088 million units. In the past five years, CAGR = 14%; in 2023, the company's tractors ranked first in the industry popularity list, and high brand strength created positive feedback on the high used residual value rate.

4) Growth potential: The company strengthened overseas markets, accounting for 8.5% of overseas revenue in 2023. In comparison to overseas leaders, the company's revenue in 2022 was only 12.6 billion yuan. Compared with the global leader John Deere of the United States (375.6 billion yuan in '22), there is a lot of potential room for growth.

Investment advice: Leading domestic tractors, benefiting from the recovery of domestic sentiment and the acceleration of overseas exports, the company's net profit to the mother is expected to be 1.17/1.37/1.51 billion yuan in 2024-2026, an increase of 17%/17%/11% over the previous year, corresponding to PE14/12/11 times. Maintain a “buy” rating.

Risk warning: Market competition increases risk; risk of subsidy policy adjustment; risk of overseas market development.