Incident: The company released its semi-annual report. 2024H1 achieved revenue of 7.8 billion yuan, a year-on-year increase of 7.7%, and net profit to mother of 0.905 billion yuan, an increase of 20.05% over the previous year.

Q2 Performance grew steadily, showing results in cost reduction and efficiency. Looking at a single quarter, 24Q2 achieved revenue of 3.15 billion yuan, a year-on-year increase of 3.2%, and net profit to mother of 0.306 billion yuan, an increase of 13.99% year-on-year. The Q2 performance maintained steady growth. In terms of profitability, 24Q2's gross sales margin was 16.56%, up 0.59 pct year on year, slightly down 0.75 pct month on month, net sales margin 9.93%, up 1.15 pct year on year, and down 3.11 pct month on month. In terms of cost rates, the 24H1 sales expense ratio and management expense ratio were 1.06 pct and 1.96 pct, respectively, down 0.21 pct and 0.23 pct from the previous year. The company consolidated cost management results throughout the value chain, eliminated blind spots in cost management, and continued to show results in cost reduction and efficiency.

The tractor industry was still under pressure in the first half of the year, but the company maintained steady growth, showing strong α. In 24H1, the company's agricultural machinery achieved revenue of 7.093 billion yuan, an increase of 5.9% over the previous year, and a gross profit margin of 17.6%, an increase of 0.99 pct over the full year of 23. In the first half of the year, overall demand in the domestic tractor market declined slightly compared to the same period last year due to changes in the supply and demand structure, the international situation, fluctuations in food prices, the upgrade of the national four emission standards, and agricultural machinery purchase subsidy policies. However, along with the increase in the large-scale level of domestic agricultural production, the large trailer market performance is clearly superior to that of the medium trailer, and the share of sales of large wheel trailer products continues to increase. 24H1's large and medium tractors achieved sales of 0.051 million units, an increase of 4.25% over the previous year. Of these, 4,209 units of export products were sold, up 3.09% year on year, outperforming the industry. In addition, the company carried out research on the creation and application of tractors for hilly mountains, and delivered batches of special tractor products for hilly mountains to Gansu Province, achieving the first batch market application of hilly mountain tractors in China.

In terms of power machinery, 24H1 achieved revenue of 0.714 billion yuan and a gross profit margin of 11.47%, an increase of 0.66 pct compared with the gross margin for the full year of 2023. In terms of volume, the company sold 0.0824 million diesel engines in the first half of the year, of which 0.0398 million units were exported. External sales declined year-on-year due to factors such as increased agricultural machinery terminal market concentration and declining generator set exports. In the face of declining sales in the external market, the company grasped the opportunity for large-scale agricultural machinery development, gave full play to the comprehensive competitive advantages of Dongfanghong's four products, gradually optimized the sales structure, and increased sales of high-power diesel engine products over the same period last year.

Investment advice: The company is expected to achieve revenue of 12.5/14/15.4 billion yuan in 2024-26, net profit of 1.19/1.38/1.59 billion yuan, and PE of 14.3/12.3/10.6 times, maintaining the “recommended” rating.

Risk warning: risk of macroeconomic fluctuations, risk of downstream demand falling short of expectations, risk of food price fluctuations, risk of subsidy policy fluctuations, increased risk of industry competition