Key points of investment

Incident details: After the market on October 25, the company disclosed the report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 0.762 billion yuan, a year-on-year increase of 44.36%; net profit to mother was 0.012 billion yuan, an increase of 5.22% over the previous year.

Thanks to the boom in exports of special vehicles and motorcycles, the company achieved a high increase in revenue in the first three quarters; however, due to factors such as fluctuations in gross margin and increased cost investment, the net profit growth rate was relatively low. In the first three quarters of 2024, the company achieved operating income of 0.762 billion yuan, a year-on-year increase of 44.36%; net profit to mother was 0.012 billion yuan, an increase of 5.22% over the previous year.

1) The company achieved rapid revenue growth in the first three quarters, which is expected to be mainly due to the export boom of special vehicles and motorcycles; according to the company's semi-annual report, more than 90% of the products in the special vehicle (all-terrain vehicle) industry were exported, the company's special vehicles achieved a 34.45% year-on-year increase in sales revenue in the first half of 2024, and motorcycle export sales revenue increased 108.18% year-on-year, which greatly contributed to the company's revenue growth. 2) As for the company's revenue growth rate, which is significantly higher than the net profit growth rate, based on the company's financial information, two main reasons are expected: first, the company's gross margin for the first three quarters of 2024 was 13.24%, down 2.63 percentage points year on year from the first three quarters of 2023; second, due to increased cost investment, the company's sales expenses increased 90.74% year on year, management expenses increased 7.48% year on year in the first three quarters of 2024, and R&D expenses increased 19.37% year on year.

In 2024, the company's revenue growth rate continued to increase in a single quarter, and the revenue amount in the third quarter reached a record high. 2024Q3 achieved revenue of 0.328 billion yuan in a single quarter, a year-on-year increase of 102.96%, an increase of 62.13 percentage points over the second-quarter revenue growth rate; achieved net profit of 0.004 billion yuan in a single quarter, an increase of 88.52% year-on-year, and an increase of 98.2 percentage points over the growth rate of net profit to mother in the second quarter. 1) The company's single-quarter revenue growth rates for the first three quarters of 2024 were 0.15%, 40.83%, and 102.96% in that order, showing a clear upward trend; at the same time, revenue for the third quarter reached 0.328 billion yuan, a record high in single-quarter revenue. 2) The net profit growth rate for the third quarter fell short of the revenue growth rate, which was also related to gross margin fluctuations and increased expenditure during the period; on the one hand, the gross margin of the 2024Q3 company was 12.28%, down 1.56 percentage points from the 2023Q3 gross margin; on the other hand, the company's third-quarter sales expenses increased 55.80% year on year, management expenses increased 15.04% year on year, and R&D expenses increased 32.51% year on year.

The export boom of the company's core products is expected to continue, especially in the field of special vehicles and motorcycles, which will promote stable and positive future performance. 1) Demand for all-terrain vehicles, with exports as the main development axis, showed a strong growth trend; according to data from the China Motorcycle Chamber of Commerce, China exported 0.2278 million all-terrain vehicles from January to June 2024, an increase of 35.22% over the previous year, with a cumulative export value of 0.558 billion US dollars. Looking at the longer term, the global all-terrain vehicle market is expected to have a lot of room for development; according to Allied Market's forecast, the global all-terrain vehicle market will increase at a compound annual growth rate of 7.3% from 2022 to 2031, and is expected to reach 18.6 billion US dollars in 2031. During the reporting period, the company continued to develop and design special vehicles; according to the company's 2024 semi-annual report, the LH650 ATV special model has now completed the first round of durability tests and successfully shipped a sample vehicle, which is expected to help the sustainable development of the company's special vehicle business. 2) In the motorcycle sector, according to statistics from the General Administration of Customs, China's motorcycle exports in the first three quarters of 2024 were 6.66 million vehicles, 9.56 million vehicles, and 10.99 million vehicles, respectively, showing a relatively stable growth trend. During the reporting period, the company's new LH350T motorcycle project has carried out component design and completed engine and vehicle matching; with the launch of new products one after another, the company's motorcycle business is also expected to continue to improve.

The controlling shareholder of the company is Fuma Machinery Group; under the development trend of agricultural informatization and modernization, the company is expected to continue to expand its agricultural business by relying on the controlling shareholders' platform resources and its own accumulated technology and experience in the field of high-speed rice transplanters. The controlling shareholder of the company is Fuma Machinery Group; as of September 30, 2024, Fuma Machinery Group held 42.10% of the company's shares. Fuma Machinery Group was founded in 1979, formerly known as Ministry of Forestry Machinery Company. Its main business covers agricultural machinery, construction machinery, etc., and its products are exported to more than 130 countries and regions, including the United States, Canada, Japan, and Europe. It is the only large-scale national manufacturing and operation enterprise in China's forestry machinery industry. The company's agricultural machinery products are mainly rice transplanters. The industry is divided into low-speed hand-held rice transplanters and high-speed rice transplanters; judging from industry development, the industry produced 22,128 rice transplanters in the first quarter of 2024, an increase of 6.2% over the previous year, maintaining a relatively steady development trend; among them, high-speed rice transplanters are more in line with the development trend of modern agriculture and mechanization, and demand in agricultural production continues to expand. As the main force in the paddy field planting machinery industry, during the reporting period, its high-speed rice transplanters have successfully developed some new markets in Anhui, Fujian and other provinces and cities. At the same time, intelligent high-speed rice transplanters have completed small-batch production and field testing and acceptance, laying the product foundation for subsequent business development.

Investment advice: The company's performance for the first three quarters of 2024 is in line with expectations; looking ahead to 2024, the stable development of the company's business is expected to be supported in the context of continued development of agricultural mechanization and the continued boom in the export business of special vehicles and motorcycles; in the long run, the company is one of the earliest domestic all-terrain vehicle manufacturers, and is also the main force in the paddy field planting machinery industry. At the same time, the company has a strong domestic R&D and manufacturing capacity. At the same time, the company relies on a good central enterprise background, has rich customer and partner resources, and has now formed a strong industry influence. We expect total revenue for 2024-2026 to be 0.918 billion yuan, 1.026 billion yuan, and 1.157 billion yuan respectively, with year-on-year growth rates of 32.2%, 11.7%, and 12.7% respectively; corresponding net profit to mother is 0.015 billion yuan, 0.017 billion yuan, and 0.019 billion yuan, respectively, with year-on-year growth rates of 10.8%, 13.6%, and 14.1%, respectively; corresponding EPS is 0.07 yuan, 0.08 yuan, 0.09 yuan Covered for the first time, a “Accumulated Holds-A” rating was given.

Risk warning: Macro risk, market competition risk, exchange rate risk, raw material price fluctuation risk, etc.