Event: the company issued the annual report for 2020, with annual revenue of 7.582 billion, year-on-year increase of 30.06%, net profit of 280 million, year-on-year increase of 355.71%, operating cash flow of 1.249 billion, year-on-year increase of 277.58%.

Benefiting from a substantial rebound in the agricultural machinery industry, the annual operating performance improved significantly: in 2020, the company achieved an income of 7.582 billion, an increase of 30.06% over the same period last year, a net profit of 280 million, an increase of 355.71% over the same period last year, an increase of 1.249 billion in operating cash flow, an increase of 277.58% over the same period last year, and a substantial improvement in operating performance, mainly due to a sharp rebound in sales in the tractor industry. The company's annual gross profit margin was 19.53%, an increase of 3.34pct over the previous year, and a sales, management, R & D and financial expense rate of 14.55%, a decrease of 4.43pct over the previous year, and a net profit margin of 3.69%, an increase of 2.64pct over the previous year.

The growth of the company is higher than that of the industry, and the improvement of internal management unleashes the growth potential: according to the Agricultural Machinery Association, the sales of large and medium drag reached 253800 units in 2020, an increase of 26.19% over the same period last year.

The company sold 53600 sets of large and medium-sized tractors, an increase of 28.04% over the same period last year, of which 18100 tractors with more than 100 horsepower were sold, an increase of 46.06% over the same period last year. The company strengthens the work of reducing staff and increasing efficiency and disposing of invalid assets during the industry downturn, and increases the target assessment and incentive system reform for secondary units, which significantly improves the enthusiasm of all levels of the company and releases the performance growth potential of the company.

Rising food prices promote sales growth in the agricultural machinery industry, and the industry trend is expected to continue to rise:

In 2020, affected by the COVID-19 epidemic and grain export restrictions in some countries, grain prices continued to rise, grain planting income increased compared with the same period last year, and farmers' enthusiasm for growing grain generally increased, which played a great role in promoting the sales of agricultural machinery. With the adjustment of the national agricultural production structure and the continuous expansion of the operation scale of farmers, the country has fully implemented the food security strategy, we expect the upward trend of the industry to continue, and the sales of the tractor industry are expected to maintain the growth trend.

Profit forecast and investment advice: we expect the company's net profit from 2021 to 2023 to be 492 million, 619 million and 745 million, respectively, corresponding to 24 times, 19 times and 16 times PE, respectively, maintaining a "buy" rating.

Risk hint: the decline in tractor subsidy affects the demand for machine purchase, the intensification of competition in the industry, etc.