Event: on July 29, the company released a half-year performance forecast for 2021, which is expected to achieve a net profit of 422 million yuan to 549 million yuan belonging to shareholders of listed companies from January to June 2021, an increase of 30.65% to 69.97% over the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses is expected to be 395 million yuan to 522 million yuan, an increase of 36.21% to 80.00% over the same period last year.

The company seized the market opportunity, kept close to the market demand, and the company's product sales grew steadily: benefiting from the implementation of the national food security strategy and rural revitalization strategy, as well as positive factors such as the rise in domestic staple grain crop prices, the company's sales of large and medium-sized tractors increased by about 40% year-on-year, diesel engine sales increased by about 32% year-on-year, and business income increased significantly. And the company can effectively deal with the cost pressure caused by rising raw material prices by locking prices, and continue to strengthen cost control, tap internal potential, and take more measures to reduce costs and increase efficiency, so as to help the company steadily improve its business performance.

The industry grew rapidly in the first half of 2021 and is expected to grow optimistically in the second half of 2021: according to data from the National Bureau of Statistics, the cumulative output of large tractors in China in the second quarter of 2021 was 51000, an increase of 74.11%; the cumulative output of medium-sized tractors was 172200, an increase of 25.02%; and the cumulative output of large and medium-sized tractors was 223400, an increase of 34.02%. We expect the annual output of large and medium-sized drag to grow by 20% and 30%. At present, the industry has rebounded slightly after nearly four years of downturn, and there are signs that many small enterprises have withdrawn from the market. The number of wheel trailers held by medium and large enterprises has dropped to the low level in recent years. The gap between annual report waste and annual new sales has led to a downward trend in the number of large and medium-sized wheel trailers, which is under pressure, considering the expected renewal peak and other factors, based on the judgment that the prosperity of the agricultural machinery industry begins to pick up. The industry may continue to pick up in the next few years.

With the aging of the main rural labor force in the 1960s, the modern agricultural management system will continue to be promoted in the future, which is expected to bring about the long-term growth of large and medium-sized tugs instead of small ones: in China's 14th five-year Plan and the No. 1 document of the Central Committee in 2021, it is further made clear that China will speed up the modernization of agriculture and rural areas, promote the key technologies of agriculture, and improve the quality, efficiency and competitiveness of agriculture. We will increase subsidies for the purchase of agricultural machinery, carry out operation subsidies, promote the construction of a modern agricultural management system, and encourage the development of various forms of moderate scale operation. The supporting role of agricultural machinery and equipment industry in promoting the development of modern agriculture in China will become more and more important, and the hard constraints of the farming red line, land circulation and the expectation of rising food prices will bring greater positive support to the industry. In recent years, the trend of the aging of China's rural labor force has become more and more obvious. according to the demographic yearbook data over the years, the number of people employed in agriculture has dropped from 689 million in 2009 to 552 million in 2019, a decrease of nearly 20%. In the future, China will continue to promote the construction of modern agricultural management system, build a modern rural industrial system, strengthen the support of modern agricultural science and technology and material equipment, and improve agricultural quality. To achieve the goal of rural rejuvenation. According to the "High-quality Development Plan of New Agricultural operators and Service subjects (2020-2022)" of the Ministry of Agriculture and villages, it is pointed out that if 1 million family farms will be built in 2022, the demand for large and medium-sized agricultural machinery will also be guaranteed. it will also promote the horsepower section of tractor demand to move up, which will be good for the leader of the wheel towing industry in the long term.

Investment suggestion: in view of the high prosperity of the agricultural machinery industry and the implementation of the national food security strategy and the rural revitalization strategy, the company pays attention to the reform to promote the management improvement of efficiency and the optimization of product structure, and continues to maintain the "buy" rating according to the model. It is estimated that the 2021-2023 operating income will be 10.2 billion yuan, 12.1 billion yuan and 14.2 billion yuan, and the net profit will be 726 million yuan, 1.02 billion yuan and 1.246 billion yuan, respectively. The EPS was 0.65,0.91,1.11 yuan respectively, and the corresponding PE was 23 times, 17 times and 14 times respectively.

And can pay attention to the company listed in Hong Kong entity: first tractor shares (0038.HK).

Risk hints: the support policies such as agriculture and agricultural machinery subsidies are lower than expected, the industry competition intensifies the risk, the reform effect is not as expected, the impact of public health emergencies, the risk of substantial increase in the cost of materials and components, statistical errors, forecast parameters, assumptions are not as expected, and so on.