Orient: Extreme weather conditions bring changes in the demand structure of agricultural machinery, benefiting China's agricultural machinery going overseas.

Orient released a research report stating that the recent El Nio phenomenon is continuing to intensify. The bank believes that this will bring about structural changes in the demand for agricultural machinery. On one hand, the market share of more efficient high-horsepower agricultural machinery is expected to increase, while on the other hand, the market share of cost-effective products is also expected to increase. In recent years, China's tractors have made continuous progress in terms of high horsepower and cost-effectiveness. The bank believes that the export market for agricultural machinery is expected to improve marginally, bringing investment opportunities. Some relevant stocks mentioned include: First Tractor (601038.SH, not rated) and ZOOMLION (000157.SZ, Buy). Key points from Orient are as follows: The El Nio phenomenon is intensifying, leading to tighter food production and increased demand for agricultural machinery efficiency The recent intensification of the El Nio phenomenon has led the Food and Agriculture Organization of the United Nations to warn that extreme weather caused by a new El Nio cycle could trigger a food crisis. El Nio directly affects crop growth conditions by changing global precipitation and temperature distributions. Therefore, the bank predicts that extreme weather conditions will lead to increased pressure on food production and further requirements for efficiency in agricultural machinery. As high-horsepower tractors are more productive and efficient, the bank expects extreme weather conditions to further boost the market share of high-horsepower agricultural machinery. In recent years, China's high-horsepower agricultural machinery has made continuous progress and achieved faster growth. From January to May 2026, the production increase of large tractors in China significantly exceeded that of medium and small tractors. The bank expects the market share of high-horsepower agricultural machinery to continue to rise. The El Nio phenomenon is increasing agricultural production costs, leading to increased requirements for cost-effectiveness of agricultural machinery The El Nio phenomenon will also affect hydroelectric power, leading to increased reliance on fossil fuels. Coupled with geopolitical conflicts, this will further push up fuel costs for agricultural machinery. In addition, the El Nio phenomenon will worsen inflation and bring credit risks. Therefore, the bank predicts that downstream demand for cost-effective equipment will increase marginally. After long-term investment in research and development and technological breakthroughs, the bank sees that China's tractor equipment has caught up with and surpassed European and American brands in multiple technical dimensions, such as diesel engine fuel efficiency, power output, intelligence, electronic monitoring, etc. Furthermore, the purchase and maintenance costs of Chinese tractors are significantly lower than those of European and American brands. The bank believes that China's cost-effectiveness advantage in agricultural machinery will be further enlarged, and market share is expected to increase. Improvements in China's agricultural machinery market, strong export outlook According to the China Agricultural Machinery Industry Association, the Chinese agricultural machinery industry index recently rebounded, ending its negative trend since October 2023 and improving overall industry sentiment. Exports have maintained rapid growth, with China's tractor exports amounting to a 22% year-on-year increase from January to May. Looking ahead, the bank believes that the El Nio climate phenomenon will drive purchases of high-horsepower and cost-effective agricultural machinery, which will be beneficial for China's further expansion into the international market. The bank expects the export trend to continue to be positive. Risk factors Macroeconomic fluctuations leading to lower-than-expected investments, unexpected changes in food prices, demand being affected by high interest rates abroad, intensified trade friction, rising raw material prices impacting business profits, adverse effects of climate change.