Orient: Agricultural machinery exports drive large-scale upgrading; industry prosperity is expected to continue.

Orient issued a research report stating that China's agricultural machinery exports have maintained growth since the beginning of this year. The bank observed that the average export price has risen, reflecting that going overseas has driven the development of larger agricultural machinery. As overseas demand continues to recover, the bank expects the trend toward larger domestic agricultural machinery to continue, and the prosperity of industry leaders is expected to persist, bringing investment opportunities. Some related targets: First Tractor (601038.SH, not rated), ZOOMLION (000157.SZ, buy). Orient's main views are as follows: China's domestic agricultural machinery AMI continues to stand above the boom-or-bust line, the sector's prosperity continues to recover, and the trend toward larger agricultural machinery is obvious According to data from the China Agricultural Machinery Distribution Association, in August China's agricultural machinery market prosperity index AMI reached 57.2%, up 4.5pct month-on-month and up 1.3pct year-on-year, standing above the 50% boom-or-bust line for two consecutive months and remaining in the expansion range, reflecting that the agricultural machinery market has entered a recovery channel. From the perspective of operating conditions, the sector's recovery signals are obvious. In August, the sales, profitability, and manager confidence indices on the operating side rose simultaneously, and improved profitability also became a core turning point. From the perspective of model structure, the trend toward larger machines continues. High-horsepower tractors continue their upgrading trend. In August, the large tractor index was 58.9%, up 6.6pct month-on-month. Demand for high-end continuously variable tractors above 200 horsepower continues to be released, driven by the "better machines, better subsidies" policy, and their prosperity remains continuously higher than that of medium-sized tractors. Agricultural machinery exports grow, average product prices rise, and exports boost the trend toward larger agricultural machinery Observing August foreign trade data from the General Administration of Customs, in August China exported 15,183 tractors, up 11.6% year-on-year, with export value of RMB 785 million, up 23.9% year-on-year; cumulative exports from January to August were 136,243 units, up 13.4% year-on-year, with export value of RMB 7.025 billion, up 19.4% year-on-year. Whether for a single month or cumulative figures, export value growth is higher than volume growth. The bank believes that the current rise in the average unit price of China's tractor exports reflects that going overseas is boosting the trend toward larger agricultural machinery. Going overseas benefits from improved demand and supply upgrading, and the prosperity of leading companies going overseas is expected to continue The bank believes that Chinese agricultural machinery such as tractors going overseas mainly benefits from construction in developing countries, and therefore has a certain degree of sustainability. According to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, Belt and Road countries account for nearly 80% of China's tractor export value, among which Brazil, Ukraine, Indonesia, Argentina, and others are major market countries. The bank believes that the trend of going overseas will continue. On the one hand, from the demand perspective, after two years of downturn, the global agricultural machinery market is expected to stabilize as Shenzhen Agricultural Power Group prices recover. On the other hand, from the perspective of China's supply, in recent years the level of large-scale and intelligent technology in domestic agricultural machinery has risen, and product competitiveness has continued to increase, which is conducive to raising market share. In the past, domestic agricultural machinery going overseas relied more on small models for volume, but as the supply of high-horsepower products gradually matures, overseas market procurement of high-efficiency, high-horsepower tractors is expected to continue to increase. The bank expects that the space for agricultural machinery going overseas will further open up, driving revenue and profit improvement for domestic agricultural machinery leaders. Risk warnings Macroeconomic fluctuations leading to investment falling short of expectations, grain prices falling short of expectations, high overseas interest rates dragging down demand, intensifying overseas trade frictions, rising raw material prices dragging down corporate profitability, and adverse effects from climate change.