The Zhitong Finance App learned that GF Securities released a research report stating that agricultural machinery products are diverse, the industry space is large, and demand is growing steadily. Agricultural machinery is affected by factors such as farming processes, terrain, and crops, and has various characteristics. After decades of development, agricultural machinery in China has initially entered a mature period. The industry space is large, and demand is growing steadily against the backdrop of increased food security and per capita food consumption. Large-scale equipment updates are expected to drive a new round of renewal and replacement demand, compounded by rapid growth in overseas demand, leading agricultural machinery companies are expected to benefit first.

Recommended attention: Tractor Leading Yituo Co., Ltd. (601038.SH), Weima Agricultural Machinery (301533.SZ), a leading agricultural machinery company focusing on the hilly mountainous field, etc.

The main views of GF Securities are as follows:

Demand side: domestic demand recovers at the bottom of the cycle, exports welcome an upward cycle

Tractors and staple grain harvesting machinery account for a relatively large share of agricultural machinery demand, accounting for 54.6% of agricultural machinery purchases in 23 years. Long-term demand for agricultural machinery is growing steadily, but short-term demand is volatile due to the adjustment of the subsidy policy and the emission policy every 3 years. The last round of subsidies ended in '23. The combination of “country three” and “country four” caused demand for machine purchases to be put ahead and demand suppressed after implementation of the policy. Currently, the agricultural machinery industry is in a recovery period after the implementation of “Country 4”; demand is at the bottom of the recovery period within 24 years.

According to GF Securities, based on production, sales and holdings during the life of agricultural machinery, it is estimated that there is room for agricultural machinery equipment renewal of about 268.2 billion yuan. China is continuously improving and promoting land transfer policies. It plans to complete the goal of building 1.2 billion mu and remodeling 280 million mu of high-standard farmland by 2030. It is estimated that 24-25 years will bring an incremental demand of 27.1 billion yuan for agricultural machinery every year.

Second, China's agricultural machinery has a cost-effective advantage. Demand for agricultural machinery in developing countries has risen rapidly in recent years. According to data from the Huajing Industry Research Institute and Weimar Agricultural Machinery prospectus, in 2022, China's agricultural machinery mainframe export market was 44.3 billion yuan, and the domestic market size was 566.3 billion yuan. Currently, exports account for only 7.3%, and there is plenty of room for improvement.

Supply side: Benefiting from the increase in the share of high-end and high-horsepower products, the concentration of agricultural machinery leaders has increased significantly in this round

Agricultural mechanization in China is limited by land and development time, and there is a gap between domestic agricultural machinery companies and global agricultural machinery giants in terms of scale, products, and channels. Currently, China's agricultural machinery industry is showing a pattern of many oligopolies and long tails. Competition is fierce, but benefiting from the high-end industry and the increase in the share of large tractors in horsepower, market concentration has continued to increase in recent years. As the demand side increasingly shifts towards high-quality agricultural machinery, the focus of subsidy policies on adjustments, and the continuous upgrading of emission requirements, agricultural machinery small and medium-sized enterprises are gradually clearing up, and market concentration is expected to continue to increase, which in turn pushes enterprises to gradually fill up the “one big, one small” shortcoming and open up the high-end agricultural machinery market.

Risk warning

There is a risk that agricultural machinery companies' performance will decline due to the “Country 3” upgrade to “Country 4,” the risk of industry subsidy policy adjustments, and the risk that industry scrapping and renewal policy adjustments fall short of expectations.