Key takeaway

In 1H26, the company's revenue increased by 13.84% YoY, net profit attributable to shareholders of the parent company rose by 1.72% YoY, and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses grew by 23.39% YoY. Higher sales of core products and an improved gross margin strengthened the profitability of the core business, while fluctuations in the fair value of financial assets affected net profit attributable to shareholders of the parent company. Tractor sales increased by 17.05% YoY, outpacing industry growth, while market share rose by 2.77 pcts YoY. Export sales grew by 47% YoY and became an important source of incremental growth. The company continued to develop high-horsepower, high-end intelligent, new energy, and hilly and mountainous terrain products. Related production line upgrade projects successively commenced operations, supporting product mix upgrades and expansion in domestic and overseas markets.

Event

The company released its 1H26 report, with revenue of RMB7.886bn, up 13.84% YoY; net profit attributable to shareholders of the parent company of RMB782mn, up 1.72% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB853mn, up 23.39% YoY; In 2Q26, the company recorded revenue of RMB3.217bn, up 35.68% YoY; net profit attributable to shareholders of the parent company of RMB220mn, down 8.25% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB292mn, up 77.56% YoY.

Quick Take

Higher sales of core products lift revenue from both agricultural machinery and power machinery

In 1H26, the company's agricultural machinery business generated revenue of RMB6.946bn, up 10.65% YoY and accounting for 88.1% of total revenue. Its gross margin was 17.86%, up 1.12 pcts YoY. The power machinery business generated revenue of RMB940mn, up 44.57% YoY and accounting for 11.9% of total revenue. Its gross margin was 7.33%, down 1.82 pcts YoY. The company's revenue growth was mainly driven by higher YoY sales of core products. By region, domestic sales revenue reached RMB6.999bn, up 11.62% YoY, while overseas sales revenue reached RMB887mn, up 35.01% YoY. Overseas revenue grew faster than domestic revenue.

Expense ratios decline, while non-recurring factors affect net profit attributable to shareholders of the parent company

In 1H26, the company's overall gross margin was 16.61%, up 0.57 pct YoY. The net margin attributable to shareholders of the parent company was 9.92%, down 1.18 pcts YoY, while the corresponding margin excluding non-recurring gains and losses was 10.82%, up 0.84 pct YoY. The selling expense, administrative expense, R&D expense, and finance expense ratios were 0.94%, 1.83%, 2.76%, and 0.02%, respectively, changing by -0.08 pct, - 0.35 pct, -0.31 pct, and +0.05 pct YoY. Growth in net profit attributable to shareholders of the parent company lagged growth in the corresponding figure excluding non-recurring gains and losses, mainly because the fair value of the company's held-for-trading financial assets declined from the beginning of the year, resulting in a fair value loss of RMB96mn during the reporting period, compared with a gain of RMB55mn in the same period last year; in addition, a subsidiary recognized a debt restructuring gain in the same period last year, while no such gain was recorded in the current period.

A leading domestic agricultural machinery manufacturer, with continued progress in premium product development and overseas expansion

FIRST TRACTOR is a leading agricultural machinery and equipment manufacturer and service provider in China, primarily engaged in the R&D, manufacturing, and sales of agricultural machinery, power machinery, and core components. The company's agricultural machinery products mainly comprise the Dongfanghong series of medium and large wheeled and crawler tractors, while its power machinery products include off-road diesel engines and new powertrains; it also has in-house production capabilities for core components such as castings and forgings, gears, axles, transmissions, and cabs, forming a relatively complete agricultural machinery value chain. The company continues to advance the R&D of premium products, including powershift, continuously variable transmission, autonomous driving, and new energy tractors, and has established a marketing and service network covering China's major agricultural regions and key overseas markets. As agricul tural machinery replacement, high-standard farmland development, and scaled agricultural operations continue to advance, the company is well positioned to benefit from rising demand for high-horsepower agricultural machinery, product mix upgrades, and overseas market expansion.

Further gains in domestic market share, with exports and power machinery contributing incremental growth

Further gains in domestic market share reinforce its leading position. The company is promoting integrated cooperation combining machinery and implements for core applications such as paddy fields, dry fields, cash crops, and hilly and mountainous terrain, while driving product sales through key account development, channel restructuring, and digital marketing. In 1H26, the company sold 50,100 tractors, up 17.05% YoY, outperforming the growth of the medium and large tractor industry by 11.55 pcts, while its market share increased by 2.77 pcts YoY. In power machinery, the company developed nearly 500 product variants for third-party machinery manufacturers and made progress in supplying harvesting machinery, construction machinery, and marine generator sets; diesel engine sales reached 112,600 units, including 65,500 units sold externally, with the share of external sales increasing by 5.1 pcts YoY.

International expansion advances steadily. In international markets, the company focuses on South America, Central Asia, and other regions. It is upgrading its existing overseas assembly plants to enhance localization and launching specialized products for coffee, fruit tree, tobacco, and other distinctive cultivation scenarios. In 1H, the company exported 8,006 tractors, up 47% YoY. Growth was particularly strong in the Americas and Asia, while the company also achieved breakthroughs in several emerging markets. The company is also strengthening its comprehensive overseas service and support capabilities. In 2H, it will continue to develop differentiated products, expand its localized overseas presence, and promote the coordinated overseas expansion of complete product solutions. These efforts will further improve its product and service system for international markets.

High-end intelligent and new energy products undergo continued validation, while manufacturing system upgrades progress steadily

The company continues to pursue technological breakthroughs in high-end intelligent tractors. In 1H, several high-horsepower, high-end intelligent, and new energy tractors completed spring farming trials. Its product series for hilly and mountainous terrain and paddy fields completed product maturation and finalization, while expanding into additional application scenarios. In 2H, the company will focus on core products such as continuously variable transmission, hybrid, and powershift tractors. It will advance the maturation and finalization of new products and conduct fall-season validation, further expanding its high-end product portfolio. On the manufacturing side, phase I of the company’s intelligent multipurpose tractor capacity enhancement project and the machining line under its heavy-duty diesel engine production line upgrade have commenced production. Projects such as the gear quality enhancement initiative are progressing steadily. In 2H, the company plans to launch phase II of the intelligent multipurpose tractor project and advance the heavyduty diesel engine production line upgrade and structural components center construction. In digital services, the Dongfanghong Huinong app has accumulated nearly 30,000 registered users and connected 33,000 agricultural machines. The company is promoting deeper integration of AI technology into maintenance services, production, operations, and other processes.

Investment recommendation: The company’s tractor sales are growing faster than the industry, and its domestic market share has increased further. Exports and the power machinery business have contributed incremental revenue. Continued progress in high-end intelligent and new energy products and manufacturing system upgrades will help improve its product portfolio and enhance its competitiveness in domestic and international markets.

(1) Agricultural machinery: Domestic demand is gradually recovering, while high-horsepower products, intelligent technologies, and exports support business growth. The company's agricultural machinery business focuses on large and medium-sized wheeled and crawler tractors and also covers related core components. As subsidies for agricultural machinery purchases and replacements remain in place, highstandard farmland development advances, and large-scale agricultural operations expand, demand for large, efficient, and intelligent agricultural machinery is expected to gradually increase. Meanwhile, the company continues to develop power-shift, continuously variable transmission, autonomous driving, and new energy tractors, while improving its overseas sales and service network. Agricultural machinery revenue is expected to reach RMB10.65bn, RMB11.75bn, and RMB13.35bn in 2026-2028, up 7.7%, 10.3%, and 13.6% YoY, respectively, with gross margins of 14.45%, 14.55%, and 14.92%.

(2) Power machinery: Consolidating the core agricultural machinery market while continuing to expand into external applications. The company's power machinery business mainly comprises non-road diesel engines and new powertrains, which support its tractors and other agricultural machinery and are also sold for use in harvesting machinery, construction machinery, vessels, and generator sets. The company continues to upgrade its diesel engine platforms and adapt products to different application scenarios, while developing high-efficiency engines and hybrid powertrains, which is expected to drive steady growth in the external OEM market. Power machinery revenue is expected to reach RMB2.75bn, RMB2.92bn, and RMB3.15bn in 2026-2028, up 5.2%, 6.2%, and 7.9% YoY, respectively, with gross margins of 10.90%, 11.00%, and 11.41%.

The company is expected to generate revenue of RMB11.666bn, RMB12.731bn, and RMB14.278bn in 2026 - 2028, up 7.79%, 9.13%, and 12.15% YoY, respectively, and net profit attributable to shareholders of the parent company of RMB905mn, RMB1.073bn, and RMB1.267bn, up 11.40%, 18.58%, and 18.16% YoY, respectively. The corresponding P/E ratios are 16.19x, 13.65x, and 11.55x, respectively. We initiate the coverage of the company with "Buy" rating.

Risks

(1) Domestic agricultural machinery demand falls short of expectations: Persistently low and volatile agricultural product prices may affect returns from grain production and users' willingness to purchase machinery, while the large installed base of conventional agricultural machinery creates uncertainty over the pace at which replacement demand will be released. Assuming that weaker-than-expected downstream demand or intensifying industry competition reduces the company's gross margin by 1 pct in each year from 2026 to 2028, net profit attributable to shareholders of the parent company would be RMB798mn, RMB956mn, and RMB1.137bn, representing YoY changes of -1.71%, +19.82%, and +18.87%, respectively.

(2) Overseas market expansion may fall short of expectations: Geopolitical conflicts, trade frictions, foreign exchange controls, and changes in technical market access thresholds may affect export order acquisition, product delivery, and overseas payment collection.

(3) Risk of intensifying industry competition: Homogeneous price competition remains fierce in the low-end market, while the high-end market also faces competition from established industry leaders and cross-sector entrants. This may affect product prices, market share, and profitability.