Post-earnings slump in both 'A+H' shares! Is YTO Group still worth anticipating?
On October 30, affected by poor performance, the stock price of YTO Group Corporation Limited (hereinafter referred to as "YTO"), the leading domestic tractor manufacturer, suffered a heavy blow!
In the Hong Kong stock market, $FIRST TRACTOR(00038.HK) opened sharply lower, once falling by 14.36% to HK$6.74 per share; as of press time, the stock was down 9.28% at HK$7.14 per share.
In the A-share market, $First Tractor(601038.SH) was also not spared, with its stock price performing weakly. As of press time, the stock was down 9.09% at RMB15.6 per share.
On the news front, on October 29, YTO released its third-quarter earnings report, showing declines in both revenue and profit, with profit down more than 40% year-on-year. This news raised concerns among investors about its future profitability.
Third-quarter earnings disappoint
The financial report shows that in the first three quarters of 2024, YTO's revenue was RMB10.736 billion, up 4.78% year-on-year; net profit attributable to shareholders was RMB1.101 billion, up 1.45% year-on-year. In the third quarter, revenue was RMB2.93 billion, down 2.45% year-on-year and 7.01% quarter-on-quarter; net profit attributable to shareholders was approximately RMB196 million, down 40.93% year-on-year and 36.08% quarter-on-quarter.
It is not hard to see that YTO's performance in the third quarter was very unsatisfactory, severely dragging down the steady growth of the first two quarters and leading to a slowdown in overall performance growth for the first three quarters. This factor may also be one of the reasons for today's sharp decline in the stock price.
Regarding the significant decline in third-quarter performance, YTO stated that this was mainly due to the company increasing product promotions to enhance market share, leading to a year-on-year decrease in net profit.
YTO, formerly known as the First Tractor Manufacturing Plant, was one of the 156 key national projects during China's First Five-Year Plan and has nearly 70 years of deep industry experience. It currently ranks among the leading domestic agricultural machinery suppliers. The company has a rich product line, including wheeled tractors, crawler tractors, and various power machinery. Its "Dongfanghong" brand has become a well-known national brand in the market.
As a leading enterprise in the agricultural machinery industry, YTO's performance is closely related to changes in market demand. The prosperity of the agricultural machinery industry is affected by downstream grain prices. When grain prices are high, farmers' economic benefits and enthusiasm for agricultural production increase, leading to higher demand for agricultural machinery products; conversely, demand decreases.
Market analysis indicates that since 2024, prices of major grain crops such as soybeans, corn, and wheat have declined to some extent, affecting farmers' income and, in turn, demand for agricultural machinery. Faced with insufficient demand momentum and intensified industry competition, agricultural machinery companies like YTO have had to increase promotional efforts, ultimately leading to a decline in profitability.
With the domestic agricultural machinery market under pressure, more and more agricultural machinery companies are looking overseas to create a second growth curve. YTO is also actively expanding into overseas markets, deepening its presence in key export regions such as Russian-speaking areas and South America.
Will YTO make the list again as the heavyweight rankings are about to be released?
The agricultural machinery sector has always been a focus of the "Hong Kong Top 100" rankings. As a leading enterprise in the domestic agricultural machinery sector, YTO has repeatedly made it onto the "Hong Kong Top 100" list and achieved excellent results.
After more than a decade, the influence of the "Hong Kong Top 100" has grown year by year, becoming an annual event in the Hong Kong stock market and one of the value benchmarks and investment indicators in the Hong Kong capital market, widely recognized by all sectors of society. The 2024 Hong Kong Listed Companies Development Summit Forum and the 11th "Hong Kong Top 100" Awards Ceremony, hosted by the Hong Kong Top 100 Research Center and co-organized by Caijinghua and Futu An'e, with media support from Hong Kong Ta Kung Wen Wei Media Group, will be held grandly at the Hong Kong Convention and Exhibition Center on the afternoon of November 11, 2024.
On the eve of the release of the heavyweight rankings, it remains to be seen whether YTO's disappointing third-quarter performance will affect its inclusion or ranking in the list.
Looking ahead, many institutions have given YTO relatively positive ratings.
Guojin Securities released a research report stating that YTO's single Q3 revenue and expenses were in line with expectations, but gross profit was below expectations, possibly due to the company's increased promotional efforts.
The report believes that current wheat spot prices are close to the minimum purchase price level, and demand for related agricultural machinery is expected to stabilize. In addition, affected by falling grain prices, the output of medium and large tractors declined in September, but the proportion of large tractor output continued to hit a new high, with the trend toward larger sizes unchanged. The report remains optimistic about the industry trend toward larger tractors and maintains a "buy" rating for YTO.
Furthermore, some institutional views point out that China's agricultural machinery industry is currently in the initial critical stage of industrial upgrading, facing important tasks such as filling gaps and intelligent upgrading. In 2022, China's comprehensive mechanization rate for crop cultivation reached over 72%, and it is expected to reach 75% by 2025. However, compared to the approximately 90% agricultural mechanization level in developed countries, there is still significant room for improvement.
According to data from the China Commercial Industry Research Institute, the domestic agricultural machinery market grew from RMB428.6 billion in 2018 to RMB585.7 billion in 2023 and is expected to further expand to RMB610 billion in 2024.
It can be foreseen that with the help of policies such as equipment updates and agricultural machinery purchase subsidies, as well as the dual drivers of market demand, the future development prospects of China's agricultural machinery industry are broad. At the same time, for agricultural machinery companies like YTO, although they face short-term performance pressure, their long-term growth potential remains promising, creating more favorable conditions for future inclusion in the Hong Kong Top 100 list.
Author: Bottle
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