Summary of First Tractor (0038.HK) Conference Call Company Overview - **Company**: First Tractor (0038.HK) - **Industry**: Agricultural Machinery - **Market Position**: Largest manufacturer of agricultural tractors in China by sales revenue as of 2024 - **Market Cap**: HK$8.1 billion / $1.0 billion [6] Key Points Investment Thesis - **Buy Rating**: Initiated with a target price of HK$14.00 for H-shares and Rmb21.00 for A-shares, implying an upside of 94.4% and 65.5% respectively [1] - **Earnings Growth**: Expected earnings growth acceleration with a CAGR of +20% from 2025E to 2030E, differentiating from consensus estimates [1][32] Structural Growth Opportunities - **Tractor Market Trends**: Positive outlook on the shift towards high-horsepower and intelligent tractors, with a projected domestic total addressable market (TAM) of US$8 billion by 2035 for high-horsepower tractors and US$7 billion for intelligent tractors [2][24] - **Market Share Consolidation**: Anticipated consolidation of market share towards industry leaders like First Tractor, with expectations of doubling EBIT margin over the next five years [2][25] Export Potential - **Long-term Growth**: Exports present a significant growth opportunity, with a TAM of approximately US$10 billion in emerging markets, expected to double its export revenue share by 2030E [3][27] - **Current Export Growth**: Post-COVID, tractor exports have increased by 16% CAGR from 2020 to 2024, with a further acceleration of 30% year-on-year in 2025 [26] Cyclical Outlook - **End of Downcycle**: The three-year downcycle in the tractor market is expected to end by 2026E, driven by recovering crop prices and revised subsidy policies [4][30] - **Catalyst for Growth**: The cyclical inflection is seen as a key catalyst for share price recovery, historically correlated with tractor industry production volume [31] Financial Metrics - **Valuation**: Currently undervalued at 7.1x/13.6x P/E for H/A shares, with a projected dividend yield of 5%/3% and a strong net cash position of 37%/20% of market cap [4][33] - **Revenue Projections**: Expected revenue growth from Rmb11.9 billion in 2024 to Rmb15.3 billion by 2027, with EBITDA and EPS growth also projected [6][16] Risks and Considerations - **Key Risks**: Potential risks include changes in government subsidy policies, fluctuations in crop prices, and competition from other agricultural machinery manufacturers [35] - **Market Dynamics**: The agricultural machinery market is influenced by demographic changes, such as an aging farmer population and the rise of large-scale farming operations [50] Conclusion - **Investment Outlook**: First Tractor is positioned to capitalize on structural growth opportunities in the agricultural machinery sector, with a favorable cyclical outlook and significant export potential, making it an attractive investment opportunity [1][32][34]