Nomura initiates coverage on First Tractor with a Buy rating and a target price of CNY16.21

Overview

This is a company research/earnings review report on First Tractor by Nomura. The report believes overall domestic demand for agricultural machinery remains weak and competition in low- and mid-horsepower tractors is intense, but demand for large tractors remains resilient. First Tractor is shifting toward high-horsepower and intelligent products while expanding overseas channels, which could enable faster profit growth alongside moderate revenue growth.

Core views

The core views are: first, domestic tractor demand is diverging by horsepower segment, with large tractors outperforming small and medium models; second, a higher contribution from premium, high-horsepower, and intelligent products will improve ASP and gross margin; third, expansion of the overseas distribution network provides new medium- to long-term growth drivers; fourth, cost reduction and efficiency gains across the value chain should help lower expense ratios and restore profitability. Based on 20x 2026F P/E and 2026F EPS of CNY0.81, the report derives a target price of CNY16.21 and initiates coverage with a Buy rating.

Analysis framework

The report combines a top-down view on industry demand with bottom-up segment forecasts: it first analyzes domestic agricultural machinery demand, the global agricultural machinery market, overseas channels, and product mix changes, then forecasts revenue, sales volume, ASP, gross margin, and expense ratios for agricultural machinery and power machinery separately, and finally derives the target price using a P/E valuation method.

Methodology notes

• Valuation methodsP/E valuation method

  20x 2026F P/E

  The report views the company as a leading agricultural machinery manufacturer in China with relatively stable earnings and cash flow, and therefore uses P/E valuation; applying a target P/E of 20x to 2026F EPS of CNY0.81 yields a target price of CNY16.21.

• Earnings forecastSegment revenue and gross margin forecast

  Assumptions on sales volume, ASP, product mix, and gross margin

  The report sets assumptions for sales volume growth, ASP growth, and gross margin improvement for agricultural machinery and power machinery separately to estimate revenue, profit, and margins for 2026-28F.

• Industry analysisAnalysis of structural divergence by horsepower segment

  Higher share of large tractors

  The report believes domestic tractor demand is diverging by horsepower segment, with high-horsepower models outperforming low- and mid-horsepower models, supported by large-scale farming operations and policy support.

• ESGObservation of environmental management and low-carbon transition

  ISO 14001:2015 and environmental investment

  The report cites the company's 2025 ESG report, noting that First Tractor and three subsidiaries received ISO 14001:2015 certification and that environment-related spending in 2025 was CNY44.45mn.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• First Tractor 601038.SS

  Core covered name

  Strengths

  A leading agricultural machinery manufacturer in China, with a premium tractor product portfolio of 220-450hp and core technologies including powershift, CVT, intelligent driving, and electronic control; overseas channel expansion and product mix upgrades provide growth momentum.

  Weaknesses

  Overall domestic agricultural machinery demand is weak, competition in low- and mid-horsepower tractors is intense, and some growth depends on policy subsidies and overseas market expansion.

  Comparison

  The report mentions that Weichai Lovol and Zoomlion continue to invest in heavy-duty tractors above 100hp as well as premium powershift and CVT products, which may intensify competition.

  Risks

  Domestic demand weaker than expected, intensified price competition, overseas expansion slower than expected, and delayed commercialization of high-end technologies.

• CSI 300 Index

  A-share benchmark index

  Strengths

  As the A-share benchmark defined in the report, it is used to measure relative performance.

  Weaknesses

  It does not directly reflect structural changes in the agricultural machinery industry.

  Comparison

  As of the month before July 20, 2026, First Tractor outperformed the CSI 300 by 29.3 percentage points.

  Risks

  Style rotation and changes in risk appetite may affect relative performance.

Key data

• RatingBuyInitiation coverage rating.
• Target priceCNY16.21Based on 20x 2026F P/E and 2026F EPS of CNY0.81.
• Closing priceCNY13.66Closing price on July 22, 2026.
• Implied upside+18.7%Upside from the target price relative to the closing price.
• 2026-28F revenue CAGR6.90%Corresponding to revenue forecasts of CNY11,501mn/CNY12,318mn/CNY13,222mn.
• 2026-28F net profit CAGR12.48%Corresponding to net profit forecasts of CNY911mn/CNY1,028mn/CNY1,155mn.
• Overseas revenue share11% in 2025, expected 14% in 2028FOverseas revenue CAGR was nearly 23% in 2021-25.
• Blended gross margin forecast15.1% in 2025, expected 16.0% in 2028FDriven by product mix upgrade and cost control.
• Agricultural machinery revenue forecastCNY10,495mn/CNY11,242mn/CNY12,041mnCorresponding to 2026/27/28F, respectively.
• Power machinery revenue forecastCNY2,721mn/CNY2,831mn/CNY3,032mnCorresponding to 2026/27/28F, respectively.

Impact & implications

The report has a positive investment implication: if resilient demand for large tractors, overseas channel expansion, and gross margin recovery materialize, First Tractor may see earnings upgrades and valuation support. Short-term catalysts include gross margin recovery in 1H26 results, the autumn harvest procurement season, and the rollout of agricultural machinery subsidies; however, domestic agricultural machinery demand, subsidy policy, and overseas delivery risks still need to be monitored over the medium to long term.

Risks

• Domestic agricultural machinery demand may be weaker than expected, and replacement or new purchase demand from farmers and large-scale farming operators may decline.
• Industry price competition may intensify, and Weichai Lovol, Zoomlion, and regional agricultural machinery manufacturers may pressure margins on large tractors.
• Overseas operations face uncertainties, and geopolitical, collection, and bad debt risks in markets such as Central Asia, Russia, Eastern Europe, and Africa may affect order delivery.
• Tighter import tariffs, emission standards, and market access requirements may increase export costs.
• Commercialization of CVT, autonomous driving, and smart agricultural machinery solutions may be slower than expected, potentially weakening the competitive moat of high-horsepower products.
• There is uncertainty around agricultural machinery purchase subsidy policies, which may affect medium- to long-term demand and earnings growth.

What to watch

• Whether gross margin continues to recover in 1H26 results.
• Large tractor orders and end demand during the autumn harvest procurement season.
• The pace, intensity, and coverage of agricultural machinery purchase subsidies.
• Overseas channel expansion, export delivery, collections, and bad debt conditions.
• Commercialization progress of high-horsepower, CVT, powershift, and intelligent driving products.
• Delivery of ASP, sales volume, and gross margin across the two major segments of agricultural machinery and power machinery.