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

Overview

This is an initiation report by Nomura Orient International Securities on First Tractor (601038 CH). The report argues that although overall domestic agricultural machinery demand remains weak and competition in low- and mid-horsepower tractors is intense, high-horsepower tractors, intelligent products, and overseas market expansion will support the company's revenue growth and margin recovery. The report forecasts the company's 2026-2028F revenue CAGR at about 6.90% and net profit CAGR at about 12.48%, and assigns a Buy rating.

Core views

The core view is that product mix upgrades and cost discipline will drive earnings growth faster than revenue growth. First Tractor has built a high-end tractor portfolio spanning 220-450hp and continues to advance CVT, full powershift, intelligent driving, and electronic control technologies. As large-scale farming operations increase demand for high-horsepower equipment and the company's overseas channels shift from buildout to scaled expansion, the report expects both the overseas revenue mix and the high-end product mix to rise, thereby improving ASP and gross margin.

Analysis framework

The report analyzes the company from six angles: industry demand divergence, company product upgrades, overseas channel expansion, revenue assumptions by business segment, gross margin and expense ratio assumptions, and relative valuation. Revenue forecasts are broken down into two major businesses, agricultural machinery and power machinery, with separate assumptions for volume, ASP, and gross margin changes; valuation uses the P/E method, deriving the target price from 2026F EPS and the target P/E.

Methodology notes

• Valuation methodsP/E valuation method

  Target price-to-earnings valuation

  The report uses 20x 2026F P/E, broadly in line with the company's average historical P/E over the past five years; based on 2026F EPS of CNY0.81, it derives a target price of CNY16.21.

• Earnings forecastSegment revenue and gross margin forecast

  Forecast driven by volume, ASP, product mix, and cost control

  The agricultural machinery business is modeled based on volume growth, ASP improvement, and a rising share of high-end products; the power machinery business is modeled based on overseas demand, domestic promotional activity, and transition toward high-horsepower products, while assuming cost control will gradually improve gross margin.

Asset mapping & comparison

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

• First Tractor（601038 CH）

  Core covered name

  Strengths

  A leading agricultural machinery manufacturer in China, with technological reserves in high-horsepower tractors, CVT, full powershift, intelligent driving, and electronic control; cash flow and profitability are relatively stable.

  Weaknesses

  Domestic demand for low- and mid-horsepower tractors is weak, industry price competition is evident, and overseas business faces geopolitical and market access uncertainties.

  Comparison

  Valuation uses 20x 2026F P/E, broadly aligned with the company's five-year historical average P/E; earnings forecasts are more conservative than Wind consensus on the revenue side.

  Risks

  Domestic demand weaker than expected, intensified price competition, overseas expansion below expectations, and delays in R&D and commercialization of high-end products.

• CSI 300 Index

  Benchmark index

  Strengths

  Used as an A-share benchmark index to measure the stock's relative performance.

  Weaknesses

  Cannot directly reflect the agricultural machinery industry's cycle and the company's product mix upgrade.

  Comparison

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

  Risks

  Changes in market risk appetite and rotation among low-valuation sectors may affect relative performance.

Key data

• RatingBuyInitiating coverage.
• Target priceCNY16.21Based on 20x 2026F P/E and 2026F EPS of CNY0.81.
• Closing priceCNY13.66As of July 22, 2026.
• Implied upside+18.7%Calculated from the target price relative to the closing price.
• 2026-2028F revenue CAGR6.90%Forecast revenue is CNY11,501mn, CNY12,318mn, and CNY13,222mn.
• 2026-2028F net profit CAGR12.48%Forecast net profit is CNY911mn, CNY1,028mn, and CNY1,155mn.
• 2025 overseas revenue mix11%Overseas revenue posted a CAGR of nearly 23% in 2021-2025.
• 2028F forecast overseas revenue mix14%Expected to contribute about 26% of total incremental revenue in 2026-2028F.
• Overall gross margin forecastFrom 15.1% in 2025 to 16.0% in 2028FDriven by product mix upgrades and cost control.
• 2026F current P/E16.9xThe report states that the current share price implies a 2026F P/E of 16.9x.

Impact & implications

The report has a positive investment implication: if the mix of high-horsepower and intelligent products continues to rise, the gross margin recovery in 1H26 materializes, and the autumn harvesting season and agricultural machinery subsidies are implemented smoothly, the market may further revise up earnings expectations. However, medium- to long-term earnings elasticity still depends on domestic agricultural machinery subsidies, overseas order delivery, and progress in commercializing high-end technologies.

Risks

• Domestic agricultural machinery demand may come in weaker than expected, while weak agricultural product prices and high fertilizer and fuel costs may lengthen farmers' payback periods.
• Industry price competition may intensify, with companies such as Weichai Lovol and Zoomlion increasing investment in high-horsepower tractors, while local manufacturers may also cut prices aggressively in regional markets.
• Uncertainties in overseas operations, including geopolitical conflicts, political instability, collection risk, and bad debt risk in markets such as Central Asia, Russia, Eastern Europe, and Africa.
• Tighter import tariffs, emissions standards, and market access requirements may increase export costs and delay deliveries.
• If the commercialization of CVT, autonomous driving, and intelligent agricultural machinery solutions progresses more slowly than expected, it may weaken the company's technological moat in the high-horsepower segment.
• 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 recovery in 1H26 is better than expected.
• Demand performance during the autumn harvesting equipment purchase peak season.
• The pace and intensity of agricultural machinery subsidy policy implementation.
• Changes in the sales mix, ASP, and gross margin of high-horsepower and intelligent products.
• Changes in overseas channel expansion, order delivery, collections, and overseas revenue mix.
• Whether the expense ratio declines slightly as the report expects.