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China's Push to Modernize Agriculture Could Boost This Stock

China's leading maker of agricultural equipment has filed for a Hong Kong listing, forecasting the market for its products is set for explosive growth

Key Takeaways:

Weichai Lovol has filed for a Hong Kong IPO that could raise around $500 million, providing valuable cash for expansion as China modernizes its agricultural sector

The company expects the Chinese market for intelligent agricultural equipment to grow by more than 40% annually over the next few years, boosted by government policy

China is on the cusp of an agricultural revolution, according to Weichai Lovol Intelligent Agricultural Technology Co. Ltd., which submitted its application for a Hong Kong IPO at the end of last week.

While that assertion by China's leading seller of tractors and harvesters sounds a bit self-serving, it could actually be true, which would position Weichai Lovol for some explosive growth. While much is written about China's desire to be self-sufficient in high-tech products like microchips, the country's similar desire for self-sufficiency in food production is probably just as strong, if not stronger.

The recent U.S.-China trade war has highlighted how much China relies on imports to feed not only its 1.4 billion citizens, but also its huge herds of cattle, pigs and other livestock. To mitigate that reliance, the country is implementing wide-ranging policies to modernize its agricultural sector. The aim is to transform the country from one that was composed of hundreds of thousands of small family-run farms just a couple of decades ago to a more Western-style system of mega-farms using modern agricultural methods and machinery to boost efficiency.

Weichai Lovol looks well positioned to benefit from that transition, thanks to its dominant position in China's overall agricultural machinery market, and its even more dominant spot in the smart agricultural machinery market. The company looks relatively well run, based on financial information contained in its listing document, though its growth of the ...