The sector is under pressure due to market preference, and the valuation is in the historical quantile of pe24%, which is cost-effective
Under the influence of market liquidity and preference, the national defense industry index (Shenwan) retreated 17.92% from the beginning of the year. According to wind data, as of January 28, 2022, the national defense and military industry index (Shenwan) closed at 1623.66 points, a correction of 17.92% compared with January 1, 2022 (1978.19 points), a correction of 7.62% for the Shanghai and Shenzhen 300 index and 12.45% for the gem index in the same period. We believe that the adjustment of the national defense industry index is mainly affected by market liquidity and preference for growth tracks. The photovoltaic index and new energy track, which are also in the growth track, have also experienced 15.66% and 15.29% callback since the beginning of the year, which has nothing to do with the medium and long-term trend of the industry and the logic of enterprise fundamentals.
The valuation of the sector is currently at a historical pe24 04% quantile value, the industry has entered the region of high cost performance. In terms of vertical comparison dimension, at present, the pe-ttm of the national defense and military industry sector has dropped to 65.95x, which is 45.42% of the quantile value compared with the historical highest point (245.82x, November 2015). Considering the high business cycle of the “14th five year plan” industry and the high growth rate of the industry in 2022 (the second-order derivative is positive), we judge that the sector has entered the high cost performance area at present. From the perspective of horizontal contrast, we can find that the PEG is generally around 1.4-1.5x, and the military industry is around 1xPEG, so we can judge that there is no obvious bubble in the military valuation.
Valuation analysis of individual stocks: the valuation of core targets generally entered the 20% quantile range
Analysis framework: we take the core target of national defense and military industry as the target pool, pull the company’s share price, predicted net profit and total share capital of the current year from January 1, 2016 or from the establishment of the company (3 years or more) to January 28, 2022, calculate the predicted PE value of the company in the current year, and then use the predicted PE value of the company in 2022 for historical valuation quantile calculation. According to the above analysis framework, we can see that the current forecast PE of most core targets in the sector has entered the quantile range of 20% historical valuation, such as:
Material enterprises – Baoji Titanium Industry Co.Ltd(600456) 0.9%; Western Superconducting Technologies Co.Ltd(688122) 4.0%； Avic Aviation High-Technology Co.Ltd(600862) 0.5% quantile value;
Aviation intermediate process link – Xi’An Triangle Defense Co.Ltd(300775) 3.2%; Chengdu Leejun Industrial Co.Ltd(002651) 0.9%； Chengdu Ald Aviation Manufacturing Corporation(300696) 2.2% quantile value;
Main engine factory {761 – {0008}; Avicopter Plc(600038) 0.1%； Jiangxi Hongdu Aviation Industry Co.Ltd(600316) 2.8% quantile value
Military electronics – Fujian Torch Electron Technology Co.Ltd(603678) 13.7%; Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) 29.1%； Zhuzhou Hongda Electronics Corp.Ltd(300726) 1.5%； Unigroup Guoxin Microelectronics Co.Ltd(002049) 12.8%； China Zhenhua (Group) Science & Technology Co.Ltd(000733) 32% quantile value
According to the data, the valuation quantile of the core target of the sector has basically reached the bottom, and relevant enterprises have entered the area of high cost performance. In addition, Avic Heavy Machinery Co.Ltd(600765) and other enterprises have a relatively high valuation quantile level due to the implementation of equity incentive in 2021, the rapid release of fundamentals and high valuation premium; Aecc Aviation Power Co Ltd(600893) and other cost front-end enterprises are affected by industry attributes (starting point of industrial prosperity, low early profit release due to high R & D expenses). The relative valuation analysis using PE will be distorted, and additional valuation methods such as PS need to be used for analysis.
Investment suggestion: since the beginning of the year, the military industry sector has been under pressure due to the influence of market liquidity and preference. We judge that the industry fundamentals have not been affected. We suggest to continue to pay attention to the following four highlights of military industry 2022
(1) the growth rate in 2022 has strong comparative advantages;
As 2022 is the first year of release of the overall new capacity of the industry, the growth rate of the revenue side will accelerate, so the second-order derivative is positive, and some sectors can have a longer growth expansion period, which has the strategic comparative advantage of the industry.
(2) new models are intensively entering the pre production stage of batch production, and enterprises in all links of the industrial chain have the possibility of performance exceeding expectations and the extension of the duration of medium and high-speed growth;
(3) military industry has the advantages of anti cycle and basic economic aspects;
(4) China’s state-owned assets reform or entering the deep-water area is expected to carry out market-oriented mechanism reform in fields other than the general assembly of non strategic weapons (excluding state-owned enterprises of strategic resources).
It is recommended to pay attention to the related stock targets with the following four types of attributes:
(1) aeroengine industry chain with high sustainability and high vision: Aecc Aviation Power Co Ltd(600893) , Avic Heavy Machinery Co.Ltd(600765) , Guizhou Aviation Technical Development Co.Ltd(688239) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Western Superconducting Technologies Co.Ltd(688122) ;
(2) relevant stocks with the second growth curve: Chengdu Ald Aviation Manufacturing Corporation(300696) , Sinofibers Technology Co.Ltd(300777) ;
(3) military electronics and missile information enterprises with high flexibility: Chengdu Zhimingda Electronics Co.Ltd(688636) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , Guoguang Electric Co.Ltd.Chengdu(688776) , Guizhou Space Appliance Co.Ltd(002025) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , capacitors;
(4) OEM enterprises with high beta attribute: Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Shenfei, Hongdu, Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) , Avic Electromechanical Systems Co.Ltd(002013) , etc.
Risk tip: the delivery of military products slowed down in the first half of the year, the pricing progress of new products was slow, and the impact of macro liquidity.
