1. Market review this week
This week, the Shenwan national defense industry index fell 0.62%, the Shanghai Composite Index rose 3.02%, the gem index fell 5.59%, the Shanghai and Shenzhen 300 index rose 0.82%, and the decline of the national defense industry sector ranked 27th among the 31 Shenwan level industries. The biggest increase was 2.05% on Wednesday (February 9), and the biggest decrease was 2.22% on Friday (February 11). As of Friday’s closing, the PE (TTM) of Shenwan national defense and military industry sector was 58.95 times, the aviation equipment in each sub sector was 61.15 times, the aerospace equipment was 61.68 times, the ground military equipment was 50.61 times, the military electronics was 47.53 times and the navigation equipment was 134.13 times.
2. The high prosperity of the industry has been verified again, and attention has been paid to the reform and investment opportunities of central military enterprises
Recently, the top ten military industrial groups have successively held 2022 work meetings to summarize the work in 2021, study and judge the current situation, and deploy the work in 2022. In terms of business review, AVIC achieved a net profit of 16.83 billion yuan, a total profit of 21.99 billion yuan and an EVA of 10.03 billion yuan in 2021 500 million yuan, an increase of 8%, 6% and 23.7% respectively year-on-year, all exceeding the set targets; In 2021, the operating revenue of ordnance equipment group increased by 20.7% year-on-year, the total profit increased by 12.8% year-on-year, and the index of “two benefits and four rates” was fully completed; In 2021, ordnance industry group achieved an operating revenue of 526.9 billion yuan, a year-on-year increase of 7.5%, a total profit of 22.63 billion yuan, a year-on-year increase of 17.2%, and EVA increased by 23.5%; Aerospace Hi-Tech Holding Group Co.Ltd(000901) in 2021, the operating revenue of the group increased by 5.2% year-on-year and the total profit increased by 7.5% year-on-year; In 2021, the operating revenue of CNNC group increased by 9.6%, the total profit increased by 12.37% and the net profit increased by 10.75% year-on-year; In 2021, the total profit of shipbuilding group increased by 24.5% year-on-year and the net profit increased by 27.7% year-on-year. The economic benefit reached the best level in history; The net profit, total profit, revenue and profit margin of Aerospace Science and industry group in 2021 have achieved the expected objectives; The economic operation level of Hangfa group will be improved in 2021; The operating performance of CETC group reached a record high in 2021; The operating performance of the electronics group in 2021 made an unprecedented historic breakthrough. In terms of performance outlook, AVIC plans to realize a net profit of 18.2 billion yuan and 10.8 billion yuan in 2022, and the total profit matches the growth rate of net profit; In 2022, the planned operating revenue of ordnance equipment group increased by 10.5% year-on-year, the total profit increased by 16.8% year-on-year, and the index of “two benefits and four rates” achieved “two increases, one control and three improvements”; In 2022, aerospace science and industry group plans to achieve year-on-year growth in net profit and total profit, maintain the excellent level of R & D investment intensity in the same caliber, and optimize the labor productivity of all employees year-on-year. The top ten military industry groups are the leaders of China’s military industry, and their operation status is an important embodiment of the prosperity of the subdivided sectors. In 2021, the overall performance of the top ten military industrial groups increased steadily, and the high prosperity of the industry was verified again. 2022 is the closing year of the three-year reform action of state-owned enterprises. The reform dividend is expected to be released faster and the high prosperity of the industry is expected to continue. It is suggested to focus on the equity incentive and high-quality asset injection investment opportunities of military state-owned enterprises.
3. During the 14th Five Year Plan period, the construction of new equipment is expected to accelerate, and the sector has entered the area of high cost performance
The situation in Russia and Ukraine has been tense recently. Russia and Belarus launched the “alliance determination-2022” joint military exercise on February 10, and Ukraine launched a 10 day military exercise on the same day. NATO has frequently supplied weapons to Ukraine recently. In recent years, there have been continuous global local conflicts, superimposed on the macroeconomic downturn, and the counter cyclical attribute of the military industry has become prominent. According to the list of the top 100 global military industries released by SIPRI on December 6, 2021, the total arms sales of the top 100 global military industries in 2020 was US $531 billion, a year-on-year increase of 1.3%, and the global economy declined by 3.1% in the same year. We believe that strong military strength is an important guarantee for national security. At present, China’s national defense strength does not match the comprehensive national strength and does not meet the needs of security strategy. During the 14th Five Year Plan period, the construction of new equipment is expected to accelerate and the industry fundamentals are expected to continue to improve. The high performance price ratio (TTM) recommended by the national defense industry sector in the past ten years has been significantly adjusted to 270000, resulting in the high performance price ratio (TTM) of the national defense industry sector, which has been the focus of attention in the past ten years.
4. Key recommendations this week
1) focus on recommending military electronic components with sustained and high performance: China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Zhuzhou Hongda Electronics Corp.Ltd(300726) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) .
2) focus on recommending midstream aviation manufacturing targets with scale effect gradually emerging and comprehensive supporting capacity expected to be greatly improved: Avic Heavy Machinery Co.Ltd(600765) , Chengdu Ald Aviation Manufacturing Corporation(300696) , Chengdu Haoneng Technology Co.Ltd(603809) , Anhui Yingliu Electromechanical Co.Ltd(603308) .
3) focus on recommending the overall and key systems of weapons and equipment with monopoly and scarcity and huge long-term growth space: Avic Shenyang Aircraft Company Limited(600760) , Aecc Aviation Power Co Ltd(600893) , Avicopter Plc(600038) , Aecc Aero-Engine Control Co.Ltd(000738) and Wuhan Guide Infrared Co.Ltd(002414) .
4) it is suggested to pay attention to the beneficiary objects of the mixed reform of state-owned enterprises: Chengdu Spaceon Electronics Co.Ltd(002935) , Aerospace Ch Uav Co.Ltd(002389) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Guizhou Space Appliance Co.Ltd(002025) and Sun Create Electronics Co.Ltd(600990) .
Risk warning: the release and delivery of military orders are not as expected; Performance growth is less than expected; The reform of state-owned enterprises did not advance as expected.
