Investment suggestion: underestimated value superimposed with high growth, clearly optimistic about the follow-up performance of the industry in 2022
We are clearly optimistic about the performance of the military industry in the aftermarket of 2022, based on the following points: 1) in the “superposition of three cycles” proposed by our system, the industry gradually entered the “high growth” stage of supply-demand resonance during the 14th Five Year Plan period, and 2022, as the second year of the 14th five year plan, will still maintain a high growth; 2) The company’s performance confirms the high prosperity of the industrial chain. The contract liabilities disclosed in the 2021 interim report once again verify the sustainability of the high prosperity of the industry; 3) Since 2022, the sector has experienced a correction due to the impact of the market and some events, but the current position is at the bottom of the historical valuation. We expect the net profit of the industry to increase by more than 35% in 2022, with higher growth in the middle and upper reaches and high cost performance of the current configuration.
Strong industry fundamentals: the resonance of supply and demand promotes the rapid growth of the industry
2022 may realize the resonance of prosperity and performance in the upstream, middle and downstream of the industrial chain for the first time. At present, the market recognition of fundamental changes in the industry has been high: 1) in the first three quarters of 2021, the net profit increased by more than 50% year-on-year in a single quarter, which verified the logic of high growth; 2) In the interim report of 2021, the balance sheet of listed companies reflected significant changes in prepayments, such as Avic Shenyang Aircraft Company Limited(600760) contract liabilities of 37.7 billion yuan and Aecc Aviation Power Co Ltd(600893) contract liabilities of 24.8 billion yuan, both of which increased significantly, and the sustainability of industry growth was further strengthened; 3) From 2020 to 2021, about 40 enterprises in the industry raised funds in the capital market to expand production capacity, with a total amount of more than 60 billion yuan, reflecting the changes on the supply side. We believe that: under the joint catalysis of growth and reform, the upstream, middle and downstream of the industry is expected to realize the resonance of prosperity and performance, so as to drive the improvement of fundamentals and valuation. At the same time, the improvement of corporate governance and the high prosperity of the industry will promote the improvement of profit level and open the space of performance flexibility.
The correction brings valuation space. It is suggested to grasp the investment opportunities of medium and high growth industries with undervalued value
The investment main line is clear and multi-point flowering, and the middle and upper reaches are more attractive. The military industry involves many subdivided fields. We suggest investors focus on the core objectives of “two main lines” and “two tracks”: 1) aviation equipment and guidance equipment are two “investment main lines”, and new materials and informatization are two “better tracks”. Select leading and core suppliers in subdivided fields, invest in private enterprises focusing on product barriers and growth sustainability, and invest in state-owned enterprises focusing on industrial trends and corporate governance improvement potential; 2) Emerging fields such as domestic large aircraft and commercial aerospace may bring changes to the industry pattern and supply chain in the medium and long term. 3) From the current valuation position, as of February 14, 2022, the overall PE (TTM) of the industry is 51.2 times, which is close to the bottom of the historical valuation (48.9 times) vertically. From the historical quantile, it is at 15%, 29%, 17% and 10% of the past 1 / 3 / 5 / 10 years respectively. The valuation is at the bottom, with a high safety margin.
Suggested concern
The current position of military industry has the dual attributes of underestimated value and high growth, and has great configuration value. It is suggested to focus on the information and new material segments in the middle and upper reaches of the industrial chain. Suggestions: 1) new materials: Western Superconducting Technologies Co.Ltd(688122) , Baoji Titanium Industry Co.Ltd(600456) , Hubei Feilihua Quartz Glass Co.Ltd(300395) , Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) , Jiangsu Toland Alloy Co.Ltd(300855) , Avic Aviation High-Technology Co.Ltd(600862) , Weihai Guangwei Composites Co.Ltd(300699) , Sinofibers Technology Co.Ltd(300777) ; 2) Informatization: Beijing Relpow Technology Co.Ltd(300593) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Avic Jonhon Optronic Technology Co.Ltd(002179) , Guizhou Space Appliance Co.Ltd(002025) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , Raytron Technology Co.Ltd(688002) , Chengdu Rml Technology Co.Ltd(301050) , Fujian Torch Electron Technology Co.Ltd(603678) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) , Zhuzhou Hongda Electronics Corp.Ltd(300726) , Nanjing Quanxin Cable Technology Co.Ltd(300447) etc; 3) Core supporting and main engine factory: Avic Heavy Machinery Co.Ltd(600765) , Xi’An Triangle Defense Co.Ltd(300775) , Avic Electromechanical Systems Co.Ltd(002013) , China Avionics Systems Co.Ltd(600372) , Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) , Aecc Aero-Engine Control Co.Ltd(000738) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Guizhou Aviation Technical Development Co.Ltd(688239) , Avic Shenyang Aircraft Company Limited(600760) , Aecc Aviation Power Co Ltd(600893) , Avicopter Plc(600038) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) etc.
Risk tips
Capacity expansion is less than expected; Uncertainty of product delivery rhythm; Changes in industrial policies, etc.
