1. Plate gains this week
This week, the Shenwan defense industry index fell 3.11%, the Shanghai Composite Index rose 1.63%, the gem index fell 0.34%, and the Shanghai and Shenzhen 300 index rose 3.14%. The rise of the defense industry sector ranked last among the 28 Shenwan level industries. The PE (TTM) of Shenwan national defense and military industry sector is 69.60 times, the aerospace equipment in each sub sector is 70.02 times, the aviation equipment is 71.85 times, the ground military equipment is 46.58 times, and the shipbuilding is 125.27 times.
2. The military industry has strong countercyclical attribute and is over equipped with military industry
According to the global military top 100 list released by SIPRI on December 6, in 2020, the total arms sales of the global military top 100 were US $531 billion, a year-on-year increase of 1.3%. From 2015 to 2020, the total arms sales of the world’s top 100 military enterprises increased by 17%. This is also the sixth consecutive year of growth in arms sales to the top 100. In contrast, the global economy declined by 3.1% in the first year of the covid-19 epidemic, and the macro-economy was obviously disturbed by the epidemic. However, the arms sales of the top 100 global military industries still achieved positive growth, indicating that the military industry has a strong countercyclical attribute all over the world. The central economic work conference held on December 8-10 mentioned that China’s economic development is facing triple pressures of shrinking demand, supply shock and weakening expectation. Under the impact of the epidemic situation in the 21st century, the changes in the past century have accelerated, and the external environment has become more complex, severe and uncertain. China’s economy is resilient, and its long-term fundamentals will not change. The military industry is less affected by the macro-economy and has the certainty of long-term growth. The super military industry is at the right time.
3. Fully complete the three-year action task of state-owned enterprise reform, and the mixed reform of state-owned enterprises is expected to speed up
Five Chinese companies on SIPRI’s global military top 100 list (ordnance industry, AVIC, CETC, aerospace science and industry and ordnance equipment) the total arms sales in 2020 are estimated to be US $66.8 billion, an increase of 1.5% over 2019. The sales of Chinese military enterprises account for 13% of the total arms sales of the top 100 in 2020, lagging behind American enterprises, but ahead of British enterprises with the third largest share. In order to strengthen its military advantage in recent years, the United States has hedged from its Considering the threat of strategic competitors, the United States has been increasing investment in R & D and procurement of next-generation weapon systems. This has prompted a wave of mergers and acquisitions in the U.S. arms industry in recent years. Some companies hope to expand their product portfolio in order to gain competitive advantage in bidding for contracts, such as the merger of Raytheon and United Technologies, the merger of L3 technology and Harris, the merger of peraton and perspecta, and teledynetechnologies’ acquisition of flirsystems with us $8.2 billion. At present, China’s military industry is dominated by large state-owned military industrial groups, which has the disadvantages of low asset securitization rate and imperfect incentive mechanism. In order to improve the performance and production capacity of China’s military products, we can use the capital market to improve the financing capacity of military enterprises and improve the equity incentive mechanism, so as to enhance the staff vitality, scientific research strength and batch production capacity of military enterprises. At the same time, the central economic work conference on December 8-10 emphasized the completion of the three-year action task of state-owned enterprise reform. 2022 is the last year of the three-year action of state-owned enterprise reform, and the mixed reform of state-owned enterprises is expected to speed up. It is suggested to focus on the investment opportunities of mixed reform of military industry and state-owned enterprises.
4. Key recommendations this week
1) The targets of military electronic components with low valuation and high performance flexibility are recommended: 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 the midstream aviation manufacturing targets with gradually emerging scale effect and expected significant improvement in comprehensive supporting capacity: Avic Heavy Machinery Co.Ltd(600765) , Chengdu Ald Aviation Manufacturing Corporation(300696) , Chengdu Haoneng Technology Co.Ltd(603809) .
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) Focus on recommending scarce overall solution suppliers for aerospace digital production line: Zhejiang Rifa Precision Machinery Co.Ltd(002520) .
5) It is suggested to pay attention to the beneficiary objects of the mixed reform of state-owned enterprises: Sun Create Electronics Co.Ltd(600990) , Avic Electromechanical Systems Co.Ltd(002013) , China Avionics Systems Co.Ltd(600372) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Guizhou Space Appliance Co.Ltd(002025) , Chengdu Spaceon Electronics Co.Ltd(002935) , Hubei Jiuzhiyang Infrared System Co.Ltd(300516) .
Risk warning: the release and delivery of military orders are not as expected; Performance growth is less than expected; The data is not updated in time.
