Short term catalysis of regional events and long-term fundamentals driving: the conflict between Russia and Ukraine broke out. This week, Shenwan defense and military industry sector rose by 3% and rose for two consecutive weeks. After a sharp correction at the beginning of the year, the sector gradually stabilized and rebounded. The Asia Pacific region also faces a complex political pattern. The US side recently released the report on the US India Pacific strategy; On February 26, the US “Johnson” missile destroyer sailed through the Taiwan Strait and publicly hyped it. The eastern theater organized troops to monitor and guard the whole process of the US ship’s navigation, and the theater troops maintained high alert at any time. As a short-term catalyst, regional events have a certain impact on market sentiment; In the long run, the market of the military industry sector will still be driven by fundamentals, accelerate the development of new equipment and ensure the rapid generation of combat effectiveness. During the 14th Five Year Plan period, the growth of the sector is clear.
The aviation industry held the regular meeting of the three-year reform action: on February 24, the aviation industry held the office meeting of the leading group for deepening reform and the first monthly meeting of the three-year reform action in 2022 in Beijing. The meeting affirmed the progress and effectiveness of the group’s three-year reform action in 2021, and exceeded the annual goal of “more than 80% of the three-year action tasks”; The reform of mixed ownership was carried out steadily and carefully, forming the “144558” mixed reform idea and work system. In 2021, seven commercial class I and two commercial class II enterprises were promoted to complete the main work of mixed reform, with a financing of more than 1.5 billion yuan. The task and goal of the three-year reform action of the group company in 2022 are determined to ensure the completion of the reform of the modern enterprise system with Chinese characteristics in the first quarter, the full completion of all tasks of the three-year action in the first half of the year, and the completion of the closing work by the end of this year.
The boom expansion of the industrial chain was conducted in an orderly manner, and the value of sector stabilization and allocation was highlighted: the military industry sector experienced a sharp correction at the beginning of the year under the influence of market sentiment and other factors, and the logic of long-term boom expansion remained unchanged. The verification of advances received by downstream enterprises and the landing of large orders will be conducted in an orderly manner to the upstream and midstream along the industrial chain. During the “14th five year plan” period, the demand of supporting enterprises is large-scale and uncertain, and the performance of private leaders will be more flexible. The CSI military industry index is valued at 64 times, which is at the 33% quantile value of historical PE. It is optimistic about the value of sector allocation under the current position.
Grasp the main line of aviation equipment investment, and the independent and controllable growth of military electronics is high: 1) the contract liabilities of main engine factory + verification of advance payment, and the growth of aviation industry chain will continue to be realized. The performance transmission is effective. From the main engine plant and engine system, to the body system and parts, and then to the upstream raw material sector, the whole industry chain has strong momentum and certainty. The main engine manufacturer pays attention to Avic Shenyang Aircraft Company Limited(600760) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , Avicopter Plc(600038) , Aecc Aviation Power Co Ltd(600893) ; The body system pays attention to Avic Electromechanical Systems Co.Ltd(002013) , China Avionics Systems Co.Ltd(600372) , Aecc Aero-Engine Control Co.Ltd(000738) , Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) ; Aviation parts focus on Avic Heavy Machinery Co.Ltd(600765) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Guizhou Aviation Technical Development Co.Ltd(688239) , Chengdu Ald Aviation Manufacturing Corporation(300696) ; Metal materials focus on Western Superconducting Technologies Co.Ltd(688122) , Baoji Titanium Industry Co.Ltd(600456) , Gaona Aero Material Co.Ltd(300034) , Jiangsu Toland Alloy Co.Ltd(300855) , etc. 2) The certainty of missile weapons and equipment benefits from actual combat military training. The independent control of military electronics in the field of high-end equipment brings high growth. We pay attention to Chengdu Tianjian Technology Co.Ltd(002977) , Chengdu Rml Technology Co.Ltd(301050) , Avic Jonhon Optronic Technology Co.Ltd(002179) , Guizhou Space Appliance Co.Ltd(002025) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) , Beijing Fjr Optoelectronic Technology Co.Ltd(688272) , etc.
Risk warning: military spending is less than expected; Equipment R & D progress and procurement progress are less than expected; Military procurement prices fell; Industry competition intensifies.
