Report summary:
The promotion of national defense informatization and the large-scale development of weapons and equipment drive the rapid growth of military components, and there are broad prospects for domestic substitution. 1) National defense informatization construction can greatly improve the military’s core combat effectiveness and comprehensive combat effectiveness, and has become one of the important indicators to measure the level of national comprehensive combat effectiveness. With the acceleration of China’s national defense informatization construction, the informatization rate of weapons and equipment will increase rapidly. As the basis of military informatization, the consumption of military passive components will become large-scale, and the demand will continue to grow. 2) There is still a big gap between China and the United States in terms of the advanced level of weapons and equipment and the proportion of military spending in GDP. The 14th Five Year Plan period is the “leapfrog development” stage of China’s military weapons and equipment. The proportion of equipment expenses will continue to increase, which will drive the large volume of new generation weapons and equipment, and then drive the rapid growth of the demand for upstream military passive components. 3) Under the background of international trade environment and the promotion of China’s policies, the process of independent control and domestic substitution of China’s core electronic industry will be further accelerated, bringing broad market space for military passive components and other core electronic components.
The high prosperity of military industry is the cornerstone of the track, and high barriers bring high gross profit and high growth. There are obvious technical process, production quality control, qualification certification and customer stickiness barriers in the military passive component industry. The profitability of component manufacturers has been continuously enhanced, which has increased from 29% in 2017h1 to 48% in 21h1, an increase of nearly 20PCT. With the continuous improvement of downstream demand, the profitability of component manufacturers will remain at a high level. In 2020, as the last year of the 13th five year plan, the orders of national high reliability projects will be released on a large scale, and the demand of downstream customers will be strong. The upstream component manufacturers will gradually complete the revenue recognition in the second half of the year, and the performance begins to show an accelerating trend, breaking the off-season situation of the industry in the second half of the year. In 2021, the total revenue of H1 industry was 14.2 billion yuan, with a month on month increase of 23% and a year-on-year increase of 40%, reflecting the outbreak of all-round demand for electronic components caused by the high prosperity of the military industry, and the electronic components sector has entered the stage of continuous acceleration of performance.
Investment suggestion: due to the obvious technical process, production quality control, qualification certification, customer stickiness and other barriers in the military passive component industry, the industry concentration is high, and the main manufacturers have their own division of labor, showing an oligopoly competition pattern as a whole. In the field of capacitance, Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) which occupies a large market share in the military MLCC segment and has strong profitability, and the military electronic component platform national team China Zhenhua (Group) Science & Technology Co.Ltd(000733) which has obvious large-scale advantages in the field of tantalum capacitance, resistance and inductance and is at the turning point of performance are recommended. It is recommended to pay attention to Zhuzhou Hongda Electronics Corp.Ltd(300726) .
Risk tip: the growth rate of military orders is lower than expected, the industry competition intensifies, and the price of military products decreases
（ Northeast Securities Co.Ltd(000686) ）
