The consensus on the high prosperity of the sector has been formed, and the certainty of the high growth in the 14th five year plan is high. Different from the first half of 2021, the market has formed a high consensus on the high prosperity of the military industry during the 14th Five Year Plan period. Especially after August this year, with the disclosure of the 2021 interim report, the main engine manufacturers represented by Avic Shenyang Aircraft Company Limited(600760) , Aecc Aviation Power Co Ltd(600893) and Jiangxi Hongdu Aviation Industry Co.Ltd(600316) disclosed large contract liabilities, which confirmed the certainty of the rapid development of the industry in the 14th five year plan from the perspective of intuitive data. Combined with the contract liability structure of listed companies, we believe that listed companies in the military industry are expected to obtain large contract liabilities again during the 14th Five Year Plan period, and the industry is expected to maintain high growth during the 14th Five Year Plan period.
During the 14th Five Year Plan period, major strides will be made in national defense and military construction, and the prosperity of the industry will continue to rise. The goal of national defense and military construction lays a long-term growth space for the industry; Medium – and long-term goals: basically realize the modernization of national defense and the army by 2035, and build the people’s army into a world-class army by the middle of this century; Short term goal: the Centennial goal of building the army in 2027. In terms of policy support, high-level officials have recently frequently expressed their position to accelerate the modernization of national defense and the army; In terms of material foundation, during the 13th Five Year Plan period, our army’s weapons and equipment construction achieved leapfrog development and made historic achievements, providing solid material and technical support for improving national strategic capability, especially military strength.
With the expansion of production capacity and the resonance of supply and demand, the plate profit is accelerated, and the high boom is gradually reflected from the upstream to the downstream. From the enterprise side, since 2020, military enterprises have expanded their production capacity, covering upstream materials, parts manufacturing, military electronics, aerospace equipment manufacturing and other fields. Looking forward to 2022, we judge that: 1) the capacity of the military industry continues to expand. With the gradual release of new capacity of many enterprises in the industry and the superposition of scale effect under the resonance of supply and demand, the sector is expected to enter a new development stage of accelerated release of profits and its performance is expected to continue to improve; 2) The high outlook of the industry is gradually reflected from the upstream to the middle and downstream along the industrial chain, and the downstream enterprises have entered a period of accelerated performance growth. 3) From the perspective of valuation, after 2022, compared with upstream enterprises, downstream enterprises have greater flexibility to digest valuation with high profit growth.
Great changes have taken place in the thinking of military investment. At present, the market’s investment style in the military sector has changed from the previous emphasis on event driven, such as restructuring and concept, to performance driven. The fund has significantly increased the size and proportion of positions in the military industry; The proportion of active positions in all positions has increased significantly, about 43% in 2020q2 and 72% in 2021q3, the highest since 2014q4.
Focus on five investment directions. 1) Military aircraft: air control is very important in modern war. Many models enter the batch production period, focusing on 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) , etc; 2) Aeroengine: Changpo thick snow high-quality track, pay attention to Aecc Aviation Power Co Ltd(600893) , Aecc Aero-Engine Control Co.Ltd(000738) etc; 3) Materials and forging and casting: a generation of materials and equipment. Forging and casting is the key link of equipment production. Pay attention to Fushun Special Steel Co.Ltd(600399) , Western Superconducting Technologies Co.Ltd(688122) , Gaona Aero Material Co.Ltd(300034) , Baoji Titanium Industry Co.Ltd(600456) , Weihai Guangwei Composites Co.Ltd(300699) , Sinofibers Technology Co.Ltd(300777) , Western Metal Materials Co.Ltd(002149) ; Triangle service, Guizhou Aviation Technical Development Co.Ltd(688239) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Wuxi Hyatech Co.Ltd(688510) , Avic Heavy Machinery Co.Ltd(600765) , Chengdu Ald Aviation Manufacturing Corporation(300696) , Anhui Shenjian New Materials Co.Ltd(002361) etc; 4) Missiles: the combat readiness level has been continuously improved, and the demand for war training consumption and replenishment has increased. Pay attention to Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , Chengdu M&S Electronics Technology Co.Ltd(688311) , North Navigation Control Technology Co.Ltd(600435) , Chengdu Rml Technology Co.Ltd(301050) , Wuhan Guide Infrared Co.Ltd(002414) , Zhejiang Dali Technology Co.Ltd(002214) , Hubei Feilihua Quartz Glass Co.Ltd(300395) ; 5) Informatization: informatization is a multiplier of combat power. All countries have made great efforts to pay attention to China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , Zhuzhou Hongda Electronics Corp.Ltd(300726) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) , Fujian Torch Electron Technology Co.Ltd(603678) , Wuhan Guide Infrared Co.Ltd(002414) , Zhejiang Dali Technology Co.Ltd(002214) , Raytron Technology Co.Ltd(688002) , Chengdu M&S Electronics Technology Co.Ltd(688311) , Beijing Starneto Technology Co.Ltd(002829) , Tianjin 712 Communication & Broadcasting Co.Ltd(603712) .
Reform factors still need attention. The three-year action of state-owned enterprise reform has entered the acceptance and assessment period, and favorable policies such as equity incentive and asset securitization are expected to accelerate the implementation, paying attention to China Avionics Systems Co.Ltd(600372) , Aecc Aero-Engine Control Co.Ltd(000738) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avic Shenyang Aircraft Company Limited(600760) , Avic Electromechanical Systems Co.Ltd(002013) , Guizhou Space Appliance Co.Ltd(002025) .
Risk tips: market fluctuation risk, risk that industrial orders are less than expected, risk that the progress of capacity expansion is less than expected, and risk that the progress of state-owned enterprise reform is less than expected.
