The defense expenditure budget increased by 7.1%, 0.3 percentage points higher than last year. According to the draft government budget report submitted by China’s Ministry of finance at the National People’s Congress, China’s defense spending budget this year increased by 7.1% over 2021, an increase of 0.3 percentage points over last year, Xinhua reported in English on the 5th.
The growth rate of China’s defense expenditure budget was 8.1% and 7.5% in 2018 and 2019 respectively. Affected by the covid-19 epidemic, the growth rate decreased to 6.6% and 6.8% in 2020 and 2021. Although the growth rate returns to above 7%, China’s military spending is still appropriate and moderate, and its proportion in GDP is far lower than that of the United States, Russia and other countries. According to the layout of the 14th five year plan for military construction, we will continue to accelerate the upgrading of weapons and equipment and accelerate the transformation and upgrading of military training. At the same time, we need more investment in the implementation of major projects and the construction of grass-roots units of the army. It is expected that China’s defense expenditure will grow steadily in the coming period, and there is some room for improvement.
Premier Li Keqiang pointed out in his government work report on the 5th that in the past year, significant progress has been made in national defense and military construction, and a good start has been made in the 14th five year plan. Compared with last year’s government work report, it proposed to “comprehensively deepen military training and prepare for war, firmly and flexibly carry out military struggle”, reflecting the determination to strengthen practical military training and defend national sovereignty. It is proposed to “accelerate the construction of modern military logistics system and military modern asset management system, and build a modern management system of weapons and equipment”. In the future, in deepening the reform of national defense and the army, the construction of weapons and equipment will reach a higher level.
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 63 times, which is at the 29% 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 tip: the epidemic repeatedly affects the macroeconomic environment; Equipment R & D progress and procurement progress are less than expected; Military procurement prices fell; Industry competition intensifies.
