Core ideas of this week
1) in 2022, the national defense budget increased by 7.1% year-on-year, and the GDP target for the same period was 5.5%. China’s defense spending this year has increased by 7.1% over 2021, the Global Times reported on the 5th. This is two years later, the growth rate of China’s defense funds has returned to the “7% era”. Song Zhongping, a military expert, believes that in fact, China’s defense spending is not high. First, China’s military spending accounts for only about 1.4% of China’s GDP. In addition, China is facing increasing external threats. It is necessary for China to increase military spending and safeguard national security. In 2020 and 2021 after the outbreak of the epidemic, China’s national defense expenditure increased by less than 7%. In 2020, China’s defense expenditure budget was 1268 billion yuan (about 178.2 billion US dollars), an increase of 6.6% over the previous year, and 1379544 billion yuan (about 209 billion US dollars) in 2021, an increase of 6.8% over 2020. Previously, the growth rate of national defense budget from 2016 to 2019 was more than 7% (inclusive). According to the data of Stockholm Peace Research Institute, in 2020, the average proportion of military expenditure in GDP of all countries in the world reached 2.4%, and the defense budget of the United States reached US $753 billion in fiscal year 2022. Song Zhongping introduced, “Comparatively speaking, China’s military spending is appropriate and moderate. On the whole, the proportion of military spending in GDP of all countries in the world fluctuates around 2%. China has been 1.3% – 1.4% for a long time, which is still far from the world average. Moreover, the world is not peaceful and China faces many problems. It is necessary to increase the military budget to improve the current situation Building a modern military, but China will not seek an arms race, nor will it participate in the arms race of the United States. ” Sustained capital investment is a key factor in the growth of the military industry. The reasonable and stable growth of the national defense budget will inject more vitality into the military industry chain.
2) significant progress has been made in national defense and military construction, and a good start has been made in the 14th five year plan. Premier Li Keqiang talked about national defense and military construction at the opening of the fifth session of the 13th National People’s Congress in Beijing, Xinhua reported on the 5th. The prime minister pointed out in his government work report 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. The premier said that in the new year, we should thoroughly implement the thought of Xi Jinping strengthening the army, implement the military strategic policy for the new era, firmly adhere to the Centennial goal of building the army, comprehensively strengthen the party’s leadership and Party building, comprehensively deepen military training and preparation for war, firmly and flexibly carry out military struggle, and safeguard the country’s sovereignty, security and development interests. We will accelerate the construction of a modern military logistics system and a modern asset management system for the army, build a modern management system for weapons and equipment, continue to deepen the reform of national defense and the army, strengthen national defense scientific and technological innovation, deeply implement the strategy of strengthening the army with talents in the new era, promote the management of the army according to law and strictly, and promote the high-quality development of the army. Optimize the layout of Defense Science, technology and industry. We will complete the reform of the national defense mobilization system and strengthen national defense education for the whole people. Governments at all levels should vigorously support the construction of national defense and the army and make the unity between the military and the government, the military and the people as firm as a rock. The Centennial goal of building a strong army has been put forward. The construction of weapons and equipment has entered the fast lane. During the 14th Five Year Plan period, the release of industrial performance is highly uncertain. It is expected that all links of the industrial chain will continue to benefit.
Focus on aviation, aerospace, informatization and new materials:
1) aviation equipment: both the surrounding situation and the construction of Navy and air force have put forward new requirements for military aircraft. At present, there is a large room for improvement in the number and structure of Chinese military aircraft. It is expected that with the national defense budget inclined to weapons and equipment, especially the air force and Navy, it is expected to accelerate the upgrading of military aircraft. The disclosure of large contract liabilities by many companies in the early stage may further improve the cash flow of the industrial chain and promote the production and delivery of products. We believe that aviation equipment will show a high boom during the 14th Five Year Plan period, driving the improvement of industrial chain performance. In addition, the reform of military pricing mechanism and the increase of equity incentive scheme will also promote the improvement of industry profit level. It is suggested that attention should be paid to the following: [ ” Avic Shenyang Aircraft Company Limited(600760) \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\123 ], [ Guizhou Aviation Technical Development Co.Ltd(688239) ], [ Chengdu Ald Aviation Manufacturing Corporation(300696) ], [ Jiangsu Maixinlin Aviation Science And Technology Corp(688685) ].
2) aerospace equipment: in terms of missile weapons and equipment, the main driving factors of the missile industry mainly come from: the first is the iterative period, the second is the increase in the demand for strategic reserves, and the third is driven by practical training. The missile sector may be the most flexible segment during the 14th Five Year Plan period, which will bring rapid performance thickening of relevant listed companies, pay attention to the overall opportunities of the missile sector, and focus on the targets with high performance flexibility and high proportion of missile business. It is suggested to pay attention to: [ Guizhou Space Appliance Co.Ltd(002025) ], [ Beijing Relpow Technology Co.Ltd(300593) ].
In terms of Satellite Internet, Beidou navigation: the year-on-year growth rate of Beidou satellite navigation industrial chain began to increase in 2021, and it is expected to maintain a high growth rate in 2022 and 2023. In Beidou navigation industrial chain, the demand for Beidou navigation chips and Beidou navigation terminals increased rapidly; In the field of Satellite Internet: China Spacesat Co.Ltd(600118) network group is expected to become the main force of China Spacesat Co.Ltd(600118) Internet. At present, although China Spacesat Co.Ltd(600118) Internet is still in its infancy, Satellite Internet will still become an important development direction of 6G mobile communication. Suggested attention: [ Chengdu Corpro Technology Co.Ltd(300101) ], [ Chengdu M&S Electronics Technology Co.Ltd(688311) ].
4) informatization sector: due to factors such as the localization process, military modernization and accelerated renewal of new models, it has continued to exceed the growth of the industry since 2018, focusing on military semiconductors, upstream electronic components, radar and electronic countermeasures, communication, navigation and remote sensing and other directions. The performance of some companies has taken the lead in entering the high-speed growth stage and is expected to continue in 2022. It is suggested to pay attention to: [ China Zhenhua (Group) Science & Technology Co.Ltd(000733) ], [ Unigroup Guoxin Microelectronics Co.Ltd(002049) ], [ Chengdu Zhimingda Electronics Co.Ltd(688636) ].
5) new materials: it is suggested to focus on the direction of superalloys, titanium alloys and carbon fiber composites. Military new material technology has basically achieved self-control and represents China’s leading level, and the dual / multi flow system of model certification makes suppliers limited, and the competition pattern at the supply side is good. At the demand side, due to the large volume of main battle models and supporting engines, the proportion of new material application continues to increase, the outsourcing proportion of main engine manufacturers, domestic substitution and other factors, It is expected that the future growth of the industry is highly deterministic, and the scale effect will continue to appear after the demand increases, driving the continuous decline of unit cost. Therefore, the gross profit margin of the industry may still have room to improve and gradually realize to profit, and has the possibility of urgent development to the civil market, with good long-term growth. It is suggested to pay attention to: [ Baoji Titanium Industry Co.Ltd(600456) ], [ Gaona Aero Material Co.Ltd(300034) ], [ Western Superconducting Technologies Co.Ltd(688122) ], [ Avic Aviation High-Technology Co.Ltd(600862) ].
Risk warning: the replacement of weapons and equipment is not as expected; The development of a new missile model was not as expected.
