China Avionics Systems Co.Ltd(600372) (600372)
Key investment points
As the main supplier of avionics system for military aircraft, the 14th five year plan is expected to enter the accelerated growth stage: the medium and long-term objectives of national defense and military construction require that we strive to basically realize the modernization of national defense and military by 2035, and build the people’s army into a world-class army by the middle of this century, so as to lay a long-term growth space for the military industry; The Fifth Plenary Session of the 19th CPC Central Committee first put forward the Centennial goal of building the army in 2027. The 14th Five Year Plan period is a key period to achieve this goal. Various types of equipment represented by new aviation equipment are expected to accelerate the assembly and upgrading. The company is a major supplier of avionics systems for Chinese military aircraft and will continue to benefit from the equipment construction process. At the end of 2021q3, the company’s contract liabilities were about 754 million yuan, an increase of 630% over the same period in 2020 and 527% over the beginning of 2021, mainly due to the increase of advance payment, indicating that the company has strong downstream demand and sufficient orders on hand, and the orders have increased greatly compared with the same period in 2020 and the beginning of 2021. The company is expected to usher in accelerated growth.
To meet the strong demand of the 14th five year plan, the company plans to increase the capital of 8 wholly-owned subsidiaries: the company plans to increase the capital of 8 wholly-owned subsidiaries with cash of 590 million yuan, so as to promote the subsidiaries to better complete the scientific research and production tasks of the 14th five year plan, seize the opportunities and needs of aviation defense, civil aviation and the application of aviation technology in advanced manufacturing industry, and strengthen the operating capacity and development potential of the subsidiaries, Make up for the lack of working capital of subsidiaries and improve their solvency and anti risk ability. We believe that the capital increase will help the company better meet the strong demand in the downstream of the 14th five year plan.
There is room for capital operation, which is expected to benefit from the accelerated promotion of state-owned enterprise reform: the company is a professional integration and industrialization development platform of avionics system under aviation industry group, and has been promoting reform recently, such as the proposed adoption of core employee shareholding, the introduction of strategic investors The reform of mixed ownership was carried out by combining the capital increase of original shareholders with the conversion of state-owned exclusive capital reserve. By the end of December 2021, the company had managed 5 research institutes and 9 companies in the avionics sector; 2021q1-q3 company has realized custody fee income of about 37.64 million yuan. Assuming that all entrusted units are profitable, the total revenue of 2021q1-q3 entrusted units is about 18.8 billion yuan according to the custody agreement. The company has room for capital operation. With the accelerated reform of state-owned enterprises, the company is expected to benefit in the future.
Profit forecast and investment rating: Based on the development prospect of the company’s avionics business, we expect the company’s net profit attributable to the parent company from 2021 to 2023 to be RMB 848 million, RMB 1107 million and RMB 1446 million respectively, EPS to be RMB 44 million, RMB 57 million and RMB 75 respectively, corresponding to 47 times, 36 times and 28 times of PE respectively. It is covered for the first time and given a “buy” rating.
Risk warning: order fluctuation risk; Product delivery progress is less than expected; The progress of state-owned enterprise reform is less than expected; The company’s profit was less than expected.
