Core view:
The year 2021 is coming to an end, and the major main engine plants of the aviation industry will complete all tasks with high quality. According to official news, Avic Shenyang Aircraft Company Limited(600760) completed the annual batch production flight test 16 days in advance, and the annual delivery volume reached a record high; Chengdu Airlines overfulfilled the annual batch production task and achieved the "2323" balanced production goal; Jiangxi Hongdu Aviation Industry Co.Ltd(600316) completed the annual production flight test one week in advance, and some aircraft models were overfulfilled; The air navigation Institute has overfulfilled its delivery tasks, and its annual scale has reached a new high. We expect that 2022 will continue the good trend of 2021, and supply end guarantee delivery will still be an important task throughout the year. With the bottleneck of production capacity and the improvement of production efficiency, the prosperity of military industry is expected to continue to rise.
The reform of state-owned enterprises is expected to start again, and the capital operation of military industry group is accelerated. 2022 is the year when the "three-year action of state-owned enterprise reform" ends, and the reform operations of military industrial groups are frequent. Yunnan Xiyi Industrial Co.Ltd(002265) was injected with military assets and the asset securitization of Ordnance Group broke the ice; Following the injection of analog chip and semiconductor material assets into listed companies, CETC transferred part of the equity of its seven listed companies to CETC investment free of charge, which means obvious market value management; The Cssc Science & Technology Co.Ltd(600072) and China Shipbuilding Industry Group Power Co.Ltd(600482) under the China Cssc Holdings Limited(600150) group started to integrate the two business assets of wind power and diesel engine within the group, and the Group restructuring began to sink. By the end of 2021, most military industrial groups are expected to complete 70% of the reform tasks. Next year, the reform will enter the critical period and deep-water area, and the heavy and even ice breaking reform is expected to break through. In addition, the central economic work conference also mentioned the need to "promote the reform of scientific research institutes". Based on this, we believe that the "reform of state-owned enterprises" is expected to become one of the important main lines of military industry sector investment in 2022, and the valuation system may be reshaped. It is suggested to pay attention to the related targets of "large groups and small platforms".
The supply side capacity of the military industry continues to climb, and the demand side "price for quantity" has become the general trend. On the supply side, the capacity bottleneck of the military industry is expected to continue to be broken. According to statistics, most of the production expansion plans of military listed companies since 2020 will be completed around 2024. As the ramp up period of capacity takes about 2-4 years, we expect that the peak capacity brought by this round of industrial expansion may appear around 2028, and the peak capacity growth may appear around 2023. On the demand side, as the second year of the 14th five year plan for equipment procurement, bidding is expected to be intensively implemented in 2022. Under the background of large-scale demand for military equipment, based on limited national defense budget constraints, the "centralized procurement of equipment" characterized by price for quantity will be the general trend. For non-standard military products with a large number of product models and a high degree of customization, the centralized purchase operation is difficult and the military bargaining space is low; For standardized military products with high gross profit margin and businesses with low technical barriers, the impact may be large and the profit margin may be under pressure.
Investment suggestion: the military industry sector will welcome "xiaoyangchun". In the short term, the reform of military industrial enterprises is expected to be fermented, and the risk preference of investment will be raised. The value of the current plate will be increased by about 63%, and the valuation bubble will not appear. In the medium term, the removal of capacity bottlenecks will help the industry to continue to improve its prosperity, and rapid growth can be expected in the next three years; In the long run, the Centennial goal of building the army is nearly late, and the "Centennial change" promotes the rapid development of the industry. We are optimistic about the xiaoyangchun market of the military industry sector, and recommend Aecc Aviation Power Co Ltd(600893) (600893. SH), Nanjing Quanxin Cable Technology Co.Ltd(300447) (300447. SZ), China Marine Information Electronics Company Limited(600764) (600764. SH), etc.
