National Defense: high growth, endogenous + extension, domestic demand + foreign trade, military products + civil products, ranking the latecomers first
1. Under the “Centennial change”, the national defense and military industry has a high growth rate. “Preparing for war / 2027 / building a strong national defense commensurate with the second largest economy” is the established direction. Large contract liabilities in 2021 highlight the high boom of the 14th five year plan.
2. In the next few years, the securitization of national defense and military assets and the reorganization and listing of core military products are expected to set off a new climax. CSSC’s companies have started restructuring, and the restructuring of the top ten military industrial groups is expected to increase significantly. We pay attention to the restructuring process of CSSC, Aerospace Hi-Tech Holding Group Co.Ltd(000901) , CETC, AVIC, aerospace science and industry, ordnance industry and other groups.
3. China’s main battle tank, UAV, trainer, fighter and other products are competitive in the world, and the demand for foreign trade will gradually rise. The medium and long-term demand for civil products such as large civil aircraft and civil aviation engines will prolong the demand cycle.
4. Compared with lithium, photovoltaic, wind power and other new energy indexes, the national defense and military industry index is expected to replicate the performance of the wind power index in the second half of 2021 in 2022, and the latter ranks first.
Defense industry: scale effect + fine management, “small core and large cooperation”; Large performance flexibility of main engine plant
1. In the next five years, the performance flexibility of the main engine factory is large: under the influence of multiple factors such as scale effect / pricing reform / equity incentive / large order / large prepayment, it is estimated that the future net profit margin of military aircraft main engine is expected to increase from the current 3-4% to 6-8%, and the future net profit margin of aviation engine is expected to reach 10%.
2. Upstream enterprises are optimistic about subdivided fields such as superalloys and composites with high technical barriers and scarcity.
3. Midstream enterprises are optimistic about component enterprises with high technical barriers and good competition pattern, engine forging and casting, informatization core midstream and other subdivided fields.
The “three-year action of state-owned enterprise reform” will welcome the end of the year, and equity incentive will boost the release of performance
1. The “three-year action for state-owned enterprise reform” encourages equity incentive and promotes the “benchmarking world-class management improvement action”. 2022 will usher in the year of ending. The reform is expected to accelerate and relevant military central enterprises are expected to benefit.
2. So far, nearly 30 listed companies of military central enterprises have completed equity incentive. In the future, other listed companies under the central military enterprises are also expected to benefit from the acceleration of equity incentive, such as: Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , Aecc Aviation Power Co Ltd(600893) , Aecc Aero-Engine Control Co.Ltd(000738) , Avic Electromechanical Systems Co.Ltd(002013) , China Avionics Systems Co.Ltd(600372) , Avic Aviation High-Technology Co.Ltd(600862) , China Shipbuilding Industry Group Power Co.Ltd(600482) .
Investment suggestions: downstream main engine plants, and high-quality targets in the upper and middle reaches with high barriers and good competition pattern
Optimistic about the missile / informatization / air launch / military aircraft sub industry: there is a large gap between China’s national defense equipment and the world advanced level, especially aviation equipment. The number gap of major military aircraft corresponds to a compound growth rate of about 20% in the 14th five year plan. Missile / air launch has the attribute of consumables and informatization. It benefits from the development trend of intelligent / systematic operation, and the growth rate is expected to be higher on the basis of military aircraft growth.
1. The performance of downstream main engine plants is flexible: Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Aecc Aviation Power Co Ltd(600893) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , Avic Shenyang Aircraft Company Limited(600760) , Inner Mongolia First Machinery Group Corporation Co.Ltd(600967) , China Cssc Holdings Limited(600150) .
2. Upstream raw materials with high barriers and core midstream manufacturing with good competition pattern: Avic Heavy Machinery Co.Ltd(600765) , Aecc Aero-Engine Control Co.Ltd(000738) , Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) , Western Superconducting Technologies Co.Ltd(688122) , Anhui Yingliu Electromechanical Co.Ltd(603308) , Chengdu Leejun Industrial Co.Ltd(002651) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Guizhou Aviation Technical Development Co.Ltd(688239) , Xi’An Triangle Defense Co.Ltd(300775) , Wuxi Hyatech Co.Ltd(688510) , Avic Electromechanical Systems Co.Ltd(002013) , China Avionics Systems Co.Ltd(600372) , Xi’An Bright Laser Technologies Co.Ltd(688333) , Jiangsu Toland Alloy Co.Ltd(300855) .
3. Missile and informatization: Unigroup Guoxin Microelectronics Co.Ltd(002049) , Fujian Torch Electron Technology Co.Ltd(603678) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Chengdu Zhimingda Electronics Co.Ltd(688636) , Wuhan Guide Infrared Co.Ltd(002414) , Zhejiang Dali Technology Co.Ltd(002214) , China Marine Information Electronics Company Limited(600764) .
Selected targets in 2022: Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Aecc Aviation Power Co Ltd(600893) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , Avic Shenyang Aircraft Company Limited(600760) , Inner Mongolia First Machinery Group Corporation Co.Ltd(600967) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , Western Superconducting Technologies Co.Ltd(688122) , China Cssc Holdings Limited(600150) , China Marine Information Electronics Company Limited(600764) .
Risk statement
1) The progress of reform is less than expected; 2) Equipment procurement volume or delivery confirmation rhythm is lower than expected
