Plate review
Last week’s performance: from December 27 to December 31, social services, national defense and military industry led the rise, with an increase of 4.88% and 4.53% respectively, while public utilities, food and beverage led the decline, with a decrease of 4.65% and 1.27% respectively. The defense industry index rose 4.53%.
Last week, the top ten stocks in the military sector were: Zhuzhou Hongda Electronics Corp.Ltd(300726) (17.11%), Sinofibers Technology Co.Ltd(300777) (13.69%), Baoji Titanium Industry Co.Ltd(600456) (13.24%), Kuang-Chi Technologies Co.Ltd(002625) (12.62%), Gaona Aero Material Co.Ltd(300034) (11.13%), Avic Heavy Machinery Co.Ltd(600765) (11.04%), China Cssc Holdings Limited(600150) (10.52%), Beijing Ctrowell Technology Corporation Limited(300455) (10.13%), Beijing Relpow Technology Co.Ltd(300593) (9.86%) and purple national emblem (9.18%). The top ten stocks that fell were: Hunan Tyen Machinery Co.Ltd(600698) (- 10.46%), Xi’An Chenxi Aviation Technology Corp.Ltd(300581) (- 10.14%), Yunnan Xiyi Industrial Co.Ltd(002265) (- 8.32%), Changsha Jingjia Microelectronics Co.Ltd(300474) (- 5.11%), Hunan Boyun New Materials Co.Ltd(002297) (- 3.52%), Anhui Yingliu Electromechanical Co.Ltd(603308) (- 2.53%), Guizhou Aviation Technical Development Co.Ltd(688239) (- 1.89%), Changchun Up Optotech Co.Ltd(002338) (- 0.88%), Phenix Optical Company Limited(600071) (- 0.73%) and Nanjing Quanxin Cable Technology Co.Ltd(300447) (- 0.57%).
Last week’s views and investment suggestions
March 2021, The 14th five year plan for the national economic and social development of the people’s Republic of China and the outline of long-term objectives for the year 2005 issued by China clearly pointed out that “We should strengthen the modernization of national defense and the army, achieve the unity of a rich country and a strong army, comprehensively strengthen military training and preparation, improve the strategic ability to defend national sovereignty, security and development interests, and ensure that the Centennial goal of building the army will be achieved by 2027.” In July 2021, at the general meeting to celebrate the 100th anniversary of the founding of the Communist Party of China, Xi Jinping General Secretary stressed that “taking history as a mirror and creating the future, we must accelerate the modernization of national defense and the army”. In November 2021, the communique of the Sixth Plenary Session of the 19th CPC Central Committee once again proposed “accelerating the modernization of national defense and the army”. The 14th Five Year Plan period will be an important window period for achieving the Centennial goal of building the army, and the industry boom is highly uncertain.
Key companies in the military industry had excellent financial performance in q1-q3 in 2021. The market’s view of “accelerating the assembly of military equipment and the upward and sustained high-speed release of sector performance since the end of the 13th five year plan” continued to be fully verified, which means that the military sector is expected to continue to receive financial attention, the market funds are active, and it is appropriate to tap individual stocks from top to bottom and from bottom to top.
Taking 78 key companies in the military industry as an example, about 30 of them have been listed in recent 3 years. Operation of key companies in FuPan military industry since 2019: in 2019, Q1-Q4 military industry sector achieved revenue of 53.664 billion yuan, 74.513 billion yuan, 63.080 billion yuan and 114.212 billion yuan respectively, with cumulative year-on-year growth rates of 28%, 14%, 10% and 10% respectively; The net profit attributable to the parent company was 2.855 billion yuan, 5.657 billion yuan, 3.861 billion yuan and 6.625 billion yuan respectively, with a cumulative year-on-year growth rate of 80%, 35%, 25% and 8% respectively.
In 2020, Q1-Q4 military industry sector achieved revenue of 57.906 billion yuan, 92.825 billion yuan, 88.129 billion yuan and 123.495 billion yuan respectively, with cumulative year-on-year growth rates of 7%, 17%, 24% and 18% respectively; The net profit attributable to the parent company was 3.276 billion yuan, 6.856 billion yuan, 5.904 billion yuan and 8.419 billion yuan respectively, with a cumulative year-on-year growth rate of 15%, 19%, 30% and 29% respectively.
In 2021, q1-q3 military industry sector achieved revenue of 75.282 billion yuan, 109.091 billion yuan and 96.849 billion yuan respectively, with cumulative year-on-year growth rates of 30%, 22% and 18% respectively; The net profit attributable to the parent company in a single quarter was RMB 6.457 billion, RMB 9.150 billion and RMB 8.498 billion respectively, with a cumulative year-on-year growth rate of 97%, 54% and 50% respectively. Affected by the epidemic in the first half of 2020, the resumption of work and production of the industry was delayed, resulting in a low comparable base in the first half of 2021 and a high cumulative year-on-year growth rate of revenue and net profit attributable to parent company. The comparable base increased significantly in the second half of 2020. It is expected that the cumulative year-on-year growth rate in the fourth quarter of 2021 is expected to slow down. However, with the release of production capacity and strong demand for military products in the future, the upward trend of the industry is expected to continue.
Investment advice
In 2022, the counter cyclical nature of military industry is expected to provide relative returns for funds and become one of the industries worthy of attention. In the medium and long term, we will continue to focus on high-profile sub fields and increase allocation, including aviation, aerospace, new materials, informatization, etc; The reform of state-owned military enterprises, which has not been paid attention to for a long time, has won the favor of funds again. The targets such as Yunnan Xiyi Industrial Co.Ltd(002265) , Hunan Tyen Machinery Co.Ltd(600698) , Phenix Optical Company Limited(600071) , Changchun Up Optotech Co.Ltd(002338) have been continuously connected. We suggest mining the varieties with asset injection expectation / equity incentive expectation / equity incentive expectation from bottom to top along the main line of state-owned military enterprise reform. Focus on: 1) aviation: aviation equipment benefits from the gap between the total amount and generations. At present, the country is in a critical period of military aircraft upgrading, and the demand for new fighters has increased greatly. It is expected that advanced fighters will continue to be produced in large quantities in the next few years. It is suggested to pay attention to Avic Xi’An Aircraft Industry Group Company Ltd(000768) (equity incentive expectation), Avicopter Plc(600038) , Avic Electromechanical Systems Co.Ltd(002013) , Avic Heavy Machinery Co.Ltd(600765) , Aecc Aviation Power Co Ltd(600893) , Avic Shenyang Aircraft Company Limited(600760) ; 2) Aerospace: precision guided weapons benefit from the increased consumption of incremental weapon platform mounting + new product replacement and upgrading + live ammunition drill. It is recommended to pay attention to Beijing Relpow Technology Co.Ltd(300593) , Chengdu M&S Electronics Technology Co.Ltd(688311) , Chengdu Tianjian Technology Co.Ltd(002977) ; 3) New materials: benefiting from factors such as the large volume of weapons and equipment in the aerospace field and the increase in the proportion of carrier consumption + localization substitution, the new materials sector is expected to maintain a high outlook. It is recommended to pay attention to Western Superconducting Technologies Co.Ltd(688122) , Baoji Titanium Industry Co.Ltd(600456) , Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) , Jiangsu Toland Alloy Co.Ltd(300855) , Sinofibers Technology Co.Ltd(300777) , Weihai Guangwei Composites Co.Ltd(300699) , Avic Aviation High-Technology Co.Ltd(600862) . 4) Informatization: the industry benefits from the deepening trend of military informatization and the large-scale growth of many downstream fields. With the acceleration of military modernization and the superposition of factors such as localization substitution, the informatization sub section is expected to usher in a period of rapid development. It is recommended to pay attention to Avic Jonhon Optronic Technology Co.Ltd(002179) , Guizhou Space Appliance Co.Ltd(002025) , Changsha Jingjia Microelectronics Co.Ltd(300474) , Raytron Technology Co.Ltd(688002) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) , Fujian Torch Electron Technology Co.Ltd(603678) , Zhuzhou Hongda Electronics Corp.Ltd(300726) ; 5) Reform of state-owned enterprises: for those who benefit from asset injection expectation / equity incentive expectation / have done equity incentive, it is recommended to pay attention to Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Sun Create Electronics Co.Ltd(600990) ; According to the division of military industry groups, we should pay attention to the listed companies under the Aerospace Department, the electronics department and the weapons department.
Risk statement
Military spending is lower than expected; The reform of state-owned enterprises in the military industry has been slower than expected.
