Market review: in February 2022 (202202.01 ~ 202202.28), the national defense industry (Shenwan 2021) index rose by 5.43%, ranking the ninth among Shenwan 31 sub industries. Compared with the Shanghai stock index, CSI 300, gem index and wandequan a, the excess returns were 2.43pct, 5.04pct, 6.38pct and 2.62pct respectively. Since the beginning of 2022, the national defense industry index has fallen by 13.47%, underperforming the Wande all a index by 6.56pct.
In terms of Valuation: as of February 2022, the national defense industry PE (TTM) was 67.79 times, which was in the last 36.00% since February 2012; In terms of segments, PE (TTM) of aerospace equipment is 64.12 times, 32.70% after history; Aviation equipment PE (TTM) is 65.94 times, 28.60% after history; The ground military equipment PE (TTM) is 57.55 times, which is 31.10% after history; The PE (TTM) of marine equipment is 136.71 times, 26.30% before history; Military electronic PE (TTM) is 49.83 times, 26.20% after history.
Key industry trends in February: 1) on the 24th, Russia and Ukraine had an armed conflict; On the 28th, the two sides started negotiations. 2) On the 15th, China Central Television reported that China will maintain a high density of more than 50 space launches this year, and the fourth phase of the lunar exploration project will be fully launched this year. 3) The regulations on military equipment test and appraisal were issued and will come into force on February 10, 2022.
News of key companies in February: 1) announcement of Avicopter Plc(600038) acquisition on 24th: after the acquisition is completed, Zhongzhi Co., Ltd. and Harbin Airlines Group will no longer hold shares of listed companies. 2) August 17 Avic Xi’An Aircraft Industry Group Company Ltd(000768) official wechat news: the airworthiness certification and natural icing test flight of a large passenger plane was successfully completed in Yanliang. 3) On the 25th, the IPO of AVIC UAV science and Innovation Board was held.
Investment view: since the beginning of the year, the national defense industry sector has been adjusted back to 13.47% due to the impact of the market and performance forecast events. From the perspective of revenue and contract liabilities, the national defense industry still maintains a high boom. We should reasonably look at the growth rate of the profit side. Under the high boom of large orders for new models, the company’s profit release will gradually improve, but it should not completely benchmark the U.S. military industry complex. The conflict between Russia and Ukraine once again shows the high-tech attribute of modern war. The importance of weapons and equipment modernization is self-evident. Our army is accelerating the transformation and upgrading of construction. The development of China’s military industry is highly planned. With the steady growth of national defense and military expenditure, the proportion of equipment procurement expenditure has continued to increase, which has now exceeded 40%. During the 14th Five Year Plan period, the assembly of core equipment will be accelerated. The overall revenue of the military industry sector will continue to break through upward. With the increase of the proportion of customers’ prepayments and the continuous implementation of large contracts, the cash flow statement and profit side of the downstream main engine plant will continue to improve and transmit to the middle and upstream enterprises at the same time. At the current time point, the valuation of the military industry sector is 36% after the ten-year period, and has entered the high cost performance allocation area. The disclosure of the future annual report and quarterly report may gradually boost market confidence. The military industry sector is expected to stabilize and usher in the bottom reversal market.
Object of concern: Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Aecc Aviation Power Co Ltd(600893) , Avic Heavy Machinery Co.Ltd(600765) . Maintain the rating of “leading market” in the industry.
Risk warning: the R & D and production of military products are not as expected; The progress of state-owned enterprise reform is less than expected; The release of the company’s performance was less than expected.
