Key investment points
Endogenous: the conflict between Russia and Ukraine may become an opportunity for many countries to increase national defense investment, and China’s national defense expenditure still has room to improve
1) Xi Jinping General Secretary pointed out many times: “the world today is experiencing great changes that have not been seen in a century”, “the instability and uncertainty of the international environment have increased significantly” and “the world has entered a period of turbulence and change”.
2) taking the “Russia Ukraine conflict” as an opportunity, multinational security policies showed signs of adjustment or adjustment, Germany / Poland increased military spending, and Japan issued a speech to amend the constitutional provisions of “giving up the right to wage war”.
3) among the top 10 countries in the world’s defense expenditure, China’s defense expenditure accounts for only higher proportion of GDP than that of Japan, which was defeated in World War II. The absolute value is about 1 / 3 of that of the United States. If there is an upward trend in defense investment around the world, there is still much room for China’s defense expenditure to increase relative to the GDP level.
Development focus: key products such as precision guided weapons and unmanned aerial vehicles will be in great demand in the future
1) since the beginning of the conflict between Russia and Ukraine, Russia has used precision guided weapons to “eliminate at fixed points” military facilities such as Ukrainian National Guard headquarters, air defense equipment, radar stations and military airports, with remarkable operational effects.
2) western countries provide military assistance to Ukraine. Precision guided weapons such as “stinger” portable air defense missile and “javelin” anti tank missile have become important assistance contents, posing a threat to Russian helicopters / combat vehicles.
3) Ukraine used TB2 UAV to cause damage to the Russian army, reflecting the good combat effect of UAV.
“Independent and controllable”: Russian and Ukrainian related products emphasize independent and controllable. In the future, military products + civilian products will walk on “two legs”
1) in the past, some engines in China were produced in Russia / Ukraine. In the future, independent control / localization will be emphasized. In addition, there are still some dependence on foreign supply chains in the field of national defense equipment such as aerospace superalloy / carbon fiber precursor, high-end chips / electronic components, and the subsequent “independent and controllable” process in the above fields may be expected to accelerate.
2) after the beginning of the conflict between Russia and Ukraine, Russia faced all-round sanctions and blockades from western countries, covering many important fields such as civil aviation transportation, electronics and telecommunications, aerospace, oil refining and so on. In the future, while national defense and military industrial enterprises are based on the main business of military products, relevant civil products (such as civil aviation large aircraft, civil aviation engines, new energy vehicle connectors, diamond cultivation and other fields) also need to be paid attention to.
Foreign trade: China’s arms and equipment export military trade market is expected to further open
In China’s current military trade exports, the proportion of high-end equipment such as aircraft / engine / missile is significantly lower than that of the United States and Russia. Recently, there have been frequent good news in China’s military trade field. The J-10 CE fighter was exported for the first time, the fc-31 stealth fighter established the military trade office, and the foreign party announced the order of L15 higher education aircraft. China’s military trade market is expected to further open against the background of the subsequent global turmoil, the increase of national defense investment and the possible decline of Russia’s export capacity under Western sanctions.
The 12 character core logic of military industry: endogenous extension, domestic demand, foreign trade, military and civilian products, and the military industry sector is continuously recommended
1) the national defense industry has a high growth certainty. In 2022, the “endogenous + extension” two wheel drive, followed by “domestic demand + foreign trade” and “military products + civilian products”, the military industry index is expected to rank higher than the latter.
2) host plants: scale effect + fine management, small core and big collaboration. In the next five years, the performance of the host plants will be resilient, and the superposition of “three years of action for SOE reform” ends. It’s suggested to focus attention on the endogenous growth of the company and the end of the “three years of action for state enterprise reform”. It’s suggested to pay attention to what’s expected to benefit from the coupling resonance of the coupling between corporate growth and state enterprise reform. Related targets that are expected to benefit under the resonance of the coupling resonance between the coupling resonance of the coupling resonance of the coupling of the coupling resonance between corporate growth and state enterprise reform. Relevant targets that are likely to benefit. Relevant targets that are likely to benefit. Relevant targets that are likely to benefit. Relevant targets that are likely to benefit. Related targets such as: 00076 Avic Xi’An Aircraft Industry Group Company Ltd(000768) \ etc.
3) raw materials and core sets: look at high barriers / high scarcity / competitive landscape. Good competition pattern: high barriers / high scarcity / high barriers to high barriers / high scarcity / high competition pattern. High-temperature alloys / composites / composite materials / component level matching / engine forging / engine casting. Etc. subdivision tracks: ‘ Fushun Special Steel Co.Ltd(600399) \ \35 assemblylevel level matching / component level matching / engine forging castings and engine forging casting. Etc. subdivision. Subdivision of the subdivision of the subdivision of the subdivision of the circuit. Subdivision of the subdivision of the circuit. Subdivision of, Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) , Avic Heavy Machinery Co.Ltd(600765) , Chengdu Leejun Industrial Co.Ltd(002651) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Guizhou Aviation Technical Development Co.Ltd(688239) , Wuxi Hyatech Co.Ltd(688510) , Anhui Yingliu Electromechanical Co.Ltd(603308) , Jiangsu Toland Alloy Co.Ltd(300855) Xi’An Bright Laser Technologies Co.Ltd(688333) etc.
4) missile and informatization: Unigroup Guoxin Microelectronics Co.Ltd(002049) , Hubei Feilihua Quartz Glass Co.Ltd(300395) , 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) .
Risk tips: 1) the rhythm of equity incentive and asset securitization is lower than expected; 2) the delivery progress of military products is lower than expected.
