\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 760 Avic Shenyang Aircraft Company Limited(600760) )
Event overview:
The article “deep cultivation, balanced production and high-quality completion of scientific research, production and operation tasks” released by the company on March 1 and 6 shows that: “The company deeply promotes the implementation of various sub schemes for compressing the military production cycle, pays close attention to the key points of material procurement, the focus of parts production and the foothold of assembly flight test, so as to ensure the realization of the goal of compressing the military production cycle in 2022… The company continues to promote balanced production and strive to develop from quarterly balance to monthly balance.”
Analysis and judgment:
1. From result balance to process balance, from quarterly balance to monthly balance, balanced production has been further promoted.
Since AVIC first advocated the promotion of “balanced production” in 2017, its subordinate units have taken positive actions across the board, and the production management level has been continuously improved. From “0118” in 2016 to “2323” in 2021, the balanced production level of military products has been improved year by year. As a core member of the aviation industry group, Shenyang Airlines has achieved remarkable results in balanced production and delivery and continuously improved quality and efficiency. Q1-Q4 company achieved revenue of 5.790 billion yuan, 10.128 billion yuan, 8.999 billion yuan and 9.172 billion yuan respectively in 2021. In 2022, the company will strengthen the coordination and assessment of production organization, continue to promote balanced production, strive to develop from quarterly balance to monthly balance, further improve the completion rate of production plan of production units, and continue to promote the transformation of quarterly workload from result balance to process balance. The continuous improvement of balanced production capacity is conducive to smooth the performance fluctuation of listed companies, weaken the delivery law of “low before high”, and the operation situation tends to be balanced between seasons. The growth rate of Q1 is expected to be higher than that of the whole year.
2. Digital drive, multi link force, and constantly reduce the production and delivery cycle of military products.
According to the report of China Aviation News on January 12, 2022, “aviation industry Shenfei: striving to create a new situation of high-quality development in the 14th five year plan”, the company continues to strengthen the digital drive, speed up the construction of information-based collaborative control, and realize the information-based control of the main value chain of products from material procurement, outsourcing, parts production, assembly test flight to delivery and transfer; Promote the collaborative application of intelligent manufacturing technology in the fields of accurate manufacturing of structural parts and accurate assembly of components; Carry out the digital construction of products based on the whole product life cycle, and expand the application field of process simulation research.
In the special task of reducing the production cycle of military products, the company paid close attention to the key points of material procurement, the focus of parts production, the foothold of assembly flight test, and deeply explored the key links of the main value chain and the short board of the whole business flow, so as to achieve the assessment goal of reducing the production cycle. In the special task of air force equipment delivery and assembly, the company improved the management mechanism, accurately focused on customer needs, strengthened the control of delivery status, accelerated the handling of assembly problems, achieved the goal of 30 days of weapon equipment delivery cycle, accelerated the delivery rate of weapon equipment and quickly formed combat effectiveness.
3. The large advance payment is in place, the financial expenses are significantly improved, and the supply chain control is expected to be strengthened.
The company’s financial expenses in 2021 were – 250 million yuan, a decrease of 232 million yuan compared with 2020, mainly because the company received large advance payments from customers. According to the interim report of 2021, the company’s contract liabilities were 37.737 billion yuan, an increase of 697.93% over the end of 2020. The payment of customers’ large advance payment in place will help the company improve cash flow, significantly reduce financial expenses, reduce period expense rate and improve profitability. The large advance payment will help the company play the role of “chain leader”, strengthen the supply chain management, improve the supplier management system, optimize the payment rhythm of the company to upstream suppliers, revitalize the whole industrial chain, help the company alleviate the capacity bottleneck and ensure the timely and sufficient delivery of the company’s complete products. In addition, large advance payment corresponds to medium and long-term orders. The medium and long-term performance of the company is supported by certainty and will be cashed in the subsequent performance end.
4. The company benefited from the high prosperity of the industry by accelerating the loading and replacement of military aircraft.
At present, China’s military aircraft has entered a major cycle of upgrading. On the one hand, there is still a big gap between China’s military aircraft holdings and the United States. During the “14th five year plan” period, China will enter the uplink channel of compensated accelerated loading; On the other hand, the old models of Chinese military aircraft account for a relatively large proportion, and there is a strong demand for structural upgrading.
Accelerating the loading and replenishment of military aircraft, accelerating the upgrading and upgrading and increasing the proportion of advanced fighters will bring huge incremental space for China’s military aviation equipment. As one of China’s important fighter machine integrators, the company will significantly benefit from the high boom demand of the industry and change from steady growth in the past to high-speed growth.
5. Equity incentive helps to improve business efficiency, and the leading position of fighter is stable.
At present, the company is the only listed target of fighter aircraft in China. It is a model of asset securitization of China’s military host units. At the same time, it is also the first aviation host plant to implement the equity incentive plan. On May 16, 2018, the company issued a long-term equity incentive plan, which is valid for 10 years and implemented in stages. Each period is valid for 5 years and the interval is 3 years. The implementation of phase I equity incentive plan has significantly improved the company’s operating efficiency and profitability. The net profit attributable to the parent company has increased from 743 million yuan in 2018 to 1.696 billion yuan in 2021, with an annualized compound growth rate of 31.67%, which will contribute to the smooth implementation of phase II equity incentive plan of the company.
The company is an important fighter development and production base in China. It has rich experience and comprehensive strength in building high-quality aviation defense equipment. It has successively developed and produced a full spectrum fighter from the first generation to the fifth generation, making a significant contribution to the development of China’s aviation weapons and equipment. The core product j-16 is an important carrier for the strategic transformation of the Chinese air force from “land air defense” to “both attack and defense”. J-11 is a heavy fighter for the Chinese air force and navy to seize air control and carry out air defense operations. J-15 is the only carrier based fighter in active service in China, and J-35 is an ideal candidate for the next generation of stealth carrier based fighter.
Investment suggestions:
The company is the only listed company in the field of fighter aircraft in China. It benefits from the advent of the high boom cycle of military aviation equipment and has abundant momentum for revenue growth in the future. Considering that the company’s performance express in 2021 was lower than expected and the operating revenue remained unchanged from 2022 to 2023, the net profit attributable to the parent company from 2022 to 2023 was adjusted from 2734 / 3391 million yuan to 2.1912771 billion yuan, and EPS was adjusted from 1.39/1.73 yuan to 1.12/1.41 yuan, corresponding to the closing price of 55.17 yuan / share on March 18, 2022, and PE was 49 / 39 times respectively. Maintain buy rating.
Risk tips:
The delivery progress of the aircraft is less than expected, and the batch production progress of the next generation of aircraft is less than expected.
