Core view:
Without changing the medium and short-term competition pattern of military components, leading enterprises will benefit from the growth of the industry for a long time. On March 17, the PLA issued the notice on incorporating market products into the list of military electronic components. We believe that this document is the starting point for the military to further standardize the procurement process of military electronic components. In the short term, the introduction of the document highlights the urgent need of our military for the rapid improvement of weapon and equipment informatization, but the industry access threshold and operation mode have not changed, and the impact on the upstream competition pattern of military products is limited; In the medium and long term, with the large volume of weapons and equipment, the scale of the component industry has ushered in rapid growth. At present, the State encourages more private enterprises with technical or management advantages to join the military industry. Under this background, enterprises that have been deeply engaged in the industry for a long time and have core technology and management advantages will benefit from the development of the industry.
The price of nickel fluctuates violently, or affects the gross profit margin of Superalloy products 6-9pct. Purchasing end: the purchasing quantity of raw materials of upstream manufacturing enterprises is generally determined according to the signed contract quantity. The purchasing strategy adopts a small number of times to reduce the risk of raw material price fluctuation. Recently, nickel price fluctuates greatly, but the fluctuation window is short. At present, nickel price has entered the downward channel. With its gradual stabilization, the impact of nickel price fluctuation on the overall superalloy industry is limited. Sales side: most upstream companies adopt the "cost plus" mode, that is, based on the spot market price of electrolytic nickel and other metals, a certain proportion of processing fee will rise. Due to the particularity of the military industry, the short-term military pricing has a certain rigidity, so the pressure on the short-term cost side is more digested by enterprises. Quantitative analysis, according to the announcement data of relevant companies, we assume that the sales cost rate of Superalloy products is 60%, and the cost of nickel related materials accounts for 50%. Every 10% increase in nickel purchase price will directly affect the gross profit margin 3PCT. Assuming that the nickel price increases by 20-30% throughout the year and the cost is difficult to transfer to the downstream, the gross profit margin of Superalloy products will decline by 6-9pct.
Investment advice: fundamentals are king, pay attention to the first quarter market. In the context of the conflict between Russia and Ukraine, the market risk appetite fell sharply, the risky assets retreated sharply, and the valuation risk was further released. We believe that the annual report and the first quarterly report window are approaching. As the market sentiment gradually stabilizes, we suggest to pay attention to individual stocks whose performance growth is expected to exceed expectations. At the current time point, we suggest a "three-dimensional" configuration: 1) aviation industry chain, including Nanjing Quanxin Cable Technology Co.Ltd(300447) ( Nanjing Quanxin Cable Technology Co.Ltd(300447) . SZ), Avic Heavy Machinery Co.Ltd(600765) ( Avic Heavy Machinery Co.Ltd(600765) . SH), Fujian Torch Electron Technology Co.Ltd(603678) ( Fujian Torch Electron Technology Co.Ltd(603678) . SH) and Guangdong Shenglu Telecommunication Tech.Co.Ltd(002446) ( Guangdong Shenglu Telecommunication Tech.Co.Ltd(002446) . SZ); 2) The upper reaches of the military industrial chain with high prosperity include Baoji Titanium Industry Co.Ltd(600456) ( Baoji Titanium Industry Co.Ltd(600456) . SH), Beijing Relpow Technology Co.Ltd(300593) ( Beijing Relpow Technology Co.Ltd(300593) . SZ), Nancal Technology Co.Ltd(603859) ( Nancal Technology Co.Ltd(603859) . SH), Unigroup Guoxin Microelectronics Co.Ltd(002049) ( Unigroup Guoxin Microelectronics Co.Ltd(002049) . SZ) and China Zhenhua (Group) Science & Technology Co.Ltd(000733) ( China Zhenhua (Group) Science & Technology Co.Ltd(000733) . SZ); 3) The targets of performance growth improvement by state-owned enterprise reform include Avic Xi'An Aircraft Industry Group Company Ltd(000768) ( Avic Xi'An Aircraft Industry Group Company Ltd(000768) . SZ), Avicopter Plc(600038) ( Avicopter Plc(600038) . SH) and China Marine Information Electronics Company Limited(600764) ( China Marine Information Electronics Company Limited(600764) . SH), etc.
Risk warning: the risk that the 14th five year plan and military industry reform are not as expected.
