Key investment points
Comments on key events:
1) the military equipment procurement information network issued the notice on the inclusion of market products in the list of electronic components, inviting research and development units willing to engage in the supply of military electronic components to participate in the supporting. The release of this notice is to continue to implement the military civilian integration strategy. After the early actions on reducing the confidentiality threshold and tax procurement, further relax the system control in the specific upstream military electronic components field, further optimize the supply pattern and improve the procurement efficiency. The core of this notice is to break the relatively limited and solidified scientific research and production pattern of the original supporting fields of military electronic components. Military components have a high technical threshold, which is more reflected in the high reliability of the environment and the threshold of verification cycle in many aspects. Private enterprises in these fields have also accumulated and improved the finished product system in recent years, and have the technical ability to join the army horizontally.
Since the supply catalogue of finalized products can hardly be changed, this change has no real short-term impact on the supporting enterprises in the field of military components. However, in the medium and long-term dimension, especially in the domestic scientific research projects of components serialized every year, more new forces will be added. At the same time, the pace of assembly from scientific research to production in the whole military components industry will be further accelerated, The subdivided industrial chain will gradually show a pattern of fast and good texture and growth;
2) Xi Jinping signed an order to issue the Interim Provisions on the supervision and administration of military equipment procurement contracts. The issuance of this order is a further action after the Xi Jinping issuance and implementation of the military equipment ordering regulations in November 2021. It is mainly aimed at the implementation link of the procurement contract, optimizing the supervision in the whole process and improving the quality and efficiency of equipment procurement. In particular, while the participating enterprises have been expanding their production in recent years, they should always adhere to the requirements for product reliability and deliver on time and quantity, rather than focusing on pressure drop and price, and there are no negative factors.
The industry valuation is at the bottom. Recently, the bottom has rebounded for many times, and the bottom position is becoming clearer and clearer. Since February this year, the industry valuation has been adjusted back to the bottom since June 2020 and entered the performance disclosure period in March and April. The performance return will become one of the core factors determining the trend of the industry; In the same period, global inflation expectations suppressed growth stocks, the embargo and price rise of energy resources, coupled with new variables of geopolitical conflict, may lead to a decline in market risk appetite. The military industry index has gone out of the bottom recovery trend for many times from 2022 / 03 / 07 to 2022 / 03 / 18, indicating that the market has increasingly clearly recognized the bottom position of the industry based on the judgment of the fundamentals of the industry.
The performance is short and the expectation continues. The logic of Avic Shenyang Aircraft Company Limited(600760) going out of bad and doing everything is exemplary. From the middle of this month to the end of April, the annual report disclosure period has entered one after another. One of the main factors of the industry adjustment in January this year is that the performance of the 2021 annual report of the military aircraft industry chain may be lower than expected. Although the substantial adjustment has released risks to a considerable extent, the performance of some stocks is still unclear, and the market is worried that the performance release may be short. As of March 18, 2022, 111 of the 159 core targets in the industry had disclosed data, accounting for 70%, the disclosure proportion of middle and downstream main engine plants and subsystem enterprises dominated by state-owned enterprises was 39%, and the disclosure proportion of upstream enterprises dominated by private enterprises was 79%. The performance of enterprises in the middle and lower reaches countries is more vulnerable to non operating policies. Most of these enterprises do not have forward-looking guidance, and will later affect the industry trend as a core factor of fundamentals. In the case of relatively fully releasing the pressure of low expectations in January this year, the performance fear may be interpreted as the logic of being bearish next Avic Shenyang Aircraft Company Limited(600760) early performance express rose for several consecutive days after it came out. When the industry fell by 5% in the week, it still came out of the positive income. The trend of many subsequent stocks may copy this logic.
The military industry has entered the position of building warehouses in the medium term. The rapid adjustment in January this year gave a good opportunity. The industry index and the early valuation of many enterprises have reached the bottom position in the past two years and entered the medium-term position building area. At present, the income space of the industry is still large. In 2022, the upward space of the industry index is 30-50%, and the upward space of key individual stocks is more than 50%.
Recommendation of individual stocks: focus on the five investment directions of military aircraft, aeroengines, materials and forging, missiles and informatization, and focus on Aecc Aviation Power Co Ltd(600893) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) and China Avionics Systems Co.Ltd(600372) .
Risk that the progress of the reform of state-owned enterprises is lower than the expected market, risk that the performance of state-owned enterprises is lower than the expected market.
