Key investment points
NATO summit issued a joint statement: decided to increase aid to Ukraine, military deployment and military spending of Member States
1) continue to provide military assistance to Ukraine, including: anti tank weapons, air defense weapons, UAVs, anti biological and chemical weapons / anti nuclear weapons equipment, and technical equipment to ensure network security.
The total number of NATO troops deployed in the Balkans and the Baltic region, including four groups of polish and Slovak troops, has been increased to about 20000 in addition to the total number of NATO troops deployed in the Balkans and the Baltic region, and the total number of air troops deployed in the Baltic region has also been increased.
3) NATO member states agree to increase military expenditure: it will make the military expenditure of each country reach or close to the standard of 2% of China’s GDP. Germany, Belgium and other countries have announced an increase in military spending before the meeting.
4) NATO believes that Russia’s military action in Ukraine has completely changed the security situation in Europe, and the strategic adjustment that NATO needs to make is long-term and lasting. We believe that the strategic position of national defense and security in many countries has been further improved. National defense and military industrial assets not only have asset attributes, but also are the premise and barrier to ensure the value of other assets.
12 word core logic of national defense and military industry: “endogenous extension, domestic demand, foreign trade, military and civil products”
1) endogenous: under the “century changing situation”, the national defense industry has a high growth certainty, “preparing for war / 2027 / building a strong national defense commensurate with the second largest economy” is the established direction, the demand of the military industry is as firm as a rock, and the operation efficiency / profitability of military enterprises is also expected to be improved under the catalysis of “scale effect / equity incentive / small core and large cooperation / pricing reform / large order + large prepayment”
2) extension: the state promotes the reform of state-owned enterprises and requires “stimulating the vitality of state-owned enterprises” and “improving the efficiency of state-owned capital”. In the next few years, the securitization of national defense assets and the reorganization and listing of core military products are expected to set off a new climax. We pay attention to the group reorganization process of China Shipbuilding Group / Aerospace Hi-Tech Holding Group Co.Ltd(000901) / China Electronics Technology / China Aviation Industry / Aerospace Science and industry / ordnance industry.
3) foreign trade: China’s fighter / UAV / Trainer / tank are globally competitive. Recently, there have been frequent positive news in the field of military trade. The J-10 CE fighter has been exported for the first time, the foreign party has announced the order of L15 higher education aircraft, and the fc-31 stealth fighter has established the military trade office. In the future, if the global defense expenditure increases and Russia’s export capacity may decline under Western sanctions, China’s military trade market is expected to further open.
4) civil products: the conflict between Russia and Ukraine highlights the importance of independent control in important fields. In the future, while national defense and military industrial enterprises are based on the main business of military products, civil aviation large aircraft / civil aviation engines and other important civil products need to be controlled independently and accelerated.
At the current stage, the value of the military industry sector is prominent, and we are optimistic about the missile / informatization / Aviation Development / military aircraft sub industry
1) at present, the overall PE of Shenwan national defense and military industry index is 57 times, which is 22% of the historical high. Driven by “endogenous growth + epitaxial growth”, the configuration value is prominent and is optimistic about the missile / informatization / Aviation Development / military aircraft sub industry.
2) host plants: scale effect + fine management, small core and big collaboration. The next five years will have a big elasticity of performance, with a stack of “three years of action for SOE reform” to wrap up. It’s suggested to focus attention on the endogenous growth of companies and the end of the “three years of action for SOE reform. It’s suggested to pay attention to the corporate growth that could benefit from the coupling resonance between corporate growth and SOEreform. Related targets that are expected to benefit under the coupling resonance of the coupling resonance between the coupling resonance between corporate growth and SOEreform. Related targets that are likely to benefit. Relevant targets that are likely to benefit. Such as: 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 important products is lower than expected.
