Key investment points
Year to date, the CSI military industry index fell 21.67%, underperforming the Shanghai Composite Index by 9.93% and the gem index by 1.06%.
From the perspective of military industry, CITIC ranks second only to the military industry (with a decline of 22.22%) at the beginning of the year, ranking second only to the military industry (with a decline of 10.23%).
According to reference news, citing Japan's Sankei Shimbun on March 15, affected by the war between Russia and Ukraine, European countries began to strengthen their armaments. German Chancellor Scholtz issued a new defense policy in the Bundestag on February 27, saying that the proportion of military spending in China's gross domestic product (GDP) will be increased from the current 1.5% to 2%, and created a 100 billion euro fund to enhance armaments. Following Germany, Denmark and Sweden also announced this month that the proportion of military expenditure in GDP will be increased to 2%, while Poland announced that the proportion will be increased from 2% to 3%.
National defense and the military are the cornerstones of national strategic security and the operation of the national economy. Under the background of the changing international order, the long-term growth certainty of the military industry is particularly prominent: on the one hand, under the rigid requirements of self-control, the development of the military industry mainly depends on internal circulation, and the greater the external disturbance, the stronger the development rigidity; On the other hand, compared with other areas of the national economy, the military industry is less affected by the macroeconomic trend, and the certainty of fund investment is very high.
From a macro perspective, the military industry sector is compared horizontally, and the advantages of growth certainty are prominent. Since the outbreak of the war between Russia and Ukraine on February 24, US military stocks have increased significantly, with Lockheed Martin, Northrop Grumman, Raytheon technology and general dynamics rising by 15.58% / 16.48% / 4.73% / 11.80% respectively.
There are nearly 30 military industrial targets that have fallen by more than 30% since the beginning of the year. Looking at the one-year dimension, the risk return ratio of some targets has been very prominent. Looking forward to the next three years, some of the targets can be expected to have a large income space. In terms of the overall trend of the sector, the less than expected annual reports have been cleared one after another. We believe that the military industry sector has a high probability of achieving relative excess returns in the next three quarters. In the past two years, the trend change of the military industry index is highly related to the gem index. It is suggested to pay close attention to the change of market style and risk preference, grasp the certainty of performance realization, and select the target from the bottom-up from the perspective of growth and valuation.
National defense and military construction have strong top-level design attributes and outstanding planning. In 2022, China's defense expenditure will increase by 7.1% year-on-year to 1.45 trillion yuan. Compared with the annual defense expenditure, the Five-Year "14th five year plan" has more forward-looking guiding significance. Looking forward to 2022, the demand boom of the military industry remains unchanged. During the 14th Five Year Plan period, the output of downstream general assembly enterprises of main battle equipment is expected to maintain a linear and stable growth; Driven by the demand for replenishment, the output of enterprises in the upstream of the industrial chain may show the characteristics of high before low, while the growth of enterprises with large capacity constraints or the space for market share improvement, localization substitution and penetration improvement may be more stable.
Focus on Tianjin 712 Communication & Broadcasting Co.Ltd(603712) , Nanjing Quanxin Cable Technology Co.Ltd(300447) , Beijing Relpow Technology Co.Ltd(300593) , Fujian Torch Electron Technology Co.Ltd(603678) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Baoji Titanium Industry Co.Ltd(600456) , Chengdu Ald Aviation Manufacturing Corporation(300696) , Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) , etc. It is recommended to pay attention to the subject matter where the current stock price is upside down or near the fixed increase price, Western Superconducting Technologies Co.Ltd(688122) (relative to the fixed increase price - 4.29%, the same below), Zhuzhou Hongda Electronics Corp.Ltd(300726) (- 21.80%), Avic Jonhon Optronic Technology Co.Ltd(002179) (- 16.81%), Guizhou Space Appliance Co.Ltd(002025) (+ 4.68%), Aecc Aero-Engine Control Co.Ltd(000738) (- 6.11%), etc.
Risk tips: 1) equipment price pressure affects the release of performance of some enterprises; 2) Policy adjustment affects market sentiment and suppresses the valuation of the sector in stages; 3) The upward price of upstream resource products pushes up the cost pressure of some raw material enterprises with poor price transmission.
