The growth rate of national defense budget returns to 7%, and military informatization is expected to benefit. National defense informatization construction has become an important force to promote the all-round transformation and upgrading of national defense modernization. In the process of transforming traditional national defense into quality efficiency and science and technology intensive, China has made significant progress in five application fields: radar, satellite navigation, military electronics, information security and military communication. China’s military budget in 2022 was 1.45 trillion yuan, with a year-on-year increase of 7.1%, which is a return to more than 7% after the growth rate of 6.6% and 6.8% in 20 and 21 years. With the current international situation becoming more volatile, many countries in the world have increased their military budgets to strengthen modern national defense construction. In 2020, China’s national defense will basically realize mechanization and make significant progress in informatization; It can be expected that informatization will become the focus of the next round of modern military industry construction.
Military information security has developed rapidly, and Jiayuan technology has maintained high growth. Jiayuan technology started from entrusted research and development, took coding technology as the core, cut into the field of network security, and formed a security product form of “embedded software + customized hardware”. The product is mainly wireless side encryption. At present, it is mainly used in aerospace data transmission. With the continuous enrichment of wireless side encryption application scenarios, the company has increased the coverage of security products in airborne, shipborne, satellite communication and other fields; The product has certain consumable properties, and the market demand and space are broad. Security business has been in rapid volume for 20 and 21 years.
Beijing Zuojiang Technology Co.Ltd(300799) focuses on network security in special industries, and DPU products are expected to be widely used Beijing Zuojiang Technology Co.Ltd(300799) main products are secure heterogeneous dual host platform and secure isomorphic dual host platform, both of which contain self-developed private network processing cores. With years of accumulation in chip technology, the company established its subsidiary Beizhong network core layout DPU in 2020. DPU products of the company adopt ASIC + NP architecture, giving consideration to high performance and programmability. The company’s DPU products initially came from the direct demand of customers, especially under the background of emphasizing the localization of the whole process of technology R & D and manufacturing, Zuojiang DPU has corresponding advantages and high demand certainty. In 2021, due to the phased adjustment of the implementation of the customer’s “14th five year plan” construction plan relative to the planning demonstration, the performance declined greatly; Such impacts are expected to be eliminated in 2022 and return to high growth.
Phased array radar is widely used, and Shanghai Hollywave Electronic System Co.Ltd(688682) is expected to continue to grow at a high level. It is expected to increase investment in the modernization and upgrading of weapons and equipment such as phased array radar. The demand of the company’s phased array calibration and test system is directly related to the model of phased array radar and indirectly related to the products of phased array radar. With the deepening of the application of phased array technology in military industry during the 14th Five Year Plan period and the company’s acquisition of 51% equity of Hongjie electronics, the two sides have significant synergy in products, technology, customers and other fields, and the phased array calibration and test system is expected to maintain high growth. Relying on the simulation and testing technology accumulated for many years, the company’s business extends to the phased array products themselves. The revenue of relevant prototypes has gradually increased in recent years, and is expected to be further increased in the future. In the past five years, the compound growth rate of the company’s revenue has reached 35.46%, and the compound growth rate of net profit attributable to the parent company has reached 35.68%; Equity incentive also gives higher growth guidance.
Investment suggestion: the military informatization field is expected to maintain a high boom, especially in the field of phased array radar and information security. It is suggested to focus on Jiayuan technology, Beijing Zuojiang Technology Co.Ltd(300799) , Shanghai Hollywave Electronic System Co.Ltd(688682) .
Risk warning: the epidemic situation repeatedly affects the normal operation rhythm of the company; Military business orders grew less than expected; The development of phased array radar industry is less than expected; Competition in the network security industry has intensified.
