Market in recent week
Defense industry (Shenwan) index (- 3.56%), industry (Shenwan) ranking (26 / 31); Shanghai Composite Index (- 0.94%), Shenzhen Component Index (- 2.20%) and gem index (- 3.64%);
Top five gainers: Chengdu M&S Electronics Technology Co.Ltd(688311) (+ 10.61%), Tellhow Sci-Tech Co.Ltd(600590) (+ 8.76%), Beijing Hengyu Datacom Aviation Equipment Co.Ltd(300965) (+ 5.72%), Anhui Greatwall Military Industry Co.Ltd(601606) (+ 5.39%), Xi’An Tian He Defense Technology Co.Ltd(300397) (+ 5.02%) Chengdu Zhimingda Electronics Co.Ltd(688636) (+3.81%)；
Top five declines: Zhenlei Technology (- 14.72%), Beijing Unistrong Science & Technology Co.Ltd(002383) (- 13.40%), Beijing Fjr Optoelectronic Technology Co.Ltd(688272) (- 11.80%), Xi’An Triangle Defense Co.Ltd(300775) (- 10.05%), Wuxi Paike New Materials Technology Co.Ltd(605123) (- 9.99%).
Important events and announcements
On April 5, according to the aerotime website, Russia can establish a new aircraft manufacturing center in Kazan, the capital of the Republic of Tatarstan, in order to avoid the shortage of aircraft parts caused by international sanctions.
At 7:47 on April 7, the long march 4C carrier rocket ignited and took off at China Jiuquan Satellite Launch Center, and then put Gaogao 3 03 satellite into the predetermined orbit. The launch was a complete success.
On April 7, Chengdu M&S Electronics Technology Co.Ltd(688311) released the 2022 restricted stock incentive plan (Draft). The company plans to grant 1.249 million restricted shares to 68 people, accounting for 16.63% of the total number of employees at the end of 2021 and 1.09% of the total share capital of the company. The grant price is 23.28 yuan / share. According to the performance evaluation indicators, the year-on-year growth rate of net profit after non deduction in 2022 is not less than 40%, which is significantly higher than the year-on-year growth of 27.37% disclosed in the company’s 2021 performance express.
On April 7, China Cssc Holdings Limited(600150) announced that from December 29, 2021 to March 31, 2022, the company’s subsidiaries received 349677 million yuan of government subsidies, mainly for scientific research and local special subsidies for undertaking national designated tasks, which are government subsidies related to income.
On April 7, China National Software And Service Company Limited(600536) , China Greatwall Technology Group Co.Ltd(000066) , SHENSANGDA a issued an announcement, China Greatwall Technology Group Co.Ltd(000066) , China National Software And Service Company Limited(600536) , Qilin software, Huada semiconductor, CLP information, SHENSANGDA, Feiteng company, CLP panda, CLP Yilian, CLP Jinxin, Ruida group, China Zhenhua, Chengdu Rainbow Appliance(Group) Shares Co.Ltd(003023) , No. The total investment scale of China Telecom Chuang is expected to be no less than 4.951 billion yuan, China Greatwall Technology Group Co.Ltd(000066) plans to invest 800 million yuan, China National Software And Service Company Limited(600536) and its subsidiary Kirin software subscribed a total of 700 million yuan, and SHENSANGDA plans to invest 200 million yuan.
On April 7, Aerospace Ch Uav Co.Ltd(002389) announced that it won the bid for the aviation fire service project of Sichuan Forestry and grassland Bureau, with a total bid amount of RMB 118312 million.
On April 7, Beijing Watertek Information Technology Co.Ltd(300324) announced that due to the covid-19 pneumonia epidemic and changes in the market environment outside China, it was decided to transfer 30% of Ningbo Jingxuan’s share to Guangwei technology at the sum of the initial investment (i.e. RMB 100 million) and the investment income (simple interest annualized rate of return of 5%). After the transfer, the company will no longer hold Ningbo Jingxuan’s share.
On April 8, NATO agreed to provide Ukraine with more heavy weapons at its request. Russia warned that the delivery of weapons to Ukraine would have a negative impact on peace negotiations. According to the financial times on April 8, Ukrainian foreign minister kuleba asked NATO to provide aircraft, missiles, armored vehicles and heavy air defense systems at the NATO foreign ministers’ meeting, and said that delaying the assistance would lead to the death of more civilians. At the meeting, NATO Secretary General szjens toltenberg said that the Allies had agreed to further strengthen their support for Ukraine in the medium and long term immediately, and called on the allies to take more actions and provide more equipment.
On April 8, Hwa Create Corporation(300045) announced that the bds-2120 Beidou Positioning and tracking equipment developed by the company has obtained the project approval of technical standards issued by the Civil Aviation Administration of China. The equipment has passed the e-level airworthiness certification review of the Civil Aviation Administration, marking that the airborne Beidou products independently developed by the company can officially enter the field of civil aviation.
On April 9, Shenzhen H&T Intelligent Control Co.Ltd(002402) issued an announcement that the application to spin off its subsidiary Zhejiang Chengchang Technology Co., Ltd. for listing on the main board of Shenzhen Stock Exchange was approved by China Securities Regulatory Commission.
Investment advice
I. core view
Since the beginning of the year as a whole, the military industry has been under various pressures. Upstream price increases have compressed industry profits, intensified competition has impacted the existing pattern, the reform of military pricing mechanism, concerns about tax increases, doubts about performance fulfillment, and so on. In fact, if we look at the problem from the principle of quality, quantity and delivery and the realization path of “exchanging quantity for price and creating profits with efficiency”, we can better understand and explain the problems in various aspects, and can also make judgments and predictions. Marketization, specialization and scale are the health trends of the industry. Only making a negative interpretation is a lack of deep understanding of the specific laws of the military industry in a specific period to a certain extent.
The military industry has fallen to the low point in May last year and is still lack of confidence. However, in the medium and long term, the growth is stable and is determined to be the shield of defense and the anchor of attack. Under the great changes that have not been seen in a century, the demand for weapons and equipment is unprecedented. It is an indisputable fact that the whole industry is expanding its production in full swing. Once again, we reiterate our medium and long-term view. We tend to believe that the military industry is more likely to be a benign “advance, two retreat and one” with a bottom down. At the current time point, our judgment is that the valuation of the military industry has become cheap and has entered the configuration range with cost performance again. At the current stage, we need a sense of rationality and calmness. The space for further deep adjustment is limited. Although it still takes time for confidence recovery and style transformation, it has entered the stage of exchanging time for space. We should not be overly pessimistic and blindly sell down. Despite the current overall downturn in the market, track stocks such as military industry are still suppressed. However, once the geopolitical changes such as the situation in Russia and Ukraine, the epidemic control, interest rate and reserve requirement cuts, etc. bring about the recovery of market sentiment and the improvement of risk appetite, we believe that relying on solid fundamentals and a high degree of certainty, military industry will still be the “vanguard” of the rebound. For the recent military industry, we have the following views:
① the 5 billion China Telecom innovation fund was established to continue to promote the improvement of the layout of the information innovation industry chain.
The municipal company plans to cooperate with more than 10 related parties to establish China electronic information innovation industry limited partnership, with a total investment of nearly 5 billion. China Telecom innovation will be finally controlled by China Electronics Group, a central enterprise. According to the announcements of the three companies, the purpose of this investment is to improve the layout of relevant industrial chains, optimize the industrial coordination mechanism, help the combination of endogenous development and extension expansion of the company, and improve the innovation and development ability and industry influence.
The total investment scale of China Telecom Chuang is expected to be no less than 4.951 billion yuan. China Telecom Chuang Industry Co., Ltd. is jointly established by China Greatwall Technology Group Co.Ltd(000066) , China National Software And Service Company Limited(600536) , Qilin software, Huada semiconductor, China power information, shensanda, Feiteng company, China Power panda, China Power Yilian, China Power Jinxin, Ruida group, China Zhenhua, Chengdu Rainbow Appliance(Group) Shares Co.Ltd(003023) , China Electronics No. 6 Institute and China power financial investment. Among them, China Greatwall Technology Group Co.Ltd(000066) plans to invest 800 million yuan, China National Software And Service Company Limited(600536) and its subsidiary Kirin software subscribed a total of 700 million yuan, and SHENSANGDA plans to invest 200 million yuan.
We believe that this investment aims to integrate the forces of all parties in the industrial chain to increase the weight of Xinchuang, which will promote the rapid development of the industry. China Xinchuang may welcome the golden development period.
② the inclusion of electronic components in the list of market products provides an opportunity for excellent enterprises with strong R & D ability and profound understanding of military products to further consolidate their moat.
③ military industry ≠ cycle. The military industry has short-term price rigidity and long-term profit rigidity. Demand contraction, supply shock and expectation weakening are the triple pressures faced by China’s economy. For the military industry, demand cannot shrink, only expand, expectation will not weaken, and only increase. The military industry is not a cyclical stock, but should show counter cyclical characteristics and have defensive attributes. ④ Good news came out frequently in the first quarter, the performance was cashing in, and the valuation was cheap. Up to now, some military enterprises have disclosed the performance of the first quarter of 2022, with a gratifying growth rate. Among them, North Industries Group Red Arrow Co.Ltd(000519) first quarter net profit increased 148.14% – 189.50%, Shanghai Fudan Microelectronics Group Co.Ltd(688385) increased 125.72% – 189.38%, Baoji Titanium Industry Co.Ltd(600456) increased 87.00% – 112.97%, Huaqin technology increased 65.16% – 87.83%, and Avic Shenyang Aircraft Company Limited(600760) increased 47.50%.
Aviation industry group made a good start in the first quarter and has disclosed that it is expected that the related party transactions will increase significantly in 2022; Recently, various military enterprises have successively disclosed equity incentive and employee stock ownership plans in 2022. The disclosed companies include Nancal Technology Co.Ltd(603859) , Guizhou Aviation Technical Development Co.Ltd(688239) , Beijing Emerging Eastern Aviation Equipment Co.Ltd(002933) , Shenyu Communication Technology Inc(300563) , Fujian Forecam Optics Co.Ltd(688010) , Chengdu M&S Electronics Technology Co.Ltd(688311) , etc; Many of the big single landing of many enterprises, such as the big single landing of many of the big single landing, such as the big single landing, such as the big single landing, such as the Sinofibers Technology Co.Ltd(300777) , Piesat Information Technology Co.Ltd(688066) , Beijing Highlander Digital Technology Co.Ltd(300065) , Beijing Starneto Technology Co.Ltd(002829) , Guangzhou Haige Communications Group Incorporated Company(002465) , etc.
Recently, listed companies have intensively released the annual report, performance express or performance forecast of 2021. As of April 8, 2022, 146 listed companies in the military industry have disclosed the performance of 2021, and the performance of 102 listed companies has increased in advance. The median lower limit of net profit growth in 2021 is 24% and the upper limit of growth is 26%. We expect that most listed companies in the military industry will further enhance the confidence of the military industry and strengthen the market’s understanding of the value attribute of the military industry.
⑤ the conflict between Russia and Ukraine has stimulated a new round of global military spending and accelerated the construction and delivery of China’s weapons and equipment. On April 8, NATO agreed to provide Ukraine with more heavy weapons at its request. Russia warned that the delivery of weapons to Ukraine would have a negative impact on peace negotiations. According to the financial times on April 8, Ukrainian foreign minister kuleba asked NATO to provide aircraft, missiles, armored vehicles and heavy air defense systems at the NATO foreign ministers’ meeting, and said that delaying the assistance would lead to the death of more civilians. At the meeting, NATO Secretary General szjens toltenberg said that the Allies had agreed to further strengthen their support for Ukraine in the medium and long term immediately, and called on the allies to take more actions and provide more equipment.
On March 28, the US Department of Defense announced the budget requirements for fiscal year 2023. In the budget requirements for fiscal year 2023, the US federal government allocated US $813.3 billion for national defense, of which the US Department of defense accounted for us $773 billion, an increase of 4.1% over the approved budget of the US Department of defense in fiscal year 2022. Among them, nearly $56.5 billion is used for air force platforms and systems; More than $40.8 billion for maritime power; Nearly $12.6 billion was spent on the modernization of US Army and Marine Corps Combat Vehicles. In addition, more than 130.1 billion US dollars have been allocated for research and development. “This is an unprecedented high level,” said US Defense Secretary Austin
On March 24, the NATO summit issued a joint statement, deciding to increase aid to Ukraine, military deployment and military expenditure of Member States, which 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. 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.
At present, the negotiations between Russia and Ukraine are “making difficult progress”, and the impact of the Russian Ukrainian conflict tends to develop in the long term. Countries have successively increased military spending, and the expansion of troops also shows that the impact of the Russian Ukrainian conflict is extremely far-reaching and difficult to accurately predict, and the security demands of countries have increased. We believe that only a strong military can ensure national security. In order to cope with great uncertainty, military spending around the world will show a trend of accelerating growth. At the same time, the military trade market will also grow, further raising the ceiling of the military industry and becoming the “second curve” of the military industry.
The conflict between Russia and Ukraine has triggered turbulence in the world situation, and the US sanctions against China have been increasing. The demand for a strong military is becoming increasingly urgent. We should “speed up the construction of a new development pattern of weapons and equipment construction, spare no effort to speed up the modernization of weapons and equipment, and promote the construction of our military’s weapons and equipment to a new level at a new starting point”.
The following is a detailed interpretation of the above views.
1. “Quality, quantity and delivery” is the core principle, and the military industry is developing towards a healthy and benign industry ecology of “exchanging quantity for price and creating profits with efficiency”
On March 19, the chairman of the Central Military Commission Xi Jinping recently signed an order to issue the “Interim Provisions on the supervision and administration of military equipment procurement contracts”, which will come into force on March 20, 2022. The regulations follow the law of socialist market economy and the law of military equipment construction, scientifically standardize the basic tasks, basic contents and basic management system of equipment procurement contract supervision and management under the new situation and new system, and improve the quality and efficiency of equipment procurement. In accordance with the general principle of “the CMC is in charge of the general department, the theater is in charge of the main battle, and the services are in charge of the construction”, the “provisions” clarify the management system for the supervision and management of equipment procurement contracts; Strengthen supervision according to law, optimize and improve the systems and mechanisms such as supervision and management tasks, supervision and management agreements and supervision and management plans, and improve the effectiveness of the supervision and management of equipment procurement contracts; Adhere to quality first, comprehensively and systematically design the contents, processes and requirements of equipment procurement contract supervision and management, so as to ensure the delivery of qualified equipment to the army; Innovate the supervision and management mode, and adopt the combination of pre prevention, in-process management and post evaluation to promote the innovative development of equipment procurement contract supervision and management.
Recently, the Xi Jinping chairman also signed two orders. Last year, the chairman of the Central Military Commission Xi Jinping signed an order to issue and implement the regulations on ordering military equipment on November 1, 2021. This regulation regulates the management mechanism of military equipment ordering, adheres to the construction led by war, and improves the management process of equipment ordering demand generation, planning, construction project approval, contract conclusion and supervision; Solve the contradictions restricting equipment construction, and build a working system of quality first, competition and selection, intensive and efficient, supervision and balance, etc. According to the news on February 12, the chairman of the Central Military Commission Xi Jinping recently signed an order to issue the “provisions on military equipment test and appraisal”, which will come into force on February 10, 2022. According to the principle of facing the army and actual combat, the regulation standardizes the management mechanism of military equipment test and appraisal under the new system and new staffing; Focusing on the actual combat assessment requirements of equipment, the test and appraisal workflow is adjusted, and the working links of performance test, state appraisal, combat test, train and equipment finalization and in-service assessment are constructed in the whole life cycle of equipment; Based on the development trend of equipment informatization and intelligence, improve the working model of test and appraisal
