1. Market review this week
This week, the Shenwan national defense industry index fell by 7.47%, the Shanghai Composite Index fell by 1.65%, the gem index fell by 6.80%, the Shanghai and Shenzhen 300 index fell by 2.39%, and the national defense industry sector ranked 27th among the 28 Shenwan level industries. As of Friday’s closing, the PE (TTM) of Shenwan national defense and military industry sector was 66.74 times, the aerospace equipment in each sub sector was 65.94 times, the aviation equipment was 71.81 times, the ground military equipment was 59.07 times and the shipbuilding was 146.10 times.
2. The expectation of industry fundamentals improvement remains unchanged, and we are optimistic about the short-term plate adjustment
We believe that this round of market is far from over, and we should pay attention to the medium and long-term growth logic of the military industry. First of all, there is a big gap between the current situation of the Chinese army and the goal of a world-class army. The strategy of building a strong army has risen to a national strategy. During the 14th Five Year Plan period, the process of national defense modernization of our army has accelerated, and the procurement of advanced weapons and equipment is expected to accelerate in large quantities. Secondly, at present, the income of China’s military industry mainly depends on national financial investment, with significant planning characteristics. Under the background of global economic downturn, the industry’s countercyclical attribute is obvious. Moreover, advanced military technology has great civil value, and the dual-use market has broad prospects. Aecc Aviation Power Co Ltd(600893) recently announced that the company expects to sell 18 billion yuan of goods to related parties in the aviation industry group system in 2022, an increase of 28.05% over the expected actual amount in 2021; It is estimated that 11 billion yuan of commodities will be purchased from related parties in China’s aviation development system, an increase of 36.49% over the expected actual amount in 2021. China’s aero-engine localization rate continues to improve. Driven by multiple demands such as advanced military aircraft assembly, replacement of existing fighters and domestic substitution of imported engines, the aero-engine industry chain is expected to continue to be prosperous.
3. The Central Military Commission has signed a training mobilization order for five consecutive years, and it is expected to accelerate the large-scale production of expendable weapons and equipment
On January 4, the Central Military Commission signed a training mobilization order, ordering the whole army to pay close attention to the changes in science and technology, war and opponents, vigorously promote the coupling of war and training, system training and science and technology training, comprehensively promote the transformation and upgrading of military training, and train elite troops who can fight well. The army, Navy, air force, rocket force and other units immediately organized actual combat exercises and opened the curtain of military training in the new year. Since 2012, the top level has repeatedly stressed that the whole army should strengthen practical military training. By 2022, the Central Military Commission has signed a training mobilization order for five consecutive years. In recent years, the security situation around China has tightened, and the frequency and intensity of actual combat exercises have increased, which has increased the demand for expendable weapons and equipment such as missiles and aeroengines. The prosperity of the military industry is expected to continue to rise.
4. Key recommendations this week
1) recommend military electronic components with low valuation and high performance flexibility: China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Zhuzhou Hongda Electronics Corp.Ltd(300726) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) .
2) recommend midstream aviation manufacturing targets with scale effect gradually emerging and comprehensive supporting capacity expected to be greatly improved: Avic Heavy Machinery Co.Ltd(600765) , Chengdu Ald Aviation Manufacturing Corporation(300696) , Chengdu Haoneng Technology Co.Ltd(603809) , Anhui Yingliu Electromechanical Co.Ltd(603308) .
3) focus on recommending the overall and key systems of weapons and equipment with monopoly and scarcity and huge long-term growth space: Avic Shenyang Aircraft Company Limited(600760) , Aecc Aviation Power Co Ltd(600893) , Avicopter Plc(600038) , Aecc Aero-Engine Control Co.Ltd(000738) and Wuhan Guide Infrared Co.Ltd(002414) .
4) it is suggested to pay attention to the beneficiary objects of the mixed reform of state-owned enterprises: Chengdu Spaceon Electronics Co.Ltd(002935) , Aerospace Ch Uav Co.Ltd(002389) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Guizhou Space Appliance Co.Ltd(002025) and Sun Create Electronics Co.Ltd(600990) .
Risk warning: the release and delivery of military orders are not as expected; Performance growth is less than expected; The reform of state-owned enterprises did not advance as expected.
