Key investment points
1. Market review this week
This week, the Shenwan national defense industry index fell 4.87%, the Shanghai Composite Index fell 1.25%, the gem index fell 4.26%, the Shanghai and Shenzhen 300 index fell 0.99%, and the national defense industry sector ranked 24th among the 31 Shenwan level industries. On Monday (April 11), the biggest decline was 4.48%. As of Friday’s closing, the PE (TTM) of Shenwan national defense and military industry sector was 52.00 times, the aviation equipment in each sub sector was 53.53 times, the aerospace equipment was 55.15 times, the ground military equipment was 50.57 times, the military electronics was 40.84 times and the navigation equipment was 126.46 times. At present, the PE (TTM) quantile of Shenwan national defense military industry index in the past ten years is 12.30%, and the PE (TTM) quantiles of aviation equipment, aerospace equipment, ground military equipment, military electronics and navigation equipment are 12.89%, 14.65%, 21.29%, 3.32% and 68.36% respectively.
2. Performance differentiation leads to increased market differences, and high-quality targets have been wrongly killed
This week, several companies in the sector released the first quarterly report of 2022, among which, Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) performance increased by 47.55% year-on-year, Beijing Unistrong Science & Technology Co.Ltd(002383) performance increased by 119.57%, Chengdu Tianjian Technology Co.Ltd(002977) performance increased by 16.06% year-on-year, and Xi’An Chenxi Aviation Technology Corp.Ltd(300581) performance increased by 311.02% year-on-year. This week is a week in a sector. Many companies in the sectors of a sector of a sector. Companies in the sectors of a sector are releasing a forecast for the first quarter of 2022. Among them, the Chengdu Rml Technology Co.Ltd(301050) Unigroup Guoxin Microelectronics Co.Ltd(002049) performance is expected to increase by 57.54% – 69.90% year on year, China Zhenhua (Group) Science & Technology Co.Ltd(000733) performance is expected to increase by 122.16% – 155.40% year-on-year. The main focus of this round of military investment is the continuous improvement of fundamentals, the orderly transmission of industry prosperity from top to bottom, the high growth of upstream components and raw materials for two consecutive years, and the decline in growth rate is also expected. The valuation of some targets has returned to the historical bottom range, China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Unigroup Guoxin Microelectronics Co.Ltd(002049) and other targets in 2022q1 still have high growth, and the fundamental toughness and investment value are more prominent; The middle and lower reaches of the core system and the whole plant have gradually entered the performance release stage, and the early indicators such as contract liabilities and prepayments have provided strong evidence. The performance of some targets represented by AVIC in 2021 was lower than expected, the performance of the military industry sector began to diverge, the market pessimism superimposed on the tightening of risk appetite, resulting in a general decline in the military industry sector, China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Avic Heavy Machinery Co.Ltd(600765) and Chengdu Ald Aviation Manufacturing Corporation(300696) and a number of high-quality targets with stable fundamentals and continuous performance exceeding expectations were also killed. Since the beginning of the year, the investment value of the defense sector has rebounded by 29000%.
3. AVIC 2022q1 is in good operating condition, with high performance and predictable growth
According to the report of AVIC official micro on April 6 and 12, the overall operation of AVIC group in the first quarter of 2022 was in good condition: in terms of AVIC Nanjing Electromechanical, the revenue in the first quarter increased by 18% year-on-year, the net profit increased by 54%, EVA increased by 34%, the task completion rate increased by 13%, the number of product deliveries increased by 14% year-on-year, and the number of completion hours increased by 14% year-on-year; In terms of AVIC Automatic Control Institute, the milestone target of production and delivery in the first quarter was achieved, the sales revenue reached 20% of the annual target, and the “2332” balanced delivery target won the first battle; In terms of AVIC Shanghai Electric Power Research Institute, the revenue in the first quarter was 978 million yuan, the net profit was 52 million yuan, and the completion rate of production balance and level 0 plan of scientific research model exceeded 80%; In terms of AVIC Computer Institute, the output value of production and warehousing in the first quarter increased by 38.4% year-on-year, and the completion volume of the whole machine increased by 101% year-on-year; In terms of AVIC Zheng Fei, the revenue in the first quarter increased by 12.48% year-on-year, reaching the highest level in the same period in recent five years. The completion rate of the key quantitative indicators of the three-year action of the airborne reform was 100%, and the completion rate of the three-year action tasks undertaken by the group company was 98.21%; As for the landing gear of AVIC, the revenue in the first quarter was 650 million yuan, a year-on-year increase of 35.98%, of which the revenue of aviation military products was 587 million yuan, a year-on-year increase of 38.65% Avic Xi’An Aircraft Industry Group Company Ltd(000768) as for the first quarter, the balanced delivery target in the first quarter was fully completed and all work in the first quarter was successfully completed Avic Shenyang Aircraft Company Limited(600760) in the first quarter, the number of assembly transfer, flight test delivery, part assembly and external supporting parts reached the peak in recent three years, and the quarterly assessment target of balanced production was successfully completed; In terms of AVIC flight test center, the total number of scientific research flight tests in the first quarter hit a new record, and completed all the planned tasks of the group’s “No. 1 document” according to the nodes Jiangxi Hongdu Aviation Industry Co.Ltd(600316) in the first quarter, we completed multiple transfer delivery tasks continuously, and the flight test of higher education aircraft was carried out as scheduled; In terms of AVIC Harbin airlines, the delivery tasks of department assembly, general assembly and flight test were successfully completed in the first quarter; In terms of AVIC Changfei, the group successfully completed the balanced production assessment goal in the first quarter, and the model scientific research was steadily promoted according to the nodes. We believe that AVIC is the backbone of China’s national defense construction. In recent years, the large volume of advanced fighters has led to a significant increase in batch production tasks, and the aviation industry chain has entered a high boom stage. In the first quarter of 2022, AVIC group’s overall operation was in good condition, the scientific research and batch production tasks were steadily promoted, and the performance was high and the growth could be expected.
4. The Shenzhou 13 re-entry module has landed successfully, and China’s space construction is expected to accelerate.
According to Xinhuanetco.Ltd(603888) reports, at 9:56 on April 16, the return module of Shenzhou 13 manned spacecraft successfully landed at the Dongfeng landing site. The three astronauts were in good health and the mission was a complete success, marking the successful conclusion of the mission in the key technology verification stage of the space station, and China’s space construction is expected to accelerate. According to the white paper “China’s aerospace in 2021”, since 2016, China’s aerospace industry has entered the “fast lane” of innovation and development, and has made remarkable achievements in the fields of space transportation system, space infrastructure, manned spaceflight, deep space exploration and so on. In 2021, China’s number of space launches reached 55, ranking first in the world, and many major Changzheng Engineering Co.Ltd(603698) entered the harvest period. Wu Weiren, academician of the Chinese Academy of engineering, once said that China will fully build itself into an aerospace power by 2050 and become one of the leaders of Addsino Co.Ltd(000547) in the world. The growth rate of net profit attributable to parent company in 2021q1-q3 of aerospace equipment sector was 91.31%, 31.07% and – 4.76% respectively. With the continuous promotion of aerospace power strategy, the performance of the sector is expected to improve.
5. Key recommendations this week
1) focus on recommending upstream military electronic components and raw materials with sustained and high performance: China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , Western Superconducting Technologies Co.Ltd(688122) .
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) , Wuxi Paike New Materials Technology Co.Ltd(605123) .
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) , Wuhan Guide Infrared Co.Ltd(002414) and Aerospace Ch Uav Co.Ltd(002389) .
Risk warning: the release and delivery of military orders are not as expected; Performance growth was less than expected.
