Market in recent week
National defense industry (Shenwan) index (- 4.87%), industry (Shenwan) ranking (24 / 31); Shanghai Composite Index (- 1.25%), Shenzhen Component Index (- 2.60%) and gem index (- 4.26%); Top five increases: Changshu Guorui Technology Co.Ltd(300600) (+ 18.26%), Anhui Greatwall Military Industry Co.Ltd(601606) (+ 10.78%), China Harzone Industry Corp.Ltd(300527) (+ 8.00%), Jiangxi Xinyu Guoke Technology Co.Ltd(300722) (+ 6.92%), Zhejiang Dali Technology Co.Ltd(002214) (+ 4.50%);
Top five declines: Beijing Hengyu Datacom Aviation Equipment Co.Ltd(300965) (- 20.36%), Beijing Starneto Technology Co.Ltd(002829) (- 15.29%), Suzhou Sushi Testing Group Co.Ltd(300416) (- 15.00%), Wuxi Paike New Materials Technology Co.Ltd(605123) (- 14.17%), Anhui Wantong Technology Co.Ltd(002331) (- 13.85%).
Important events and announcements
On April 8, China Nuclear Engineering & Construction Corporation Limited(601611) china National Nuclear Corporation signed the framework agreement on daily connected transactions (20222024) and the announcement on daily connected transactions with China National Nuclear Corporation. It is estimated that the amount of connected sales, connected purchases, connected leases and connected factoring between the company and China National Nuclear Corporation and its subsidiaries will be 25billion, 4billion, 400million and 2billion respectively from 2022 to 2024.
On April 9, Aecc Aviation Power Co Ltd(600893) announced that the board of directors of the company formulated the shareholder return plan for Aecc Aviation Power Co Ltd(600893) next three years (20222024). After the company makes up the losses and withdraws the statutory reserve and surplus reserve in accordance with the articles of association, the net cash flow realized by the company in the current operating activities can meet the needs of cash dividends, Or according to the state’s requirements on the income distribution of state-owned capital budget, give priority to the distribution of profits in the form of cash dividends. The accumulated profits distributed in cash in the last three years shall not be less than 30% of the average annual distributable profits realized in the last three years.
On April 11, Yantai Tayho Advanced Materials Co.Ltd(002254) announced that the company plans to invest in the establishment of Yantai Yantai Tayho Advanced Materials Co.Ltd(002254) polymer New Material Research Institute Co., Ltd., with a registered capital of 500 million yuan, which is wholly-owned by the company and a shareholding ratio of 100%. The establishment of polymer new materials research institute is an important measure to serve the company’s medium and long-term strategic objectives. It will not produce economic benefits in the short term. In the long term, it will help to improve the quality, quantity and speed of R & D of new products and new businesses.
On April 11, according to the associated press and the drive website of the United States, on April 9, six yun-20 aircraft of the Chinese Air Force arrived in Serbia; On April 10, the second batch of six Chinese yun-20 arrived at batanica Air Force Base in Belgrade, Serbia. In two days, 12 Chinese yun-20 sorties flew to the hinterland of Europe to deliver fk-3 air defense missile system to the Serbian military.
On April 12, Guizhou Aviation Technical Development Co.Ltd(688239) issued an announcement on granting restricted shares to incentive objects for the first time. The grant date of equity incentive rights and interests was April 12, 2022. 141 incentive objects were granted 1.6 million restricted shares for the first time, accounting for about 1.1429% of the total share capital of the company. The grant price is 25.00 yuan / share.
On April 13, according to the official website of the European Council, the European Council announced that it would provide 500 million euros of financial assistance to the Ukrainian army through the European peace fund to support EU member states in supplying weapons and equipment to the Ukrainian army. This is the third time that the EU has recently provided military assistance to Ukraine. The first two were February 28 and March 23 respectively, bringing the total support funds to 1.5 billion euros.
On April 13, the Pentagon received the heads of the eight largest US arms manufacturers on April 13 local time to discuss how the US military industry will have the ability to meet Ukraine’s arms needs if the conflict with Russia and Ukraine continues for several years.
On April 13, Guizhou Aviation Technical Development Co.Ltd(688239) announced that it plans to sign a project investment agreement with the Management Committee of Guiyang National High tech Industrial Development Zone. The investment target is the precision manufacturing industrial park project of aeroengine and gas turbine ring forgings, with a total investment of 1.2 billion yuan. The project content is to build 3 precision rolling production lines, 2 heat treatment production lines, 2 machining production lines and supporting facilities of aeroengine ring forgings, It mainly produces ring forgings and free forgings of various metal materials. The products are mainly used in aeroengines, gas turbines, aerospace, nuclear power, wind power, ships and other fields. The construction period is to complete the construction of the main plant and supporting facilities within 18 months from the date of obtaining the construction license, and start trial production within 33 months. On April 14, the Russian Ministry of defense confirmed that a fire broke out on the Russian missile cruiser “Moscow”, which led to the explosion of ammunition, and that the “Moscow” had sunk.
On April 16, Harbin Xinguang Optic-Electronics Technology Co.Ltd(688011) announced that it planned to buy back the company’s shares through centralized bidding transaction. The total capital of the repurchased shares shall not be less than 20 million yuan, not more than 40 million yuan, and the repurchase price shall not exceed 39.00 yuan / share. The repurchased shares are intended to be used for equity incentive at an appropriate time in the future.
On April 16, according to the Chinese manned Changzheng Engineering Co.Ltd(603698) office, at 9:56 Beijing time on April 16, 2022, the return module of Shenzhou 13 manned spacecraft successfully landed at the Dongfeng landing site. At 11:05, astronauts Zhai Zhigang, Wang Yaping and ye Guangfu of Shenzhou 13 all left the capsule safely and smoothly.
On April 16, Baoji Titanium Industry Co.Ltd(600456) and its controlling shareholder BaoTi Group Co., Ltd. and its wholly-owned subsidiary and holding company intend to sign relevant daily related party transaction agreements (contracts). This related party transaction agreement (contract) is required by the company’s daily production and operation, and the agreement is valid for three years.
Investment advice
I. core view
In terms of the market, it is still weak, and strong stocks such as Avic Heavy Machinery Co.Ltd(600765) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Unigroup Guoxin Microelectronics Co.Ltd(002049) and so on have made up for the decline. This week, the decline of Avic Heavy Machinery Co.Ltd(600765) week was – 12.16%, that of China Zhenhua (Group) Science & Technology Co.Ltd(000733) week was – 8.86%, and that of Unigroup Guoxin Microelectronics Co.Ltd(002049) week was – 8.99%.
At present, there are many doubts about the military industry: the upstream price rise compresses the profits of the industry, the impact of intensified competition on the existing pattern, the reform of military pricing mechanism, the concern of tax increase, the sustainability of performance fulfillment, the possibility of downward growth, etc. in fact, it ignores a core principle and a key issue. The consequence of ignoring this core principle and this key issue is that the growth of the military industry has entered the middle and late stage, the growth has been weak and the attraction has been reduced.
A core principle is to ensure delivery with quality and quantity, and delivery with quality and quantity is “how fast and good”, but whether to “how fast and save” and “save” are the focus of the market.
Our view is that large quantity, fast speed, good quality and low cost comply with the laws of the industry, but “saving” does not rely on “pressure”. The first priority of the military industry is “quality and delivery”. It is impossible to sacrifice the quality of military products and affect the delivery of military products just for the consideration of cost. From the perspective of the principle of quality, quantity and delivery, as well as the realization path of “exchanging quantity for price and creating profits with efficiency”, we can better understand and explain various problems, and make judgments and predictions. Marketization, specialization and scale are the healthy 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.
A key problem is that at present, it is only the early stage of the comprehensive expansion of military industry, and only the realization of
The beginning of the three important goals of “2027, 2035 and 2050” is only the prelude to the golden age of the military industry. 2021 is the opening year of the “14th five year plan”, which breaks through the development law of loosening before and tightening after the plan in the past five years. The first year is the big year, the start is the decisive battle, and the start is the sprint. The whole industry shows a high level of demand, no time to wait, and supply is in full swing. The reform mechanism of state-owned enterprises is full of endogenous vitality, and private enterprises are fully engaged in seizing historic opportunities. These are just the beginning. Most of the historic capacity expansion of the whole industry is in the way. It is too early to doubt the sustainability and maintenance of the growth rate of the industry.
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, the valuation of the military industry has become cheap, and a large number of companies have returned to the market value of 5 billion. The valuation of core stocks corresponding to 24 and 25 years has reached about 20 times, which can and should be optimistic. Despite the current overall downturn in the market, track stocks such as the “new semi army” are still suppressed. However, once the geopolitical changes such as the situation in Russia and Ukraine, the market sentiment will pick up and the risk appetite will increase due to the control of the epidemic situation and the reduction of interest rates and reserve requirements. We believe that relying on solid fundamentals and a high degree of certainty, the military industry will still be the “vanguard” of the rebound.
The Russia Ukraine incident led to the continued evolution of the geopolitical crisis, stimulated a new round of global military spending, and accelerated the construction and delivery of China’s weapons and equipment.
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.
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 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 13, the European Council announced that it would provide 500 million euros of financial assistance to the Ukrainian army through the European peace fund to support EU member states in supplying weapons and equipment to the Ukrainian army. This is the third time that the EU has recently provided military assistance to Ukraine. The first two were on February 28 and March 23 respectively, bringing the total support funds to 1.5 billion euros.
At present, the negotiations between Russia and Ukraine have made “difficult progress” and the impact of the Russian Ukrainian conflict
There is a trend towards long-term development. 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”.
III. proposed areas of concern and individual stocks
Military aircraft and other aviation equipment industry chain:
Fighter jets, transport planes, helicopters, dronedronedronedrones, and engines are related to the industry chain of industry chain related targets of the industry chain of the industry chain of the industry chain of the Aecc Aviation Power Co Ltd(600893) transport, transport planes, helicopters, helicopters, helicopters, dronedronedrones and engines, and the industry chain of the industry chain of the industry chain of the industry chain of the industry chain of the industry chain of the industry chain of the industry chain of the industry chain of the industry chain of the related related related related to the related mark of the 60089 Aecc Aviation Power Co Ltd(600893) (carbon fiber composite), Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) (superalloy), Western Superconducting Technologies Co.Ltd(688122) , Western Metal Materials Co.Ltd(002149) , Baoji Titanium Industry Co.Ltd(600456) (titanium alloy), Xi’An Bright Laser Technologies Co.Ltd(688333) (3D printing), Chengdu Ald Aviation Manufacturing Corporation(300696) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Guizhou Aviation Technical Development Co.Ltd(688239) , Jiangxi Huawu Brake Co.Ltd(300095) , Chengdu Leejun Industrial Co.Ltd(002651) (aviation manufacturing), etc.
Aerospace equipment (bomb, satellite, chain, etc.) industry chain:
\ (satellite navigation communication).
Informatization + independent control:
\ (high-end capacitor), Chengdu Zhimingda Electronics Co.Ltd(688636) (embedded computer), China Greatwall Technology Group Co.Ltd(000066) , China National Software And Service Company Limited(600536) (Xinchuang). In addition, the first C919 is expected to be delivered in 2022, which may arouse investment enthusiasm in the field of civil aircraft.
IV. risk warning
① the development of the epidemic is still uncertain, resulting in the pressure on China’s macro-economy and the reduction of military investment;
② after the reform, the organizational structure of military users is adjusted, resulting in changes in demand, and some orders that have been postponed or cancelled may not be restarted;
③ the progress of the reform of state-owned enterprises is less than expected, and the reform of institutions, mixed reform and asset securitization are systematic work, which is difficult to achieve overnight;
④ the R & D investment of military products is large, the cycle is long and the risk is high, and the model progress may not be as expected;
⑤ with the reform of military product pricing mechanism and the large volume of orders, the performance of relevant enterprises has been damaged after the price reduction of some military products;
⑥ the industry is highly prosperous, but if the increase is too large in a short time, there may be a mismatch between performance and valuation in a certain period of time;
⑦ the development of military trade business is greatly affected by the epidemic in the short term, and the progress of order delivery confirmation may be lower than expected.
⑧ the reduction of holdings may increase the volatility of the overall or individual stock trend of the military industry in the short term.
