Recent performance of the industry: plate fluctuations, lack of highlights
The performance of the sector has been weak for nearly one and a half months since it stepped out of the “slow bull” market in May 2021. Specifically, since December 2021, the CSI military industry index has shown a sideways state. Since January 2022, the index has corrected, and the CSI military industry index fell 9.65% in January (as of December 12). From the performance of individual stocks, only 13% of the companies in the Minsheng military stock pool rose positively in January (as of December). However, looking forward to the future, we are still optimistic: strong industry fundamentals form a strong support for the plate. It is expected that after a short fluctuation, the “slow bull” trend will be resumed, dominated by the structured market. It is recommended that investors grasp the opportunities of key stocks.
Strong industry fundamentals: the resonance of supply and demand promotes the rapid growth of the industry
The high performance growth of the defense industry has been verified for several consecutive quarters. 1) In 2021, the net profit of the industry increased by more than 50% year-on-year for three consecutive quarters, which verified the logic of high growth; 2) In the interim report of 2021, the balance sheet of listed companies reflected significant changes in prepayments, such as Avic Shenyang Aircraft Company Limited(600760) contract liabilities of 37.7 billion yuan and Aecc Aviation Power Co Ltd(600893) contract liabilities of 24.8 billion yuan, both of which increased significantly, and the sustainability of industry growth was further strengthened; 3) From 2020 to 2021, about 40 enterprises in the industry will expand their production through financing in the capital market, with a total amount of more than 60 billion yuan, which fully reflects the significant change in the supply side; 4) From 2020 to 2021, more than 40 enterprises have implemented equity incentive, and the industry boom is high.
Looking forward to the future: it is still optimistic and dominated by the structured market
We believe that the industry is expected to realize the resonance of upstream, middle and downstream prosperity and performance for the first time in 2022 under the joint catalysis of growth and reform. 1) The resonance of upstream, middle and downstream boom and performance will trigger a double-click in the improvement of fundamentals and valuation; 2) The three-year action of state-owned enterprise reform will bring reform changes to enterprises in many dimensions; 3) The improvement of corporate governance combined with the high prosperity of the industry will promote the improvement of profit level, open the performance flexibility space, and have greater improvement potential in the middle and lower reaches; 4) It is expected that the growth center of the industry in 2022 will be 40%, and the growth rate in the middle and upper reaches will be higher. Structured market leading, clear investment main line and multi-point flowering. 1) To select core suppliers, investment in private enterprises should focus on product barriers and growth sustainability, while investment in state-owned enterprises should focus on industrial trends and corporate governance improvement potential; 2) Maintain the investment logic of “two mainlines and two tracks”: aviation equipment and guidance equipment are two “investment mainlines”, and informatization and new materials are two “better tracks”; 3) Emerging fields such as civil ship manufacturing, commercial aerospace and domestic large aircraft will bring more investment opportunities.
Suggested concern
1) new materials: Western Superconducting Technologies Co.Ltd(688122) , Baoji Titanium Industry Co.Ltd(600456) , Hubei Feilihua Quartz Glass Co.Ltd(300395) , Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) , Avic Aviation High-Technology Co.Ltd(600862) , Weihai Guangwei Composites Co.Ltd(300699) , Sinofibers Technology Co.Ltd(300777) etc; 2) Informatization: Beijing Relpow Technology Co.Ltd(300593) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Unigroup Guoxin Microelectronics Co.Ltd(002049) , Avic Jonhon Optronic Technology Co.Ltd(002179) , Guizhou Space Appliance Co.Ltd(002025) , Raytron Technology Co.Ltd(688002) , Chengdu Rml Technology Co.Ltd(301050) ; 3) Midstream: Avic Heavy Machinery Co.Ltd(600765) , Xi’An Triangle Defense Co.Ltd(300775) , Avic Electromechanical Systems Co.Ltd(002013) , Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) , Aecc Aero-Engine Control Co.Ltd(000738) ; 4) Main engine factory: Aecc Aviation Power Co Ltd(600893) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avic Shenyang Aircraft Company Limited(600760) , Avicopter Plc(600038) , Jiangxi Hongdu Aviation Industry Co.Ltd(600316) , etc.
Risk tips
The landing of orders is lower than expected; Capacity expansion is less than expected; Product delivery uncertainty, etc.
