1. The high growth trend continues and the prosperity of the industry continues to be realized
Under the base and background of high growth in the military industry last year, high-quality military enterprises still maintained a high growth rate in the first quarter of this year. Especially for the new fighter industry chain, missile industry chain, military passive electronic components, national defense informatization, military new materials and processing and other related enterprises, the operating revenue and net profit attributable to the parent company increased significantly, and the prosperity of the industry continued to be realized at the performance end. We believe that the main reasons for the obvious improvement of the profitability of military enterprises are: 1) smooth delivery of military products, optimized revenue structure and increased proportion of military products with high gross profit; 2) The demand for products is large, the volume of income is expanded, and the scale effect is obvious; 3) The enterprise strengthened its internal expenditure management, improved its cost control ability during the period, and achieved remarkable results in reducing costs and increasing efficiency.
2. Supply and demand are booming, and military industry is expected to start a long-term upward cycle
At present, the gap between China and a military power is still obvious. Driven by the strategic objectives of national defense and military construction, such as "achieving the Centennial goal of military construction by 2027" and "basically realizing national defense and military modernization by 2035", China's national defense construction will continue to advance, and the military industry is expected to start a long-term upward cycle.
From the demand side, at present, there is still a big gap between the ownership and advanced level of various types of weapons and equipment of our army and the US Army. The "14th five year plan" period will be a key period for our army to make up for the shortage of weapons and equipment and improve the proportion of advanced weapons and equipment. The main battle equipment represented by stealth fighters, strategic transport aircraft, aircraft carriers, large destroyers and new missiles is expected to accelerate the loading, the development of intelligent weapons and equipment represented by precision guided weapons, UAVs and unmanned vehicles is expected to accelerate, and the development of strategic, cutting-edge and subversive equipment technology is expected to accelerate.
From the supply side, military state-owned enterprises and private supporting suppliers expand production capacity and improve production capacity utilization by means of investment and construction of new production lines and technological transformation, so as to effectively ensure the supply of military products. Driven by the high boom demand of the industry, the number of military enterprises financing the expansion of production through IPO, fixed growth and convertible bonds has reached a record high. This hot phenomenon of expansion is the best response to the high boom demand of the military industry. The orderly release and expansion of new production capacity will lay a good foundation for the medium and long-term performance growth of enterprises.
3. Low value and high growth. At present, it is an excellent allocation opportunity
Since the beginning of 2020, the price of Shengong has fallen by 370000, ranking the lowest in the military industry in the year before the start of the current round. In sharp contrast to the undervalued value, there is a high growth. The contract liabilities, inventories, prepayments and other subjects of military enterprises have increased significantly, indicating that the enterprise has full orders, actively prepares for production and goods, the production and operation continues to improve, the development momentum is full, and the industry is in the stage of boom expansion. In addition, the military industry is a typical internal circulation industry. It has the attribute of countercyclical. It is not affected by the epidemic situation and macro-economy. Forced by international geopolitical conflicts and surrounding tensions, the growth is deterministic.
Investment advice
The military industry index is at the bottom, and the valuation is at the bottom. The industry prosperity and production and operation are all improving. It is mainly recommended to target the military electronic components and aircraft manufacturing industry chain.
1. Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) : military MLCC will continue to grow in the next three years. The net profit is expected to increase by 40% this year and 37% next year. The current valuation is 22 times. (see individual stock report for details)
2. Chengdu Ald Aviation Manufacturing Corporation(300696) : Chengdu Airlines industrial chain comprehensively speeds up and speeds up the work with high intensity. The company has disclosed that its net profit in the first quarter increased by 41%. It is expected that the company is expected to achieve an increase of about 60% this year, and the release of production capacity will continue to grow next year, with a current valuation of 24 times. (see individual stock report for details)
3. Western Superconducting Technologies Co.Ltd(688122) : the company has strong demand for titanium alloy and superalloy. It is expected that the net profit will increase by 38% this year and the new capacity will be released next year. The current valuation is 32 times. (see individual stock report for details)
The beneficiary objects also include Unigroup Guoxin Microelectronics Co.Ltd(002049) , China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Avic Jonhon Optronic Technology Co.Ltd(002179) , Jiangsu Toland Alloy Co.Ltd(300855) , etc.
Risk tips
The risk that the progress of equipment development and batch production is less than expected; Risk of upstream raw material price fluctuation.
