Key investment points:
Market review: as of April 29, 2022, Shenwan defense and military industry fell by 1.06% this week, 1.14 percentage points lower than the Shanghai and Shenzhen 300 index, ranking 10th among Shenwan 31 industries; Shenwan defense and military industry fell 13.44% in April, 8.55 percentage points lower than the CSI 300 index, ranking 24th among Shenwan 31 industries; Shenwan defense and military industry sector has fallen 33.60% year to date, 14.90 percentage points lower than the Shanghai and Shenzhen 300 index, ranking 30th among Shenwan 31 industries.
As of April 29, 2022, the performance of Shenwan national defense and military industry sector was different this week. From the performance of the last week, the aviation equipment sector performed best, up 0.33%. Other sectors showed as follows: the military electronics sector rose 0.23%, the ground military equipment sector fell 1.24%, the aerospace equipment sector fell 6.15%, and the navigation equipment sector fell 7.00%.
View of Defense Industry Week: according to the first quarterly report data released by the military industry, the current prosperity of the industry exceeds the same period in 2021, the downstream performance data has increased significantly year-on-year, the performance of some components and forging enterprises in the midstream has doubled, and some upstream enterprises have withstood the impact of rising prices of raw materials and energy, and their performance has increased significantly year-on-year. After the correction since the beginning of the year, the industry valuation has fallen sharply. For the current industry fundamentals, the industry valuation is underestimated, and there has been a deviation between the fundamentals and the valuation. At the same time, the countercyclical attribute of the industry is prominent, and the performance is less affected by the macro environment.
The development of the situation in Russia and Ukraine has further exacerbated the factors of global instability. In the face of the uncertainty caused by competition among major powers, all countries have begun to strengthen their own armaments or increase their national defense budgets. A new round of arms race has begun, and it is expected that the purchase orders of China and foreign countries will increase significantly. This year is the “closing year” of the reform of state-owned enterprises. The reform of state-owned military enterprises is expected to further accelerate and is expected to activate the vitality of military enterprises. Long term optimistic about the high prosperity of the industry under the demand for equipment upgrading during the 14th Five Year Plan period; From the perspective of usage, with the increase of actual training times, the loss of trainer aircraft and the replenishment of missile inventory are increased. We are optimistic about the aviation industry chain and the missile industry chain with high consumables. On the other hand, we are optimistic about the transfer and transformation of aerospace technology achievements to economy and society, the development of Beidou industrial chain under aerospace industry services and the Internet of things, and the development of special chips under the new round of digital currency reform. Suggestions and concerns for the proposal concern: Avic Shenyang Aircraft Company Limited(600760) ( Western Superconducting Technologies Co.Ltd(688122) ), Gaona Aero Material Co.Ltd(300034) ( Gaona Aero Material Co.Ltd(300034) ), etc.
Risk warning: the number of new orders due to the decline of market demand is less than expected; High R & D costs lead to the decline of enterprise performance beyond expectations; The price rise of upstream materials caused by the risk of Russian Ukrainian war.
