The military industry has shifted from steady growth to high-speed growth, and the growth rate of the industry ranks first. In 2021, the military industry achieved a growth rate of 20.41% in operating revenue, 29.40% in net profit attributable to the parent company, 20.42% in operating revenue and 35.09% in net profit attributable to the parent company. Among the 29 A-share industries, the growth rate of revenue ranked 11th and the growth rate of net profit attributable to the parent company ranked 10th, ranking in the top position; In 2021q1, the military industry achieved a growth rate of 16.43% in operating revenue and 16.89% in net profit attributable to the parent company, ranking eighth among 29 A-share industries. The growth rate of revenue and profit in 2021 was among the top, which once again verified our judgment on the high outlook of the military industry. It is expected that the rapid growth of the military industry in the next two years will be highly deterministic and have a comparative advantage over other industries.
The shareholding concentration of Q1 in the military industry sector continued to increase and was actively configured as the second highest value in recent years. Among the heavy positions held by public funds in 2022q1, the total market value of military holdings was 113651 billion yuan, with a position ratio of 4.44%, down 0.34 PCT month on month; The value of the stock market held by the Chinese military industry and Technology Co., Ltd. was 90.318 billion yuan, with a shareholding ratio of 4.57%, down 0.45 PCT month on month. The top ten heavy positions accounted for 70.66% (64.78% of Q4 heavy positions), and the top twenty positions of Q1 accounted for 87.20% (85.19% of Q4 positions). The shareholding concentration remained stable and increased slightly. One of the first ten shares of the 2022q1, which is a one of a one of two of two of a one of two of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a two of a one of a one of a one of a one of a one of a one of a one of a one of a two of a one of a one of a one of a one of a one of a one of a one of a two of a one of a two of a one of a one of a two of a one of a two of a one of a one of a two of a one of a one of a one of a two of a one of a one of a one of a one of a one of a one of a one of a one of a one of a two of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a one of a heavy, Tianjin 712 Communication & Broadcasting Co.Ltd(603712) , aviation and information sectors are still the key configuration; Compared with 2022q1, 2021q4 Avic Heavy Machinery Co.Ltd(600765) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Hubei Feilihua Quartz Glass Co.Ltd(300395) , Tianjin 712 Communication & Broadcasting Co.Ltd(603712) is listed and Fushun Special Steel Co.Ltd(600399) , Avic Electromechanical Systems Co.Ltd(002013) , Avic Aviation High-Technology Co.Ltd(600862) , Fujian Torch Electron Technology Co.Ltd(603678) is listed. The top ten of the top ten for the first quarter of 2022q1 in 2022022q1, which will be the top ten for the first decade of the first quarter of the first quarter of the first quarter of the year of 2022022022q1, with the top ten of the top ten for the first quarter of the first quarter of the first quarter of the year of the year of the year of the year of the year of the year of 2022022022q1, the top ten of the top ten in the first quarter of the first quarter of the first quarter of the year of the year of the first quarter of the first quarter of the first quarter quarter of the year of the year of ”’60076 ”’ \ , Hangjin Technology Co.Ltd(000818) ; Ten of the top ten that have been among the top ten to shed the top ten of the top ten in the last ten in the last ten in the last ten in the last ten of the last ten in the last ten in the last ten of the ‘ Fushun Special Steel Co.Ltd(600399) \ , Avic Shenyang Aircraft Company Limited(600760) .
Profit statement: in 2021, the military industry achieved a total revenue of 431212 billion yuan, with a year-on-year increase of 20.41%, and the net profit attributable to the parent company (38.214 billion yuan, with a year-on-year increase of 29.40%). After deducting the impact of non military business and non recurring profit and loss of some companies and retroactively adjusting the performance changes caused by restructuring of some companies, the total revenue (431017 billion yuan, with a year-on-year increase of 20.42%) and the net profit attributable to the parent company (38.300 billion yuan, with a year-on-year increase of 35.09%); The growth rate of the aviation sector is still lower than that of the industry sector, accounting for 1.608 billion, accounting for the largest revenue growth of the industry sector, accounting for 1.605 billion; Net profit attributable to the parent company (14.902 billion, with a year-on-year increase of 34.60%, lower than the average growth rate of the industry), accounting for 39.00% of the industry, accounting for the second; The aerospace sector achieved revenue (51.961 billion, a year-on-year increase of 15.38%, lower than the average growth rate of the industry), accounting for 12.06% of the industry; The net profit attributable to the parent company (3.124 billion, with a year-on-year increase of 2.58%, lower than the average growth rate of the industry), accounting for 8.18% of the industry, and the growth rate is lower than the average growth rate of the industry; The informatization sector achieved revenue (90.727 billion, a year-on-year increase of 18.36%, lower than the average growth rate of the industry), accounting for 21.05% of the industry; Net profit attributable to the parent company (14.98 billion, with a year-on-year increase of 41.81%, higher than the average growth rate of the industry), accounting for 39.20% of the industry; The new materials sector achieved revenue (69.525 billion, a year-on-year increase of 41.69%, higher than the average growth rate of the industry), accounting for 16.13% of the industry; The net profit attributable to the parent company (5.208 billion, with a year-on-year increase of 40.50%, higher than the average growth rate of the industry), accounting for 13.63% of the industry, and the growth rate exceeded the average growth rate of the industry. Overall, the performance of the military industry sector generally grew rapidly in 2021.
The overall profitability of the military industry sector continued to improve, continued to increase R & D investment, and achieved obvious results in improving quality and efficiency. In 2021, the gross profit margin of the military industry sector decreased by 0.18 PCT to 22.46% year-on-year, the net profit margin increased by 0.96 PCT to 8.89%, and the profitability continued to improve. During 2021, the cost rate was 12.65%, a year-on-year decrease of 0.51 PCT, of which the R & D cost rate increased slightly by 0.17 PCT to 5.01%, reflecting the rapid development of China’s weapons and equipment in the first year of the 14th five year plan, and the acceleration of pre research and new equipment development. In order to improve the competitiveness of the industry, military enterprises correspondingly increased R & D investment and effectively reduced the cost rate, which is conducive to improving the elasticity of medium and long-term performance.
In 2021q1, the military industry achieved revenue (93.376 billion, a year-on-year increase of 16.43%) and net profit attributable to the parent company (8.321 billion, a year-on-year increase of 16.89%). In 2022q1, the gross profit margin was 23.46%, a year-on-year decrease of 0.3pct, and the net profit margin was 8.91%, a year-on-year increase of 0.03pct. During 2022q1, the expense rate was 12.85%, a year-on-year decrease of 0.54pct, and the R & D expense rate increased slightly by 0.12pct to 4.80%. The overall profitability is expected to be further improved. It is expected that during the “14th five year plan” period, under the background of the steady growth of military expenditure and the strengthening of practical training, the demand side of the industry will be guaranteed, the fundamental trend will continue to improve, and the industry is expected to enter the stage of high-speed and high-quality development.
Balance sheet: focus on the changes of accounts received in advance (reflected in the situation of hand orders), inventory (especially the changes of raw material accounts in the inventory notes, reflecting the medium and long-term growth), accounts payable (reflected in the purchase and preparation situation to meet the production of orders), etc.
It can be seen from the 2021 annual report data: 1) the advance receipts and contract liabilities of the military industry increased by 143.96% year-on-year, of which the aviation sector increased by 215.52%; 2) The inventory of military industry increased by 17.31% year-on-year, of which the inventory of new materials increased rapidly, reaching 33.61%; 3) In 2021, accounts payable and notes payable of military industry increased by 17.44% year-on-year.
According to the data of the first quarter report of 2022, 1) in terms of advance receipts and contract liabilities, the industry as a whole increased by 140.14%, and the growth rate of the aviation sector was high, with an increase of 233.97%; 2) In terms of inventory, 22q1 increased by 14.07% year-on-year, and the new material sector grew rapidly, with a year-on-year increase of 28.99%; 3) Accounts payable and notes payable increased by 19.95% year-on-year.
The changes in the balance sheet of the annual report and the first quarterly report show that the fundamentals of the industry continue to improve. We expect that the growth of the industry in 2022 will be relatively certain, and the changes in relevant subjects of the balance sheet may continue to be reflected.
Cash flow statement: the impact of military reform is gradually weakened, and the cash flow of the industry continues. In 2021, the operational cash flow of the military industry continued to improve year-on-year, reaching 50.949 billion yuan, with a year-on-year increase of 26.75%, and all segments were improved. Affected by the military reform in 2016, the cash flow of the military industry experienced the lowest point. In that year, the operating cash flow of the whole industry was only 957 million yuan. 2021 is the first year of the 14th five year plan. The impact of military reform has been basically eliminated. With the change of prepayment mode, it is expected that the operating cash flow is expected to continue to improve, and the financial income generated may offset the downstream price pressure. In 2022q1, the cash flow of military enterprises further increased compared with the absolute value of previous periods, reflecting the further improvement of the production scale of the industry.
Driven by the external environment and internal reform, the 14th five year plan is expected to maintain a high growth rate.
At present, the external environment and internal reform drive the industry to move forward. The 14th five year plan may break through the five-year law of the past, showing an accelerated growth pattern. It is expected that the growth rate in 22-23 years is still expected to maintain a high level of about 30%, and the 14th five year plan is expected to maintain a high growth rate. The main logic is as follows:
1) tension in the surrounding areas has become a new normal, and the construction of weapons and equipment under the Centennial goal of building a strong army has ushered in great development in the 14th five year plan. The United States continues to act in the South China Sea and Taiwan independence forces frequently provoke. During the 14th Five Year Plan period, China will accelerate the modernization of national defense and the army, comprehensively strengthen military training and preparation, improve its strategic ability to defend the interests of national sovereignty, security and development, and ensure that the Centennial goal of building the army will be achieved in 2027.
2) sustained and stable military expenditure is a key factor for the growth of the industry, especially focusing on the key investment directions of sea, air and rocket forces under the background of upgrading weapons and equipment. The growth rate of national defense budget in 2022 is 7.1%, which is reasonable and stable. In addition, there are many other types of funds in the market, which are mostly invested in the manufacturing stage on the supply side. Continuous capital investment is the primary key factor for the growth of military industry. In addition, we should pay more attention to the key investment direction of weapons and equipment. China’s military expenditure tends to be used to update weapons and equipment. At the same time, it puts forward the key investment direction, including sea, air and rocket forces.
3) the trend of main battle equipment assembly has accelerated, driving the upward trend of the industrial chain. At present, China’s weapon and equipment structure is “five generations as the traction, four generations as the backbone and three generations as the main body”. At present, the aviation equipment represented by the “20” series is in the stage of rapid batch production. The demand of the main engine plant is full. Considering the integrity of the aviation equipment industry chain, it is expected that the delivery volume of the downstream main engine plant will drive the continuous upward development of the industry chain.
4) reform the military industrial system and improve the operation efficiency of enterprises. With the advancement of reform, the systems and systems that do not meet the needs of development in the industry can be gradually reformed, so that the production efficiency of the industry can be improved. And there are signs of further promotion of equity incentive. Under the pressure of price reform, enterprises will increase their willingness to reduce costs and expenses, which may improve the profitability of the industry.
5) the impact of military reform has been basically eliminated, with more retained funds and accelerated growth in the future. 2021 is the first year of the 14th five year plan. The impact of military reform has been basically eliminated, and more funds are considered to be retained. On the contrary, there is compensatory procurement at the end of the 13th five year plan. We expect the year-on-year growth of future performance to be relatively accelerated.
The overall valuation of the industry has returned to the low range in recent years, and the valuation still matches the performance growth.
At present, the dynamic PE of the military industry sector is 49 times, corresponding to the 22-year valuation of about 31 times. Among them, the weight of the main engine plant is large, and the valuation is relatively high, basically more than 50 times. After excluding the main engine plant, the valuation of the sector is about 28 times, and the P / E ratio of some high boom companies is even about 25 times. We expect that the performance of the industry in 20222023 is expected to achieve an increase of about 30% under the high climate of the industry, At present, most of the subject valuations with fast performance growth have returned to reasonable, realizing the matching between valuation and performance growth. Among them, the benefit of the main engine factory logo is that the prosperity of aerospace equipment in the 14th five year plan is upward, the long-term space is expected to be opened, and it enjoys the valuation of high-end equipment manufacturing; The compound growth rate of parts performance of state-owned enterprises is expected to remain above 20%, and there are still expectations of profitability improvement and governance improvement, and the performance and valuation are expected to rise both; The targets of new materials are mainly high-temperature alloy, titanium alloy and carbon fiber composite materials, which benefit from the triple drive of large volume of weapons and equipment + increase of single machine consumption and increase of localization rate. Typical companies may maintain an increase of 30% – 40% in the next three years. The current valuation is still reasonably low and has outstanding growth in the future; The subject matter of informatization has certain TMT attribute, and the overall valuation level is high, but there are many subdivisions and differentiation. For example, the performance growth in the direction of components and infrared chips is highly deterministic, and some companies are expected to maintain high growth rate and enjoy valuation premium in 2022; The civil military mostly adopts segment valuation, or has a certain elastic space.
Main line of investment: aviation, aerospace, informatization and new materials.
The Centennial goal of building a strong army has been put forward. The construction of weapons and equipment has entered the fast lane. During the 14th Five Year Plan period, the industry performance is highly deterministic, and all links of the industrial chain will continue to benefit. It is suggested to pay attention to the four main lines of aviation, aerospace, informatization and new materials. Selecting the report end can not only continuously reflect its own growth, but also confirm the prosperity of the industry, and the valuation matches the performance growth.
1) aviation equipment: both the surrounding situation and the construction of Navy and air force have put forward new requirements for military aircraft. At present, there is a large room for improvement in the number and structure of Chinese military aircraft. It is expected that with the national defense budget inclined to weapons and equipment, especially the air force and Navy, it is expected to accelerate the upgrading of military aircraft. The disclosure of large contract liabilities by many companies in the early stage may further improve the cash flow of the industrial chain and promote the production and delivery of products. We believe that aviation equipment will show a high boom during the 14th Five Year Plan period, driving the improvement of industrial chain performance. In addition, the reform of military pricing mechanism and the increase of equity incentive scheme will also promote the improvement of industry profit level. The proposed concerns include: [ ” Avic Shenyang Aircraft Company Limited(600760) 8239 ], [ Chengdu Ald Aviation Manufacturing Corporation(300696) ], [ Jiangsu Maixinlin Aviation Science And Technology Corp(688685) ].
2) aerospace equipment: in terms of missile weapons and equipment, the main driving factors of the missile industry mainly come from: the first is the iterative period, the second is the increase in the demand for strategic reserves, and the third is driven by practical training. The missile sector may be the most flexible segment during the 14th Five Year Plan period, which will bring rapid performance thickening of relevant listed companies, pay attention to the overall opportunities of the missile sector, and focus on the targets with high performance flexibility and high proportion of missile business. It is suggested to pay attention to: [ Guizhou Space Appliance Co.Ltd(002025) ], [ Beijing Relpow Technology Co.Ltd(300593) ].
In terms of Satellite Internet, Beidou navigation: the year-on-year growth rate of Beidou satellite navigation industrial chain began to increase in 2021, and it is expected to maintain a high growth rate in 2022 and 2023. In Beidou navigation industrial chain, the demand for Beidou navigation chips and Beidou navigation terminals increased rapidly; In the field of Satellite Internet: China Spacesat Co.Ltd(600118) network group is expected to become the main force of China Spacesat Co.Ltd(600118) Internet. At present, although China Spacesat Co.Ltd(600118) Internet is still in its infancy, Satellite Internet will still become an important development direction of 6G mobile communication. Suggested attention: [ Chengdu Corpro Technology Co.Ltd(300101) ], [ Chengdu M&S Electronics Technology Co.Ltd(688311) ].
4) informatization sector: due to factors such as the localization process, military modernization and accelerated update of new models, it has continued to surpass the growth of the industry since 2018, focusing on military semiconductors, upstream electronic components, radar and electronic countermeasures, communication, navigation and remote sensing. The performance of some companies has taken the lead in entering the high-speed growth stage and is expected to continue in 2022. Suggestions for attention: [ China Zhenhua (Group) Science & Technology Co.Ltd(000733) ], [ Unigroup Guoxin Microelectronics Co.Ltd(002049) ], [ Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) ] [ Chengdu Zhimingda Electronics Co.Ltd(688636) ].
5) new materials: it is suggested to focus on the direction of superalloys, titanium alloys and carbon fiber composites. The military new material technology has basically achieved independent control and represents China’s leading level, and the dual / multi flow system of model certification makes the suppliers limited, and the competition pattern on the supply side is good. On the demand side, due to the large volume of main battle models and supporting engines, the increasing proportion of new material applications, the increasing outsourcing proportion of main engine manufacturers, domestic substitution and other factors, it is expected that the future growth of the industry will be highly certain, Moreover, after the demand increases, the scale effect will continue to appear, driving the continuous decline of unit cost. Therefore, the gross profit margin of the industry may still have room to improve and gradually realize the profit, and has the possibility of urgent development to the civil market, with good long-term growth. It is suggested to pay attention to: [ Baoji Titanium Industry Co.Ltd(600456) ], [ Gaona Aero Material Co.Ltd(300034) ], [ Western Superconducting Technologies Co.Ltd(688122) ], [ Sinofibers Technology Co.Ltd(300777) ].
Risk warning: the loading / replacement of weapons and equipment is not as good as expected
