Under the background of continuous improvement of industry fundamentals, the valuation of A-share defense and military industry index fell to an eight-year low. The revenue and profit of military industry reached a new high, and the growth rate of military expenditure returned to 7% in 2022. Securities Times · databao launched the national defense and military industry of the “bottom planter” series, scanning the key investment fields of national defense equipment expenses and looking for the direction in the next two years.
Industry Valuation fell to
recent eight year low
According to the statistics of data treasure, the national defense industry index has been continuously callback since 2022. After falling to 114083, the lowest point in 23 months on April 26, the market sentiment was boosted again and the industry index rebounded. From this year to April 26, the national defense and military industry index has fallen by 41.25%, ranking second to last in the Shenwan industry, only slightly higher than 41.66% in the electronics industry.
Industry valuations also fell along with the index. On April 26, the overall rolling P / E ratio of defense and military industry was 41.44 times, and the valuation has been at the lowest level since 2014. According to the calculation of AVIC securities, the median price earnings ratio of core military industrial companies corresponds to about 32 times in 2022 and about 15 times in 2025. Industry PEG (price earnings ratio relative to profit growth ratio) is close to 1, which is cheap enough.
The valuation of the national defense industry index fell, mainly due to the continuous impact of factors such as rising energy prices and repeated epidemics. However, the fundamentals of the national defense industry have not changed significantly. According to the statistics of data treasure, in recent years, the revenue of the national defense and military industry has grown steadily, with an annual growth rate of more than 6%. In 2021, the industry’s revenue exceeded 500 billion yuan for the first time, with an annual growth rate of 12.77%, the highest in recent five years.
In terms of net profit, the national defense industry also performed strongly. In addition to 2019, the overall net profit of the sector has shown an upward trend in the past five years. Especially in 2020, the end of the 13th five year plan, the performance growth rate of the sector is as high as 79.62%, and the net profit is close to 25 billion yuan; In 2021, the net profit of the sector continued to increase steadily by more than 10% to 27.715 billion yuan, nearly doubling from 13.915 billion yuan in 2019.
In contrast, the US arms giant Lockheed Martin achieved a revenue of US $67.044 billion in fiscal year 2021, up 2.52% year-on-year; The net profit was US $6.315 billion, a year-on-year decrease of 7.58%. Northrop Grumman achieved a revenue of US $35.667 billion, a year-on-year decrease of 3.08%; The net profit was US $705 million, a year-on-year increase of 119.66%.
military expenditure growth rate returns to 7%
According to the data of the Ministry of national defense, the national defense expenditure budget in 2022 is 1476081 billion yuan, an increase of 7.1% over the budget implementation of the previous year, which is 5.5% higher than the main expected target of China’s economic and social development in 2022. In 2021, China’s military spending accounted for only 1.18% of GDP. China’s defense expenditure still has great room for growth and may be higher than GDP growth for a long time in the future.
In recent years, the proportion of defense expenditure for equipment has increased year by year. From 2010 to 2017, China’s equipment expenditure increased from 177359 billion yuan to 428835 billion yuan, with an average annual compound growth rate of 13.44%. The proportion of equipment expenditure in military expenditure increased by 7.9 percentage points to 41.11%.
The Ministry of National Defense said that we should promote the construction of our army’s weapons and equipment to a new level from a new starting point. AVIC Securities believes that the core logic of the demand side development of the military industry in the “14th five year plan” mainly focuses on the rapid improvement of the “quality” and “quantity” needs of the third and fourth generation backbone equipment, especially the equipment for high-sea defense and long-range strike. Aerospace (and related upstream materials and military electronics) is expected to become the key investment field of military equipment in the military industry.
external factor disturbance Limited
Since March, the geopolitical conflict between Russia and Ukraine has become the focus of global attention. The stock prices of American arms giants soared one after another, reaching an all-time high. Since February 23, the shares of Northrop Grumman and Lockheed Martin have risen 16.36% and 13.46% respectively; General Dynamics began to callback in late April, and there is still an increase of 4.93%; Raytheon technology continued to callback after the high share price, and has now erased all the gains.
After the A-share military industry index closed up 6.68% from February 23 to March 1, it entered the downward range with the market from March 2 and began to rebound slightly after April 26. Golden Eagle Fund believes that the geopolitical conflict between Russia and Ukraine is not significantly beneficial to the fundamentals of the national defense industry, but the war has suddenly increased the uncertainty of the global industrial chain and suppressed market sentiment.
China Merchants Fund said that with the continuous tension and escalation of the peripheral geopolitical situation, the attention of the national defense and military industry has increased again, and the prosperity of the industry is expected to continue to rise.
military industry shares have stable profitability
net profit of 29 shares continued to grow
According to the statistics of data treasure, the average return on net assets of the national defense and military industry in 2021 is 4.92%, while the agency expects the average return on net assets of the industry to reach 6.46% in 2022, with a year-on-year increase of 1.54 percentage points. At the same time, the institutions unanimously predict that the compound growth rate of net profit of the industry will reach 39.65% in the next two years.
The 14th five year plan and the long-term goal of 2035 put forward for the first time the goal of achieving the Centennial goal of building the army in 2027, and put forward “accelerating the modernization of weapons and equipment, accelerating the upgrading of weapons and equipment and the development of intelligent weapons and equipment”. China’s weapons and equipment have entered a period of accelerated construction.
According to data treasure statistics, a total of 29 military stocks have achieved continuous growth in net profit for five consecutive years. Two hundred billion market value shares are listed as Aecc Aviation Power Co Ltd(600893) and Avic Shenyang Aircraft Company Limited(600760) . In absolute terms, the net profit of six shares in 2021 exceeded 1 billion yuan, with Avic Jonhon Optronic Technology Co.Ltd(002179) , Avic Shenyang Aircraft Company Limited(600760) net profits ranking first, reaching 1.991 billion yuan and 1.696 billion yuan respectively.
Starting from the change of net profit, the net profit of 7 shares in 2021 increased by more than 50% year-on-year, and China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Xi’An Triangle Defense Co.Ltd(300775) doubled year-on-year. The timeline was lengthened. Compared with the net profit in 2017, the profit of 22 shares doubled, Wuhan Guide Infrared Co.Ltd(002414) took the lead, and the net profit increased by 18 times, China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) , Gaona Aero Material Co.Ltd(300034) , Wuxi Paike New Materials Technology Co.Ltd(605123) , and visualizing technology increased by more than 4 times.
In the first quarter, the epidemic situation in China was repeated and the delivery of military industry was off-season, but the overall performance of the industry was excellent and the prosperity was good. In the first quarter, the net profit of 25 shares increased by more than 50%, and 16 shares doubled North Navigation Control Technology Co.Ltd(600435) net profit increased by 26.34 times, mainly due to the recognition of investment income from the disposal of subsidiaries Guangzhou Hi-Target Navigation Tech Co.Ltd(300177) , Guanglian Aviation Industry Co.Ltd(300900) increased by more than 10 times. According to the unanimous prediction of more than five institutions, the annual net profit of Sinofibers Technology Co.Ltd(300777) , North Industries Group Red Arrow Co.Ltd(000519) 2022 is expected to double Aerospace Ch Uav Co.Ltd(002389) , Changsha Jingjia Microelectronics Co.Ltd(300474) and Xi’An Triangle Defense Co.Ltd(300775) are also expected to grow by more than 50%.
In terms of funds, from January to April this year, northbound funds increased their positions by 30 shares, with a range of more than 20% Inner Mongolia First Machinery Group Corporation Co.Ltd(600967) position increased by 314.95% over the end of last year; In addition, the positions of Jushri Technologies Inc(300762) , Xi’An Chenxi Aviation Technology Corp.Ltd(300581) , Guizhou Space Appliance Co.Ltd(002025) , Avicopter Plc(600038) , Bestway Marine & Energy Technology Co.Ltd(300008) and Fujian Torch Electron Technology Co.Ltd(603678) increased by more than 100%. In terms of the proportion of foreign capital holding in circulating a shares, Kuang-Chi Technologies Co.Ltd(002625) and Beijing Beimo High-Tech Frictional Material Co.Ltd(002985) are more than 3.2% .
