Key investment points:
Market review: as of May 20, 2022, Shenwan defense industry rose 2.08% this week, underperforming the CSI 300 index by 0.16 percentage points, ranking 17th among Shenwan 31 industries; Shenwan defense and military industry rose 8.00% in May, outperforming the CSI 300 index by 6.48 percentage points and ranking sixth among Shenwan 31 industries; Shenwan defense and military industry sector has fallen 28.29% year to date, 10.83 percentage points lower than the Shanghai and Shenzhen 300 index, ranking 29th among Shenwan 31 industries.
As of May 20, 2022, Shenwan national defense and military industry sector performed well this week. From the performance of this week, the navigation equipment sector performed best, up 3.13%. Other sectors showed as follows: the military electronics sector rose 2.67%, the aerospace equipment sector rose 2.06%, the aviation equipment sector rose 1.55%, and the ground military equipment sector rose 0.28%.
View of Defense Industry Week: from April 27 to May 20, Shenwan defense industry has increased by 22.05%, ranking the third in the industry. The industry valuation has been preliminarily repaired after the oversold. In the long run, the industry still has configuration value.
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 state-owned enterprise reform. It can be found from the recent intensive announcements of repurchase, equity incentive plan and shareholding increase that the reform of military enterprises is accelerating 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. Target suggestions and concerns: Aecc Aero-Engine Control Co.Ltd(000738) ( Aecc Aero-Engine Control Co.Ltd(000738) ), Xi’An Triangle Defense Co.Ltd(300775) ( Xi’An Triangle Defense Co.Ltd(300775) ), China Zhenhua (Group) Science & Technology Co.Ltd(000733) ( China Zhenhua (Group) Science & Technology Co.Ltd(000733) ), 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.
