Core ideas of this week
1) the bottom of military industry rebounded by 18%, ranking among the top three in the market, and the performance supports the subsequent growth. Select CITIC industry classification and take the closing position on April 26 as the benchmark. As of Friday’s closing, the top five industries in the range were: power equipment and new energy, automobile, national defense and military industry, non-ferrous metals and machinery. The CSI military industry index ranked third among 29 industries with an increase of 18%. 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 has ushered in great development in the 14th five year plan under the Centennial goal of building a strong army. 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 the achievement of the Centennial goal of building the army in 2027; 2) Sustained and stable military spending is a key factor in the growth of the industry, with particular attention to key investment directions such as 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.; 3) The trend of main battle equipment assembly has accelerated, driving the continuous upward trend of the industrial chain. At present, China’s weapon 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 and volume, and the demand of main engine manufacturers is full; 4) The reform of the military industrial system will improve the operating efficiency of enterprises. Under the promotion of reform, the system that does not meet the needs of development in the industry can be gradually reformed, and the production efficiency of the industry can be improved. Under the pressure of price reform, enterprises will be more willing to reduce costs and expenses, which may improve the profitability of the 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.
2) the Ukrainian army acknowledges that the use of “star chain” satellites to transmit combat information has further tapped the potential military value. On May 19, Russian Red Star Television reported that the Ukrainian army had used the “star chain” equipment in the Asian speed steel plant to contact and transmit information with the Ukrainian general staff. “Satellite link” system is a high-speed satellite communication network composed of a large number of low orbit satellites and multiple ground terminals. According to China Central Television, the “star chain” system and the US space exploration technology company (SpaceX) behind it have always maintained cooperation with the US military, and the degree of cooperation is deepening day by day. Previously, according to the British “Daily Telegraph”, the “star chain” system helped the Ukrainian command and control system obtain communication capability and assisted Ukrainian drones in attacking Russian troops. ECM experts believe that the “star chain” has a strong upgrade foundation and large upgrade space. Communications experts believe that this rapid deployment capability reflects the potential military value of the “star chain”. At present, the China Spacesat Co.Ltd(600118) Internet is still in the early stage of development, but it will still become an important development direction of 6G mobile communication. The establishment of China Spacesat Co.Ltd(600118) network group indicates that China Spacesat Co.Ltd(600118) Internet is expected to usher in substantive progress.
Focus on aviation, aerospace, informatization and new materials:
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. It is suggested that attention should be paid to the following: [ ” Avic Shenyang Aircraft Company Limited(600760) 123 ], [ Guizhou Aviation Technical Development Co.Ltd(688239) ], [ 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 renewal of new models, it has continued to exceed the growth of the industry since 2018, focusing on military semiconductors, upstream electronic components, radar and electronic countermeasures, communication, navigation and remote sensing and other directions. The performance of some companies has taken the lead in entering the high-speed growth stage and is expected to continue in 2022. It is suggested to pay attention to: [ 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 replacement of weapons and equipment is not as expected; The development of a new missile model was not as expected.
