Key points of the report:
The overall market situation and the market review of military industry segments, and the military industry made a slight correction this week
Weekly market: this week (from January 10, 2022 to January 14, 2022), the Shanghai Composite Index fell 1.63%, the Shenzhen Component Index fell 1.35% and the gem index rose 0.73%. The military industry sector fell slightly this week, with a correction of 2.97%. Considering the continuation of the high outlook of the military industry as a whole and the continuous realization of the business performance of fundamental related enterprises, we maintain the “recommended” rating of the military industry.
In terms of industry segmentation: among the secondary sub industries of military industry this week, military electronics II callback was the least, at – 1.90%. Shipbuilding II callback was 2.38%, ground military equipment II callback was 2.6%, aerospace equipment II callback was 3.93%, and all segments fell this week.
Stocks: the number of stocks rising, falling and flattening in the national defense and military industry sector this week accounted for 21.65%, 77.32% and 1.03% respectively. Among them, Cssc Science & Technology Co.Ltd(600072) (21.02%), Avic Heavy Machinery Co.Ltd(600765) (10.47%) and Changchun Up Optotech Co.Ltd(002338) (8.86%) were among the top three in terms of growth analysis.
The short-term disturbance does not affect the performance growth of aviation equipment, and the military industry valuation is still relatively low
The 14th five year plan will accelerate the boom of the military industry, among which the improvement of the fundamentals of the aviation equipment sub industry is the most determined. During the 13th Five Year Plan period, many key Chinese military aircraft, such as the j-20 and its spare parts, were in the early stages of R & D, domestic substitution and small-scale production. Since 2021, these aviation equipment began to shift to the ramp up period of production capacity and large-scale domestic substitution. In the new stage, the whole machine, forgings, subsystems and materials are expected to achieve rapid improvement in performance. At the same time, on the whole, the PE of the military industry is at a historical low point (the PE is 70X level, the maximum PE of the national defense and military industry during the 10-year period is 245x, and the average PE is 85x). The short-term disturbance does not change the industry fundamentals, and the overall trend is upward.
Investment direction: focus on the high elasticity of forging and casting industry
In the future, the proportion of new aviation models will gradually increase and the overall downstream demand will surge. As a core accessory, forging and casting products will rise in volume and price due to the requirements of higher quality, better performance and larger specifications, showing a high landscape and high elasticity as a whole.
Recommended leading targets in forging and casting industry: Avic Heavy Machinery Co.Ltd(600765) ;
It is suggested to focus on the following subjects this week: Unigroup Guoxin Microelectronics Co.Ltd(002049) , Avic Jonhon Optronic Technology Co.Ltd(002179) ;
Risk tips
Risk of rising raw material prices; Global epidemic impact and uncertainty of foreign policy environment; Geopolitical related risks; The reform of state-owned enterprises in the military industry has been slower than expected.
