I. The first year of the 14th five year plan is the great year, the decisive battle at the beginning and the sprint at the beginning
2021 is the opening year of the “14th five year plan”, which breaks through the development law of loosening before and tightening after the plan in the past five years. The first year is the big year, the start is the decisive battle, and the start is the sprint. The whole industry shows a high level of demand, no time to wait, and supply is in full swing. The reform mechanism of state-owned enterprises is full of endogenous vitality, and private enterprises are at full speed to seize historic opportunities.
At present, it is only the early stage of the comprehensive expansion of military industry, the beginning of realizing the three important goals of “2027, 2035 and 2050”, and the prelude to the golden age of military industry. The military industry is expected to usher in a new era and era in which both growth and value are combined, the landscape continues to improve, and the high boom growth expectation is constantly consolidated, verified and strengthened.
II. Changes in demand and supply of the military industry during the 14th five year plan
Demand side: under the strong military dream of “a strong country must first strengthen the army, and a strong army can ensure national security”, we will jointly lead the rapid improvement of the demand for “quality” and “quantity” of weapons and equipment through two major ways: Equipment Construction Guided by the development trend of strengthening the army through science and technology, accelerating the integration of mechanization, informatization and intelligence, and army construction aimed at comprehensively strengthening military training and preparation.
Supply side: Centering on the 14th five year development plan and the three-year action plan for the reform of state-owned enterprises from 2020 to 2022, the central military enterprises have promoted the reform in the four dimensions of enterprise, business, management and marketization to achieve high-quality development; Civilian military enterprises undertake capacity spillover under the development idea of “small core and large cooperation” of main engine plants, actively expand production and develop rapidly by relying on market-oriented flexible mechanism; The two will build a supply side situation of integrated military and civilian joint construction, complementary advantages and rapid development, realize the improvement of military product quality / quality and production capacity / output, and jointly promote the high “quality” and “quantity” development of military industry.
III. Changes in volume, price and efficiency of the military industry during the 14th five year plan
After decades of investment, the military industry has basically met the technical basis and material conditions of “internal circulation”. The next 10 to 15 years will be the harvest period and blowout period of weapons and equipment construction. During the “14th five year plan” period, the changes on the supply side and demand side are strongly supporting the high prosperity development of the industry. Especially in the three dimensions of volume, price and efficiency, the military industry is undergoing deep-seated changes, showing a healthy and benign industry ecology of exchanging volume for price and making profits with efficiency as a whole.
① production volume: in the short term, there was a capacity bottleneck, the military industry expanded production in the whole industry, entered a new round of production expansion cycle, and made sufficient preparations for the high growth rate in the 14th five year plan.
② price: the price of military products may be reduced slightly or slowly. The goal is to improve the use efficiency of military expenditure. In the long run, it will be conducive to promoting the efficient and sustainable development of the industry; Overall, the profit margin of the military industry will remain relatively stable, and it is not easy to decline by a large margin; In the long run, it will affect the competition pattern and improve the overall efficiency of the industry. Enterprises with core technology, strong bargaining power and good cost control will benefit for a long time, and the concentration of middle and upstream industries is expected to gradually increase.
③ efficiency: Central Military Enterprises assess the two benefits and four rates, focus on the main business, focus on R & D and general assembly, emphasize the capacity-building at both ends, give play to the leading role of the industrial chain, carry out equity incentive, stimulate innovation vitality, gradually improve the profit margin, and provide greater flexibility for their performance; Civilian military enterprises have ushered in historic development opportunities. With the promotion of self-control and domestic substitution, the establishment of the “small core and large cooperation” system and the reduction of the threshold for civilian military participation, the market space of civilian military enterprises has been significantly expanded, the supporting level has been gradually improved, the growth ceiling has been greatly raised, and they are rapidly moving towards scale and specialization.
IV. judgment on growth rate of military industry
Based on the higher basic growth rate of the military industry, some fields can achieve higher growth rate, mainly due to the superposition effect of several aspects.
Superposition effect 1: technological upgrading: informatization, intellectualization and modernization are continuously promoted, and the value volume and value proportion of military electronics and new military materials are increased;
Superposition effect 2: domestic substitution: military products have independent and controllable natural attributes, which can solve the problem of “short card control”, with large performance flexibility and fast growth;
Superposition effect 3: the capacity spillover of the main engine plant: the main engine plant implements small core and large cooperation, the supporting proportion and level of civilian military enterprises are increased, and the market share is gradually increased;
Superposition effect 4, military technology and civilian: break the ceiling of military products and build a high-quality enterprise for military and civilian progress.
Based on the above superposition effects, we make the following judgment on the growth rate of the military industry:
① attack is greater than defense, the number of traditional ground combat and coastal defense equipment is moderately reduced, and the development of new equipment such as high-sea defense and long-range attack is accelerated;
② the performance elasticity of the main engine plant comes from the improvement of profit margin, and the performance elasticity of the people’s participation in the army comes from undertaking spillover capacity and domestic substitution;
③ the aerospace industry chain has a particularly high outlook;
④ the value volume and value proportion of military electronics and new military materials have been increasing, with a faster growth rate.
V. “second curve” of long-term and rapid development of military industry
With the increasing maturity of China’s military industry technology, the rapid improvement of production capacity and the continuous improvement of supply system, the overall capacity of the military industry will meet and exceed China’s demand and military demand at some time. We judge that the flexible military trade market and the larger civil aircraft market will become a new driving force and acceleration source for the sustained and high growth of China’s military industry in the coming decades.
① military trade: as the second demand side of the military industry, the popularity of military trade activities is expected to rise in the middle and late period of the 14th five year plan, especially in the fields of aviation, aerospace and ships;
② civil aircraft: China is expected to become the most potential civil aviation market in the world; Focus on areas with large room for localization improvement; Focus on the delivery progress of C919 this year.
Vi. capital market support for military industry
① primary market: military high-quality assets continue to be securitized, and the industry influence has reached a new height;
② secondary market: military enterprises have intensive refinancing to quickly make up for the shortage of production capacity;
③ institutional positions: public funds continue to increase positions in the military industry, and the voice and pricing power of the military industry are in the hands of China.
Seven, 2022 market judgement: valuation is far from bubble, the whole advance two retreat one
The overall valuation of the military industry is not the main factor of concern at present.
① the achievement in 2021 has greatly improved the confidence of the industry;
② the valuation of military industry can be quickly digested through the rapid growth of performance;
③ reform has become a hot spot and focus. Asset securitization is the unique industry logic of military industry, and the option of asset injection brings higher premium;
④ many companies intend to be split and listed, and the value revaluation will improve the overall valuation.
For the military industry market in 2022, in order to provide strong support and reduce volatility, advance two and retreat one.
Aviation and aerospace are still the basic industries of the military industry. The bottom of the civilian ship industry has recovered, and the pace of asset securitization of groups such as CETC, ordnance, ordnance and China shipbuilding has accelerated. The military industry as a whole has shown a gratifying situation of full flowering and everywhere results, which has never been seen in history.
As the scope and degree of consensus are becoming wider and stronger, the degree of consensus of the current market on the military industry is at a high level, and has been tested by last year’s mid-term report and the third quarterly report. Under the strong consensus expectation, military industry has become the standard, mandatory and even over matched varieties in the market.
We believe that with high probability, the volatility of the military industry will tend to decrease for a long time in the future, and it is difficult to reproduce the callback range of more than 30% in 2021, which also means that the opportunity of cheap valuation is not easy to reappear.
If the market style changes temporarily and the short-term irrational decline occurs, it is a better allocation opportunity.
From the perspective of medium and long-term annual dimension, we tend to think that the military industry is more likely to be a benign “advance, two retreat and one” with a bottom decline.
It is suggested to focus on the following sub areas and stocks.
Military aircraft and other aviation equipment industry chain:
Related targets of fighter, transport aircraft, helicopter, UAV and engine industry chain, Aecc Aviation Power Co Ltd(600893) , Aecc Aero Science And Technology Co.Ltd(600391) , Aecc Aero-Engine Control Co.Ltd(000738) , Wuxi Hyatech Co.Ltd(688510) (engine), Aerospace Ch Uav Co.Ltd(002389) , China Aerospace Times Electronics Co.Ltd(600879) (UAV), Weihai Guangwei Composites Co.Ltd(300699) , Sinofibers Technology Co.Ltd(300777) (carbon fiber composite), Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) (high temperature alloy), Western Superconducting Technologies Co.Ltd(688122) , Western Metal Materials Co.Ltd(002149) , Baoji Titanium Industry Co.Ltd(600456) (titanium alloy), Xi’An Bright Laser Technologies Co.Ltd(688333) (3D printing), Chengdu Ald Aviation Manufacturing Corporation(300696) , Wuxi Paike New Materials Technology Co.Ltd(605123) , Guizhou Aviation Technical Development Co.Ltd(688239) , Jiangxi Huawu Brake Co.Ltd(300095) , Chengdu Leejun Industrial Co.Ltd(002651) (aviation manufacturing), etc.
Aerospace equipment (bomb, satellite, chain, etc.) industry chain:
Guizhou Space Appliance Co.Ltd(002025) (connector), China Spacesat Co.Ltd(600118) (Satellite Internet), Chengdu Spaceon Electronics Co.Ltd(002935) , Guangzhou Haige Communications Group Incorporated Company(002465) , Shanghai Huace Navigation Technology Ltd(300627) , Chengdu Corpro Technology Co.Ltd(300101) (Beidou), North Navigation Control Technology Co.Ltd(600435) (navigation control and ammunition informatization), Beijing Ctrowell Technology Corporation Limited(300455) (spaceborne microsystem), Chengdu M&S Electronics Technology Co.Ltd(688311) (satellite navigation communication).
Informatization + independent control:
Unigroup Guoxin Microelectronics Co.Ltd(002049) , Shanghai Fudan Microelectronics Group Co.Ltd(688385) (military chip), Zhejiang Dali Technology Co.Ltd(002214) (infrared guidance), Glarun Technology Co.Ltd(600562) , Sun Create Electronics Co.Ltd(600990) (radar), China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Fujian Torch Electron Technology Co.Ltd(603678) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) , Zhuzhou Hongda Electronics Corp.Ltd(300726) (high-end capacitor), Chengdu Zhimingda Electronics Co.Ltd(688636) (embedded computer), China Greatwall Technology Group Co.Ltd(000066) , China National Software And Service Company Limited(600536) (information creation).
In addition, the first C919 is expected to be delivered in 2022, which may arouse investment enthusiasm in the field of civil aircraft.
The topics of AVIC securities’ annual investment strategy in military industry in recent three years are all taken from Comrade Mao Zedong’s poems, which are not artful, but in line with logic. The title of the 2020 strategy report “already tight barriers, more concerted efforts”, shows China’s ability and determination to achieve autonomy and control under the background of Sino US trade friction at that time; The title of the strategy report in 2021 is “make a face after the three ‘armies’, which indicates that after the military industry has experienced thousands of expeditions, the” 14th five year plan “has ushered in a historic development opportunity; In 2022, we decided to “wind up the red flag to pass the mark”, which means that we can take advantage of the rise of a great power and take advantage of the military industry to move forward to the “Chinese dream” and “strong military dream”. While supporting and serving the military industry, the capital market can also fully enjoy the development benefits of the military industry!
