1. Market review this week
This week, the Shenwan national defense industry index fell 5.61%, the Shanghai Composite Index rose 0.04%, the gem index fell 2.72%, the Shanghai and Shenzhen 300 index rose 1.11%, and the national defense industry sector ranked 27th among the 28 Shenwan level industries. As of Friday’s closing, the PE (TTM) of Shenwan national defense and military industry sector was 61.20 times, the aerospace equipment in each sub sector was 63.15 times, the aviation equipment was 63.06 times, the ground military equipment was 53.57 times, the navigation equipment was 136.93 times and the military electronics was 50.04 times.
2. The performance of upstream components continued to exceed expectations, and the prosperity of the industry was reconfirmed
This week, many companies released performance forecasts or performance letters for 2021. The performance of the main targets of the upstream components sector continued to grow at a high level, and the performance growth of some targets continued to exceed expectations. Among them, the performance of Unigroup Guoxin Microelectronics Co.Ltd(002049) increased by 136% – 160%, the performance of China Zhenhua (Group) Science & Technology Co.Ltd(000733) increased by 123% – 156%, and the performance of Fujian Torch Electron Technology Co.Ltd(603678) increased by 57.51% – 67.35% year-on-year. The performance growth of the above targets continued to exceed market expectations, The high prosperity of the military industry was reconfirmed. In the midstream manufacturing sector, Avic Heavy Machinery Co.Ltd(600765) performance increased by 153.05% year-on-year. As the core target in the aviation manufacturing field, its performance continued to exceed market expectations, which fully verified that the scale effect brought by the high boom of the aviation manufacturing industry and the release of downstream demand is becoming increasingly significant. With the orderly transmission of industry prosperity from top to bottom, the performance growth of middle and lower cursors is expected to accelerate. At present, the PE (TTM) quantile of Shenwan national defense military industry index in the past decade is only 33.01%. During the 14th Five Year Plan period, the industry boom continued to improve, and the trend remained unchanged. It is suggested to focus on and configure the high-quality growth targets that have been wrongly killed recently.
3. The performance of some targets of the aviation department is lower than expected, resulting in short-term disturbance, and the general development trend of the industry remains unchanged
Aviation listed companies represented by Avic Shenyang Aircraft Company Limited(600760) and Avic Electromechanical Systems Co.Ltd(002013) also released performance forecasts this week. In Avic Shenyang Aircraft Company Limited(600760) 2021, the net profit attributable to the parent company was 1.696 billion yuan, a year-on-year increase of 14.56%; Avic Electromechanical Systems Co.Ltd(002013) in 2021, the net profit attributable to the parent company was 1.259 billion yuan, with a year-on-year increase of 17.18%. The performance is significantly lower than the market expectation, resulting in pressure on the military industry sector. The lower performance is related to the increase of R & D expenses. We believe that the lower performance of some enterprises is only a short-term disturbance. According to the previously announced contract liabilities, production expansion plan and the performance of upstream supporting enterprises, the great development of aviation manufacturing industry in the 14th five year plan has a stable foundation, The high prosperity of the industry is also conducted from top to bottom, and the performance can be realized. The general development trend of the industry remains unchanged. From the medium and long-term perspective, the aviation manufacturing industry chain still has great investment opportunities.
4. Key recommendations this week
1) focus on recommending military electronic components with low valuation and high performance flexibility: China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Zhuzhou Hongda Electronics Corp.Ltd(300726) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) .
2) focus on recommending midstream aviation manufacturing targets with scale effect gradually emerging and comprehensive supporting capacity expected to be greatly improved: Avic Heavy Machinery Co.Ltd(600765) , Chengdu Ald Aviation Manufacturing Corporation(300696) , Chengdu Haoneng Technology Co.Ltd(603809) , Anhui Yingliu Electromechanical Co.Ltd(603308) .
3) focus on recommending the overall and key systems of weapons and equipment with monopoly and scarcity and huge long-term growth space: Avic Shenyang Aircraft Company Limited(600760) , Aecc Aviation Power Co Ltd(600893) , Avicopter Plc(600038) , Aecc Aero-Engine Control Co.Ltd(000738) and Wuhan Guide Infrared Co.Ltd(002414) .
4) it is suggested to pay attention to the beneficiary objects of the mixed reform of state-owned enterprises: Chengdu Spaceon Electronics Co.Ltd(002935) , Aerospace Ch Uav Co.Ltd(002389) , Avic Xi’An Aircraft Industry Group Company Ltd(000768) , Avicopter Plc(600038) , Guizhou Space Appliance Co.Ltd(002025) and Sun Create Electronics Co.Ltd(600990) .
Risk warning: the release and delivery of military orders are not as expected; Performance growth is less than expected; The reform of state-owned enterprises did not advance as expected.
