(Producer/Author: Industrial Securities, Shi Kang, Li Boyan )
1. Analysis of the fundamentals of the military industry
1.1. Situation analysis: Comprehensively strengthen training and preparation to strengthen equipment demand
1.1.1. Comprehensively strengthen training and preparation, the military high-pressure situation continues
0 months 15 On the Sunday, the Ministry of National Defense stated in a negative remark about the US Department of Defense that the People's Liberation Army of China will remain highly alert to war and be able to fight at any time, resolutely thwart all external forces' interference and "Taiwan independence" separatist activities, and resolutely defend national sovereignty and territorial integrity.
1.1.2. Deepen the reform of the national defense mobilization system and promote the modernization of national defense mobilization
October 23 On the 13th National People's Congress Standing Committee closed in Beijing. After voting, the meeting passed the Family Education Promotion Law, the Land Border Law, and the decision to amend the Audit Law. The meeting voted to pass the decision of the Standing Committee of the National People's Congress on authorizing the State Council to carry out pilot work on real estate tax reform in some regions. At the same time, the meeting voted to pass the decision of the Standing Committee of the National People's Congress on deepening the national defense mobilization system and temporarily adjust the application of relevant legal provisions during the reform of the national defense mobilization system.
1.1.3. Build a military honor system and insist on focusing on preparing for war
10 On the 29th meeting of the Standing Committee of the 13th National People's Congress voted to pass the " Law on the Protection of Military Status and Rights of the People's Republic of China ", which will be implemented on August 1, 2021. The head of the Political Work Department of the Central Military Commission answered questions from reporters on the relevant questions of the Law on the Protection of Military Status and Rights of the People's Republic of China, pointing out that the world today is undergoing major changes unseen in a century, and my country's development environment is facing profound and complex changes. It is urgent to strengthen the national defense awareness and sense of crisis of organs at all levels and the whole society, and coordinate the two major issues of development and security. The formulation of this law is conducive to guiding the whole society to actively participate in supporting national defense and military construction, promote the formation of a strong atmosphere of respecting the profession of military personnel, and gather the strong positive energy of enriching the country and strengthening the military.
The Ministry of National Defense introduced its significance and highlights, pointing out that this law has 7 chapters and 71 articles, mainly 8 One innovative point: First, a system for protecting military rights and interests was built from the national legislative level, second, a system for respecting military status was clarified in the form of national laws, third, a system for maintaining military honors was systematically built, fourth, a system for protecting military benefits was systematically standardized, fifth, a system for protecting military benefits was comprehensively standardized from solving life difficulties to combining praise, pensions and preferential treatment, sixth, a system for demonstrating the orientation and pertinence of preparing for war in all aspects of system norms such as honor incentives, benefits guarantees, and pensions and preferential treatment, and seventh, a system for clear Improving the encouragement and guidance mechanism for the whole society to participate in the protection of military status and rights and interests. Eighth, establish and improve the legal responsibility mechanism, and focus on making specific regulations on the legal responsibility for infringing on military honors and reputations.
The "Regulations" adhere to the principle of focusing on preparing for war, serving officers and soldiers wholeheartedly, paying attention to system design, and ensuring steady progress, keeping a close eye on the urgent needs of reform, urgent use of preparation for war, and urgent hope for officers and soldiers to maintain and Improve the health level of the majority of officers and soldiers as the center, moderately expand the scope of medical insurance , reasonably improve medical insurance standards, orderly connect with national medical insurance policies, establish and improve the complementary, convenient and high-quality medical insurance system , better safeguard the health rights and interests of soldiers' families, enhance the cohesion and combat effectiveness of the troops, and enhance the sense of gain and honor of soldiers. The "Regulations" clearly state that the free medical treatment of military spouses, preferential medical treatment for military spouses, and the preferential medical treatment of military spouses and the parents of military spouses and continue to implement military personnel , Free medical treatment for minor children of military personnel, fully reflecting the respect of military personnel's professionalism.
1.2. Demand analysis: The demand in the "14th Five-Year Plan" was launched in sequence
1.2.1. The growth rate of equipment procurement costs is expected to maintain rapid growth
At present, my country's weapons and equipment construction is still in a critical period of compensatory development. Reform and opening up In the first 20 years of 42 years, the national strategy has focused on economic construction. National defense and military construction have given way to economic development , military expenditure has been greatly compressed, and the research and development and production of advanced weapons and equipment have been suppressed.Since 1999, with the economic foundation of more than 20 years of reform and opening up as the cornerstone, the military industry has started a process of high-speed compensatory development. We judge that my country's defense science and technology industry will still be in a critical period of compensatory development in the next ten years.
Compared with major countries in the world, my country's national defense expenses account for GDP and fiscal expenditures, and per capita national defense expenses are relatively low, and there is still great growth potential. According to the latest fiscal expenditure budget, my country's defense expenditure budget increased by 6.89% year-on-year in 2021, and the proportion of the defense budget in 's central expenditure budget increased from 36.19% in 2020 to 38.71% in 2021. On the other hand, we believe that the growth rate of equipment procurement costs that drive demand in the military industry is expected to maintain a faster growth rate.
1.2.2.2. The number of bidding announcements for the entire army equipment procurement information network continues to grow
According to the statistics of the number of bidding announcements for the entire army equipment procurement information network, since 2019, the number of bidding announcements for the entire army equipment procurement information network has shown a continuous growth trend year-on-year.
1.2.3. The contract liabilities of military listed companies surged
021Q1-Q3. The sum of contract liabilities of 82 military targets was 95.519 billion yuan, an increase of 110.53% from the beginning of the year and a decrease of 8.81% from the end of the six months. Among them, the aviation field was RMB 75.869 billion (+205.81% from the beginning of the year, a decrease of 10.23% from the end of the six-year period, the same below), the aerospace field was RMB 2.941 billion (+11.20%, -8.49%), the ship field was RMB 577 million (-26.11%, +4.32%), the ground military equipment field was RMB 11.486 billion (-17.00%, -6.18%), the general supporting field was RMB 3.502 billion (+30.99%, +1.51%), and the electronic components field was RMB 1.143 billion (+83.49%, +48.95%).
021Q1-Q3 The high growth in contract liabilities in the aviation field is mainly driven by the rise in contract liabilities of OEMs. The contract liabilities of the main manufacturers in the aviation field are AVIC Shenfei , AVIC West Flight, Hongdu Aviation , Zhongzhi Co., Ltd., AVIC Power , and AVIC Technology. The contract liabilities of the six main manufacturers are 69.105 billion yuan at the end of the period, an increase of 203.10% from the beginning of the year and a decrease of 11.68% from the end of the half-year, accounting for 91.08% of the total amount in the aviation field, of which AVIC Shenfei 31.162 billion yuan (+558.89% from the beginning of the year and a decrease of 17.42% from the end of the half-year period, the same below), AVIC West Flight 5.754 billion yuan (-40.69%, +29.90%), Hongdu Aviation 6.834 billion yuan (+39065.67%, -6.31%), and Zhongzhi Co., Ltd. 22.80 RMB 117 million (-67.28%, -28.64%), Aerospace Power 22.958 billion (+718.32%, -7.52%), and Aerospace Technology 117 million (-67.28%, -28.64%). The significant increase in contract liabilities of some OEMs in the aviation field shows that the demand for key military aircraft models has been clearly implemented during the 14th Five-Year Plan period. At the end of Q3, the contract liabilities of some OEMs decreased compared with those at the end of Q2, which may indicate that the relevant prepayments were gradually transmitted along the industrial chain to first-level system suppliers, equipment suppliers, and upstream raw materials, components, and other enterprises.
separate statistics on the contract liabilities of two system-level suppliers in the aviation field, AVIC and AVIC Mechanical and Electrical 2021Q1-Q3, and the contract liabilities of the two companies totaled 2.49 billion yuan, an increase of 387.05% from the beginning of the year and a decrease of 21.18% from the end of the six-year period, of which AVIC had 857 million yuan (+343.39% from the beginning of the year and +13.35% from the end of the six-year period, the same below), and AVIC Mechanical and Electrical 1.948 billion yuan (+512.74%, -18.92%).
1.2.4. The demand for aerospace/aviation/electronic equipment is expected to accelerate significantly
We judge that looking forward to the next five years, in the context of building an army for practical combat, the military industry is expected to usher in structural acceleration: the direction of aerospace equipment is expected to usher in systematic acceleration; the direction of aviation equipment is expected to usher in significant acceleration; the demand growth rate of electronic equipment as a supporting product is the weighted average of other fields, and it is expected to continue to develop rapidly in the context of the continuous and vigorous promotion of informatization construction; ground equipment and ship equipment are expected to maintain steady growth.
1.3. The projects under construction have been improved, and the production capacity of accelerated the release of
1.3.1. The projects under construction of major military listed companies have been increasing
. The military sector has 82 target projects under construction have generally shown an upward trend in recent years. As of the end of the 2021H1 period, it reached 19.218 billion yuan, the highest in recent years.
In the aviation field, taking Aero Engine Power as an example, the company's under construction projects remained at around 3 billion yuan from 2018 to 2021H1, and at the end of the 2021 half-year period, it was 3.135 billion yuan, maintaining the highest among key targets in the aviation field. Among them, the budget amount of the "XX Project" is 1.224 billion yuan. It was under construction by Liming Company before 2018. It was transferred to the company headquarters in 2018, and the completion rate reached 99% by the end of 2020, and the project was basically completed. After the project was completed, the company headquarters achieved revenue of 3.345 billion yuan in the first half of 2021, a year-on-year increase of 23.94%; the total profit was 386 million yuan, a year-on-year increase of 244.89%, and the growth rate of revenue profit was significantly shifted.
1.3.2. The military industry sector refinancing and expansion of production intensively launched
Since April 2020, many midstream and upstream companies have disclosed announcements on production expansion and refinancing, reflecting the acceleration of downstream demand in the military industry from another dimension.
1.3.3, China Nuclear Construction New signing contracts for military industry projects reflect the accelerated trend of capacity construction during the 14th Five-Year Plan period
China Nuclear Industry Construction Co., Ltd. (hereinafter referred to as "China Nuclear Construction") New signing contracts for military industry projects reflect the accelerated trend of military industry capacity construction during the 14th Five-Year Plan period. According to the company's announcement, China Nuclear Construction focuses on engineering construction as its main business, is one of the important contractors for national defense and military engineering in my country, and is also a leading enterprise in nuclear power engineering construction in my country. Its business is divided into military engineering, nuclear power engineering and industrial and civil engineering construction according to its segments. 2021H1 China's nuclear and military construction project signed a new contract of 12.311 billion yuan, an increase of 302.20% year-on-year, and the absolute amount exceeded the whole year of 2020. In the first year of the 14th Five-Year Plan, the growth rate of the company's newly signed contracts for military engineering has increased significantly.
1.4. Equipment procurement policy: build a modern equipment management system
In the context of building a modern weapon and equipment management system, a series of in-depth changes have been implemented in the field of equipment procurement to accelerate the transformation of the national defense science and technology industrial system from a planned economic model that is taken by the state to a "small core, big collaboration, specialization, and open" market economy model of military-civilian integration. We believe that there are three trends in the reform of the equipment procurement system and mechanism worth paying attention to:
First, the supply and demand pattern is further optimized, and competition is expected to become normalized. In the context of market-oriented reform, introducing competition and encouraging competition can introduce more "real water from the source" to the national defense science and technology industry, which is in line with the policy orientation of equipment procurement agencies and the competent departments of the national defense science and technology industry. Looking ahead, "winning" enterprises that rely solely on access qualifications, policy barriers and first-mover advantages may face greater challenges. Companies with innovative R&D capabilities, core technical capabilities, quality control capabilities, high operating management capabilities and cost control capabilities will stand out, achieve long-term and stable development, and fully share the long-term growth dividends of the military industry.
Second, the equipment price is expected to be more market-oriented. With the improvement of product process maturity and the expansion of batch production scale, step-by-step price reduction and batch price reduction are expected to become normal. Of course, the market-oriented reform of equipment prices will inevitably be a gradual and subtle process. Under the guidance of the market economy, the essence of the equipment price problem will return to the supply and demand pattern. The advanced requirements of weapon and equipment research and development determine that the iteration cycle of the first generation of equipment may be as long as more than ten years, and it also means that the training cycle of excellent suppliers is also relatively long; weapons and equipment have extremely high requirements for product quality, reliability, maintenance and guarantee, thus extremely high requirements for suppliers' stability and confidence. Therefore, the market-oriented reform of equipment prices will inevitably be a long-term, gradual and benign process.
Third, the voice of the general unit in the industrial chain is expected to be strengthened. With the adjustment of military product price review pricing rules, in a single source procurement contract, the cost-plus pricing method with the "reverse incentive" effect is expected to be replaced by more scientific and reasonable incentive constraints + target price management methods.Combined with the introduction of competition and optimization of supply and demand patterns, the new price baton system is expected to promote the fair and reasonable distribution of pricing and profit space in all links of the weapons and equipment industry chain. In the medium and long term, the distribution of profit space in the upstream, middle and downstream may be reconstructed. The voice of the middle and lower-stream units in supporting relationships and pricing links is expected to be strengthened, and the profit space is expected to be significantly improved.
1.4.1. The Army Equipment Department issued a proposal for high-quality, high-efficiency, high-speed and low-cost development
On August 20, 2021, the Army Equipment Department issued the "Initiative on Accelerating the Development of High-quality, High-efficiency, High-speed and low-cost" to all equipment research and development units on the Army Equipment Procurement Information Network. The Initiative pointed out that aiming at the second centenary goal and supporting the transformation of the army's modernization construction, it is urgent to further accelerate the development of high-quality, high-efficiency, high-speed and low-cost in the army's equipment, and build a new business format and new pattern of army equipment construction. To this end, the initiatives are put forward as follows:
. Improve political stance and serve to prepare for war. We must deeply understand that promoting the development of "three highs and one low" army equipment is a political requirement that responds to the concerns of leaders. We must firmly grasp the requirement of "there is politics in equipment and the overall situation in equipment", fully recognize that improving quality and accelerating price reduction is not only an objective requirement of the socialist market economy, but also an inevitable way to adapt to the overall national security concept, so as to promote the simultaneous improvement of national defense strength and economic strength; it is a practical measure to serve the preparation for war, and we must firmly establish the only fundamental standard of combat effectiveness and fully grasp the high and high consumption of modern wars. The trend of strong confrontation and the characteristics of large-scale equipment in the army, provide high-quality and low-quality equipment supply for the army to win the victory, and form a scale advantage that can be increased in volume, sustainable and replenishable; it is the first responsibility of strengthening the army to serve the country. It is necessary to inherit and carry forward the spirit of the people's military industry of "military industry serving the country and willing to contribute", maintain the original intention of the national defense industrial system, inspire private enterprises to serve the country with private units, and truly organically unify the strengthening of enterprises and the strengthening of the army and the strengthening of the army and the strengthening of the country.
2. Break traditional thinking and innovate the concept of development. The development of "three highs and one low" is an inevitable requirement for equipment modernization management and is an inherent requirement for equipment transformation and development in the new era. We must adhere to technological innovation, , establish a strong position in technology, vigorously encourage technological innovation, actively carry out independent innovation, openly introduce advanced technologies, decisively eliminate backward production capacity, and build quality improvement, efficiency improvement, cost reduction and empowerment on the solid foundation of scientific and technological innovation; we must adhere to military-civilian integration, , open competition, break the closed thinking of "the emperor's daughter has no worries about marrying", break the industry barriers of "fat and water will not flow into outsiders", introduce high-quality resources, force industrial upgrading, and establish a more open, healthy, smooth and efficient production Industry chain and supply chain; we must insist on careful calculations and cost control, insist on demanding productivity from scientific management, improve management models, strengthen cost control, reduce process consumption, and effectively squeeze out unnecessary "water" in the management link, and spend every point of military expenditure on the "cutting"; we must adhere to quality first and efficiency first, adhere to low-cost with high quality as the premise and high-cost-oriented high-quality. We must never fall into the misunderstanding of winning bids at the low price, and we must not exchange quality as the price for false low prices, and strive to promote the organic unity of high quality and low cost.
. Hold on to key links and strengthen full-hygiene control. The military and local governments should work together to promote the full-scope coordination of military expenditure resources, full-dimensional control of research and production, and full-life measurement of equipment costs, and continuously improve the efficiency of military expenditure resources use.
1.4.2. The Army Equipment Procurement Information Network released 8 equipment price-related laws and regulations
According to the Army Weapon and Equipment Procurement Information Network . On October 26, 2021, 8 main regulations in the field of Equipment Price have been released in the "Regulations and Standards" column of the Intranet of the Army Weapon and Equipment Procurement Information Network. Website users can go to the website for inquiries in each branch center of the website according to the requirements of the website's "Service Guide-Confidential Inquiry Process".
1.5, institutional and mechanism reform
1.5.1, three-year action plan for state-owned enterprise reform accelerated
At the end of June 2, 2020, the 14th meeting of the Central Committee for Comprehensive Deepening Reforms , reviewed and approved the "Three-year Action Plan for State-owned Enterprise Reform (2020-2022)". The top ten military-industrial groups proposed the group's plan based on learning the relevant spirit. The reform action plan covers specific measures such as separation of non-main businesses, industrial restructuring, mixed reform of subsidiaries/enterprises and listing, core backbone personnel holding , improving external supporting rates, and introducing external capital.
1.5.2. In the past three years, 52 listed military-industrial companies have launched employee incentive plans
According to announcements from various companies, in the past three years, among the 156 listed companies with core military products business, a total of 52 listed companies, including 12 state-owned enterprises and 40 civilian-entered military companies, have launched incentive plans.
1.5.3. The stock price excess returns of listed companies that implement employee incentives are considerable
Among the state-owned enterprises that have launched the employee incentive plan in the past three years, except for the aerospace rainbow that has not yet implemented the plan and the number of Electrotechnology that has been implemented for less than one week, among the other 10 listed companies, 7 companies have obtained excess returns from the date of the first implementation of the incentive announcement to November 12, 2021 (compared with the CSI Military Industry Index in the same period), with a median excess return of 41.53%.
In the context of improving industry demand and emerging enterprise scale effects, the incentive plan is conducive to state-owned listed companies further streamlining the interest-oriented mechanism and accelerating the release of performance. Taking AVIC Heavy Machinery and Zhenhua Technology as examples, after the company implemented the incentives for key employees, its performance accelerated significantly and the stock price achieved significant excess returns.
With the advancement of the three-year reform actions of the top ten military industrial groups, the incentive policies at the group level are expected to be further improved. In the future, more state-owned military listed companies are expected to implement incentive plans, thereby emerging more investment opportunities.
2, sector investment strategy
2.1, strengthen fundamental research, seize structural opportunities
Since 2007, the National Defense Science and Technology Commission and other departments issued the "Guiding Opinions on Promoting the Shareholding Transformation of Military Industry Enterprises". The ten years after the securitization of military industry assets is the prehistoric era when A-share military industry assets have gradually formed from nothing and the military industry sector. Since 2016, with the fading of the halo of military-industrial themes, the stage of rain and dew has passed. As the market returns to rational and super high valuations gradually decline, the military industry sector has finally gradually entered the stage of value growth, and the correlation between the target stock price trend and fundamentals is getting higher and higher.
021 As the first year of the 14th Five-Year Plan, the demand for the military industry has achieved milestone realization. Judging from the financial data in the first three quarters, upstream fragmented growth has spread to the systematic acceleration of the entire industry. Financial report information is open and fair, which can best build market consensus. Compared with other manufacturing industries horizontally, the demand for the military industry is outstanding in terms of prosperity, certainty and sustainability. The mainstream military industry target " blue chip ization" is the general trend, and the "guerrilla" investment attributes and volatility are expected to be significantly weakened.
Outlook In 2022, the military industry will have full demand and orderly production capacity. Against the backdrop of structural acceleration of industry demand, a number of military industry targets are expected to achieve rapid growth in performance and the upward trend remains unchanged. Currently, most of the target PE driven by fundamentals in the military industry sector are in the range of 30-50x, with an annual compound performance growth rate of 30-40% in 22/23, and a high degree of matching growth and valuation. Taking into account the current Taiwan Strait and the overall external environment, the potential valuation of the military industry sector premium is expected to gradually emerge. As time approaches the end of the year, the time cost of switching valuations across the New Year is getting lower and lower.
Horizontal comparison of other manufacturing industries, the characteristics of the military industry are that it has strong top-level design, outstanding planning attributes, and high medium-term demand certainty for enterprises related to the main combat equipment industry chain. Under the five-year planning framework, there are no significant changes in the industry fundamentals. Looking at all sub-sectors of military industry and all links of the industrial chain, market research and cognition are relatively sufficient, and there are no significant deviations in expectations in general.Looking ahead to 2022, most targets driven by fundamentals in the military industry sector will mainly come from the return on investment brought by performance growth. Looking at two dimensions: 1) Among the six major military industry sub-sectors, the demand for the "14th Five-Year Plan" is mainly accelerated by aviation, aerospace, and electronic equipment; 2) In all links of the military industry chain, middle and upper-stream enterprises can achieve demand elasticity significantly exceeding the industry by individual alphas brought about by increasing market share (spillover of internal demand in the system or outperforming competitors), domestic substitution or the increase in penetration rate . Looking at the entire military industry sector, we believe that the following directions are particularly worthy of attention. (Report source: Future Think Tank)
2.2. Mid- and downstream enterprises in aviation manufacturing: the batch production and volume technology is mature, scale effect contributes performance elasticity
The aviation industry has a huge gap, and the growth rate of new aircraft installation is strong
The goal of national defense and military construction determines that my country's military expenditure will still maintain long-term certain growth, and aviation equipment as a key construction direction will have a faster growth rate. According to World Airforces 2021, there were 53,563 active military aircraft worldwide in 2019, of which 3,260 were China, accounting for 6.09% of the global active military aircraft; the United States had 13,232, accounting for 24.70% of the global active military aircraft. At present, there is still a big gap between my country's military aircraft and the world's advanced countries, and the market space in the future is huge.
021Q1-Q3, the growth rate of middle and upper reaches of the aviation industry chain is strong. Taking four new military aircraft industry chains, namely Eleda, Zhongjian Technology, Triangle Defense, and Western Superconductor, as an example, the median growth rate of net profit attributable to shareholders increased from 88.37% in 2020Q1-Q3 to 100.52% in 2021Q1-Q3.
scale effect is revealed, and profitability is improved
In addition to the above-mentioned upstream enterprises, we believe that in the context of the acceleration of demand in the "14th Five-Year Plan", we should pay enough attention to the cost convergence of cost and scale effect performance elasticity of aviation manufacturing enterprises in the context of accelerated demand in the "14th Five-Year Plan". 021 interim report and third quarter report are the most complete asset securitization aviation industry chain. The systemic performance of the first year of the "14th Five-Year Plan" was realized. The ROE (diluted) of OEMs and first-tier suppliers such as AVIC Shenyang Aircraft Corporation, Zhongzhi Shares, AVIC West Flight, AVIC Mechanical and Electrical, AVIC Electronics, AVIC Heavy Machinery and other OEMs and first-tier suppliers increased by 60.40%, 16.59%, 36.63%, 50.33%, 32.69%, and 58.21% year-on-year respectively, which systematically reflects the performance elasticity of the aircraft manufacturing companies with heavy asset in terms of the production scale and revenue increase significantly.
2.3. Aero engine industry chain: long slope and thick snow, long track
According to the People's Liberation Army Daily, the Air Force announced a new brand of practical training on October 13, 2019. The Air Force's practical training system represented by "Red Sword", "Blue Shield", " Gold Helmet ", "Golden Dart" and "Qingdian" will be expected to increase the intensity of practical training of the Air Force and become a specific tool and powerful engine for the Air Force's strategic transformation.
Aero engine service life is usually used as a unit of flight hours. After the flight hours reach a specific amount, special inspection, overhaul or engine replacement is required. The AL-41F-1S engine designed by Russia's Saturn has a service life of about 4,000 hours, with both the first-turn life and the overhaul interval life of 1,000 hours. The Pratt & Whitney F135 engine successfully verified its full-life working capability during the acceleration mission test run (AMT) of the US Air Force Arnold Engineering Development Center (AEDC). After 10 months of testing, the F135 engine completed 5,200 total cumulative cycles (TACs) without the need for maintenance of the turbine, which is equivalent to more than 7 years of actual use, or the F-35 fighter performing 1,200 missions.
In addition, although the civil aviation engine field is still monopolized by foreign countries in the short term, the long-term massive market is expected. According to the website of the Ministry of Industry and Information Technology, the CJ-1000 (Changjiang-1000), independently developed by China Aviation Engine Co., Ltd. (Shangfa Company), was successfully ignited in 2018.According to the Global Network, at the "Lightweight Materials Industry Development Forum" of the 2017 China Top 500 Enterprise Summit Forum, an academician of Chinese Academy of Sciences and a researcher of the China Aeronautics and Engineering Institute of Aeronautics and Materials said that the CJ-1000 engine that may be used for C919 is under development, and I believe that one day in the future it will replace the engine purchased from abroad.
From the first three quarters of 2021, Aero Engine Power and Aero Engine Control, the traitors under the aero engine industry chain, achieved stable growth: in Q1-Q3, 2021, Aero Engine Power achieved revenue of 18.343 billion yuan, a year-on-year increase of 18.59%, and net profit attributable to shareholders of 783 million yuan, a year-on-year increase of 23.58%, and a gross profit margin of 14.44%, a year-on-year decrease of 1.32pct. 2021Q3 achieved revenue of 8.259 billion yuan, a year-on-year increase of 31.64%, a month-on-month increase of 15.12%, a month-on-month increase of 322 million yuan, a year-on-year increase of 42.91%, a month-on-month decrease of 24.67%, and a gross profit margin of 10.66, a year-on-year decrease of 3.33pct, a month-on-month decrease of 8.17pct.
021 Q1-Q3 AVIC Control achieved revenue of 3.038 billion yuan, a year-on-year increase of 24.96%, and net profit attributable to shareholders of 398 million yuan, a year-on-year increase of 20.47%, and a gross profit margin of 32.49%, a year-on-year increase of 0.33pct. 2021Q3, the company achieved revenue of 1.014 billion yuan, a year-on-year increase of 24.90%, a month-on-month decrease of 4.08%; net profit attributable to shareholders was 101 million yuan, a year-on-year increase of 5.31%, a month-on-month decrease of 37.77%, and a gross profit margin of 26.21%, a year-on-year decrease of 4.39pct and a month-on-month decrease of 9.94pct.
typical targets in the middle and upstream of the aero engine industry chain include , Fushun Special Steel , Gangyan Gaona, Tunan Co., Ltd., and Baoti Co., Ltd. (or related assets), with a high proportion of raw material business. The median revenue growth rate increased from 5.54% in Q1-Q3 2020 to 30.31% in Q1-Q3 2021, fully reflecting the trend of significantly increasing performance growth of aircraft engine raw materials and forging companies driven by downstream demand.
2.4. Missile equipment industry chain: Focus on preparing for war, and demand is accelerated to release
Comprehensively strengthening training and preparation, the demand for consumable weapons and equipment such as missiles is expected to increase rapidly. The securitization rate of military assets in the direction of missile weapons is still at a low level, and the overall operationality of the institutes to implement securitization in the short term is low. Among the companies related to the industrial chain, those with high revenue and performance from the missile and weapons field include Aerospace Electric, Hongyuan Electronics (self-produced business), Mengsheng Electronics, Tianjian Technology, Philips, Leidian Micropower, Hongdu Aviation, etc. In 2021Q1-Q3, the performance of enterprises related to the missile industry chain accelerated significantly. The median revenue growth rate of the six companies increased from 19.51% in 2020Q1-Q3 to 68.14% in 2021Q1-Q3, and the median net profit attributable to shareholders increased from 10.14% in 2020Q1-Q3 to 77.29% in 2021Q1-Q3, fully reflecting the accelerated development trend of the "14th Five-Year Plan" of the industrial chain.
2.5, other key directions
2.5.1, components
Military electronic components enterprises are the "integrator" of the military industry demand
Components and raw materials and parts are at the upstream of the military industry, but compared with the other two major directions, components are more universal and have a wider downstream distribution. Leading component companies generally cover hundreds or thousands of downstream military scientific research and production units. Orders do not depend on individual key customers or individual models of equipment, which can better reflect the overall appearance of downstream industry demand.
Military electronic component companies have the dual profit elasticity brought by "advanced excess volume" and scale effect
OEM factory, as the main body directly targets military customers, is the key to the outline of equipment procurement. The OEM will decompose production tasks step by step, from sub-systems to equipment suppliers to parts, raw materials, and component companies. Since upstream supporting enterprises are in series, the shortages in any supporting link will affect the timely delivery of the assembly products. When industry demand is significantly accelerated, the delivery rhythm of supporting enterprises, especially the end supporting enterprises, generally has a large advance volume, and the initial delivery quantity has a significant amplification effect. At the same time, the scale effect will also bring further profit elasticity.
host products are generally composed of tens of thousands or even hundreds of thousands of components, and there are many constraints on production expansion.Looking ahead to the next five years, based on the constraints of capacity expansion in the entire industrial chain, the OEM will most likely maintain linear average growth. Upstream companies represented by components will reflect the "seesaw" effect of high at the beginning and low at the end, which will cause the growth rate of demand in the first half of the "14th Five-Year Plan" to exceed the overall growth rate of the industry, and the growth rate in the second half will slow down. When implemented in specific enterprises, the growth rate of standard products and bulk products with small capacity bottlenecks is more significant; the pace of release of products with large capacity constraints and high customization is more orderly.
takes Hongda Electronics, Hongyuan Electronics, Torch Electronics, AVIC Optoelectronics, Aerospace Electrical Appliances, Zhenhua Technology, and Unisplendour Guowei as the analysis objects. Seven military electronic components companies have shown signs of a significant acceleration since the first half of 2020, and the profit growth rate has significantly exceeded the revenue growth rate, reflecting the "pre-ext volume increase" of enterprises at the end of the industrial chain under the strong pull of downstream demand in the "14th Five-Year Plan" and the profit release elasticity brought by the scale effect.
AVIC Optoelectronics, Hongyuan Electronics, Aerospace Electrical Appliances, Torch Electronics, Hongda Electronics, Zhenhua Technology, and Unigroup Guowei, 7 military electronic components companies, 2021Q1-Q3 revenue growth of 2020Q1-Q3, 23.39% compared with the median annualized growth rate of 2019Q1-Q3; the median growth rate of net profit attributable to shareholders was 89.85% compared with the median annualized growth rate of 2020Q1-Q3, and 63.98% compared with the median annualized growth rate of 2019Q1-Q3. It can be seen that military electronic component companies have maintained rapid growth even after excluding the impact of the low base of 2020Q1-Q3.
2.5.2. Aviation carbon fiber composite materials
Aviation carbon fiber composite materials industry chain has achieved rapid growth from 2019 to 2020. The median revenue growth rate of 2021Q1-Q3 decreased from 26.72% in 2020Q1-Q3 to 22.42% in 2021Q1-Q3, and the median net profit growth rate attributable to shareholders decreased from 63.04% in 2020Q1-Q3 to 17.89% in 2021Q1-Q3.
3, 2021-to-date military industry sector review
3.1, 2021-to-date military industry sector trend: performance exceeds expectations, with eye-catching targets
-to-date (20211112, the same below), the CSI Military Industry Index rose 13.15%, outperforming the Shanghai Composite Index by 11.25%, underperforming the ChiNext Index by 2.49%, and the National Defense Military Industry (CITIC) rose 11.25%, ranking 12th among the 30 CITIC industry indexes. The total market value of the military industry sector is 2.28 trillion yuan (accounting for 2.44% of A-shares), and the price-to-earnings ratio (TTM, overall method, excluding negative values) is 66.88, ranking 15th and 1st respectively. Since the beginning of the year, the targets with large or small declines in the military industry sector are mostly high-quality targets in aviation, aerospace, and information tracks, and most of the performance in the first three quarters of 2021 has achieved rapid growth.
3.2. Institutional holdings: Performance fulfillment drives the improvement of allocation, and the economic situation is significantly increased on schedule
According to the third quarter report of public funds in 2021, statistics were conducted on 155 major military-industrial targets of A-shares. After excluding passive index funds, the market value of military-industrial stocks among the top ten heavily held stocks in public funds in 2021Q3 was 114.4 billion yuan, accounting for 3.9%, an increase of 0.85 percentage points compared with 2021Q2.
As of Q3 2021, of the total market value of A-shares was 91.3 trillion yuan, 155 military-industry stocks had a market value of 2.86 trillion yuan, accounting for 3.13%, up 0.22 percentage points from 2021Q2. Compared with the proportion of military stocks in the total market value of A-shares, the proportion of military stocks in the top ten heavily held stocks in active public funds has shown a downward trend overall since Q2 2016, from 2.57% over-allotment in Q2 2016 to 1.63% under-allotment in Q1; driven by the military industry market starting from the third quarter of 2020, the allocation ratio in Q3 and Q4 increased significantly to 0.04%, and fell back to 0.19% in Q1 2021, and then rebounded again, with 0.77% in Q3.
As of 2021Q3, 155 military-industry stocks accounted for 3.67% of the total market value of A-shares, up 0.36 percentage points month-on-month. Compared with the proportion of military stocks in the total market value of A-shares, the market value of military stocks among the top ten heavily held stocks in active public funds increased by 0.25% in 2021Q2, reaching an over-allotment of 0.23%, returning to the over-allotment for the first time in the past four years. Among the military stocks held by active public funds with heavy holdings, the proportion of state-owned military stocks has further increased from 69.5% in 2021Q2 to 70.6% in 2021Q3.
021Q3 Among the heavily held stocks of active public funds, the stocks with the largest increase in market value are: Zhenhua Technology (5.241 billion yuan), Unigroup Guowei (4.188 billion yuan), AVIC Electric (2.778 billion yuan), Hongyuan Electronics (2.593 billion yuan), Fushun Special Steel (2.484 billion yuan); among the heavily held stocks of active public funds, the stocks with the largest reduction in market value are: Gaode Infrared (1.76 billion yuan), Radio and Television Metrics (1.2 billion yuan), Yingliu Shares (1.138 billion yuan), AVIC Optoelectronics (932 million yuan), Aerospace Rainbow (634 million yuan); 2021Q3 The stocks with the largest number of funds held by active public funds are: Unigroup Guowei (325), Zhenhua Technology (112), AVIC Optoelectronics (111), Fushun Special Steel (108), and AVIC Mechanical and Electrical (77);
021Q3 The stocks with the highest market value held by active public funds are: Unigroup Guowei (19.123 billion yuan), Zhenhua Technology (11.767 billion yuan), AVIC Optoelectronics (7.94 billion yuan), Fushun Special Steel (7.645 billion yuan), AVIC Shenfei (5.773 billion yuan); 2021Q3 The stocks with the highest proportion of market value of active public funds are: Zhenhua Technology (22.81%), Fushun Special Steel (17.83%), Unigroup Guowei (15.24%), Hongyuan Electronics (12.24%), and Philips (11.66%); the stocks with the largest proportion of market value of active public funds are: Hongyuan Electronics (6.51%), AVIC Technology (4.77%), AVIC Electric (3.89%), Zhongjian Technology (3.57%), and Fushun Special Steel (3.41%). 2021Q3 The stocks with the largest share of active public funds holding the largest share of market value are: Yingliu Shares (8.96%), Lijun Shares (4.15%), Radio and Television Metering (3.95%), Aerospace Rainbow (2.86%), and Gaode Infrared (2.54%).
016-2017, the total market value of military stocks held by active public funds was basically maintained in the range of 45%-50%. From 2017Q4 to 2018Q4, the concentration of holdings of military-industry stocks held by active public funds gradually increased, and the total market value of the holdings top10 market value increased from 52.8% in 2017Q4 to 75.5% in 2018Q4. The total market value of holdings from 2019 to the present is top10. The market value of the market value remains in the range of 55%-65%, and 63.8% in 2021Q3.
3.3. The scale of military industry funds is growing stronger and the proportion of active development continues to increase
In the past five years, the scale of military industry funds has grown stronger and stronger, and the impact on the overall trend of the military industry sector is increasing. From 2015 to 2020, the scale of military industry funds was basically consistent with the trend of the CSI Military Industry Index; at the end of the six months of 2021, the fund scale exceeded 100 billion yuan for the first time, reaching 101.5 billion yuan, and the fund scale in 2021Q3 reached 94.4 billion yuan, a decrease of 7.1 billion yuan at the end of the six months. From 2015Q2 to 2020Q3, the proportion of military fund size accounting for the total market value and circulating market value of the CSI Military Index components remained basically stable, fluctuating around 3% and 8% respectively; in Q1 2021, the proportion of military fund size accounting for the total market value and circulating market value of the CSI Military Index components increased significantly, and it decreased slightly at the end of the third quarter, reaching 5.48% and 11.87%, respectively, which was still higher than the level in 2020 and before.
From the perspective of the proportion of active funds and passive funds, the total scale of military-industry theme funds (active) and military-industry index funds (passive) at the end of the third quarter of 2015-2020 were roughly in the ratio range of 1:3 to 1:4; starting from Q3 2020, the proportion of military-industry theme funds continued to grow, and reached 50.39% at the end of the third quarter of 2021, indicating that the requirements for active stock selection by military-industry funds in the past two years have increased significantly.
In the past five years, the proportion of institutional holdings and individual holdings in military industry funds has shown an overall upward trend in the proportion of institutional holdings. As of June 30, 2021, the proportion of holdings of institutional investors in military industry funds was 22.73%. The amount of individual holdings of military funds continues to be positively correlated with the trend of the CSI Military Industry Index, reflecting that individual investors are still an important driving force for the CSI Military Industry Index.
4, 2021 third quarter report: revenue and profit growth is strong, demand in the "14th Five-Year Plan" continues to be realized
4.1. Horizontal industry comparison, military industry performance growth rate is outstanding
021 The third quarter report is a milestone in the analysis and judgment of the military industry's demand in the "14th Five-Year Plan". The fragmented explosion of the upstream of the industrial chain has now appeared in a prairie fire. Financial report information is open and fair, which can best build market consensus.In a horizontal comparison, the demand for the military industry is outstanding in terms of prosperity, certainty and sustainability. The "blue chip" of mainstream military industry targets is the general trend, and the "guerrilla" investment attributes and volatility will be significantly weakened.
In the first three quarters of 2021, the National Defense and Military Industry (CITIC) sector achieved a total operating income of 271.336 billion yuan, accounting for 75.63% of the whole year of 2020, accounting for 0.59% of the A-shares; the net profit attributable to shareholders was 22.02 billion yuan, accounting for 89.03% of the whole year of 2020, and accounting for 0.55% of the A-shares. The year-on-year growth rates of revenue and net profit attributable to shareholders were 21.95% and 35.13%, respectively, ranking 19th and 16th among the 30 industries respectively.
As of September 30, 2021, the total market value of the sector was 1954 billion (the total market value accounted for 2.14% of A-shares), and the price-to-earnings ratio (TTM, excluding negative value) was 61 times, ranking 15th and 1st respectively. In the first three quarters of 2021, the National Defense and Military Industry (CITIC) index fell 4.17%, ranking 21st in the increase. Compared with other industries, the advantage of the military industry lies in its long-term growth certainty. Based on my country's national defense and military construction goals, we judge that the military industry will continue to maintain a high growth rate in the next 5-10 years.
4.2. Analysis of segmentation direction: Aerospace continues to grow strongly
We divide the 82 targets into 6 directions according to their subdivided fields: aviation, aerospace, ships, ground squadrons, general supporting facilities, and electronic components. The median year-on-year growth rate of revenue and profit in each sub-sector in recent years is as follows:
In the first three quarters of 2021, the median growth rate of operating income and net profit attributable to shareholders of 82 military-industrial targets was 28.63% and 40.25% respectively; among which the median growth rate of operating income and net profit attributable to shareholders of 34 listed companies under the military-industrial group were 26.81% and 27.03% respectively; the median growth rate of operating income and net profit attributable to shareholders of 16 single-source procurement-based military-industrial targets were 24.12% and 25.28% respectively; the median growth rate of operating income and net profit attributable to shareholders of 8 mainframe factories were 17.53% and 20.73% respectively.
(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)
selected report source: [Future Think Tank]. Future Think Tank - Official Website
