歼 20 mass production detonated the military sector brokers believe that these stocks are worthy of attention!
At the end of today, the military-related sectors performed strongly, with national defense, aviation power and large aircraft in the top four respectively. Chenxi Airlines, Platinum 20cm daily limit, Haite High-tech 3 consecutive boards, Aileda, Xinyan shares, Xinyu Guoke, Hangfa Technology and other stocks all rose more than 10%.
In the news, on June 18th, the Air Force announced today that the new generation stealth fighter J -20 made in China is equipped with many heroic units of the People’s Air Force. With the upgrading of fighters, it will boost the prosperity of the upstream and downstream industrial chains of fighter aviation industry chain.
At the same time, it is worth noting that on June 9, Aero Power announced that it plans to use 11.7 billion yuan for cash management. Considering that the monetary capital of 21Q1 Company is 4.438 billion yuan, it is considered that the company may receive a large amount of monetary capital in the near future. Previously, AVIC Shen Fei had also announced a substantial increase in associated deposits, or indicated that large orders would land. Since the second half of 2020, military enterprises have announced that they intend to finance the construction of new production lines, and most production lines will not be put into production until at least the end of 2022, which also shows that the industry still has long-term order support at the end of the 14 th Five-Year Plan. Judging, with the release of the semi-annual report or the third quarterly report, the growth of the industry will be gradually realized, and the arrival of a large number of advance receipts has verified the high certainty of the long-term development of the industry.
According to the in-depth analysis of the recent research report of Guosheng Securities, the forecast period of the interim report is coming, and the high prosperity of the military industry is expected to continue to cash in 2021Q1. The performance of supporting manufacturers such as electronics and materials in the upstream of the military industry has increased substantially, and the cash paid by downstream host manufacturers for purchasing goods has also increased substantially, which indicates that the orders and shipments in the upstream of the military industry have increased substantially. However, the revenue of Q1 OEM has not increased significantly, which is caused by the delivery rhythm of host products.
Main engine direction: Take the engine as an example, the orders for upstream raw materials and electronic components have increased substantially in 2020Q3, and the engine manufacturing delivery cycle is estimated to be 8-10 months. From the perspective of goods transfer in the industrial chain, it means that the delivery volume of midstream and main engine products in Q2-Q3 is expected to increase month-on-month, and the revenue of the main engine factory is highly certain. Then, the company announcement represented by AVIC Power is superimposed to manage the cash of 11.7 billion yuan or directly reflect the advance payment. Considering the verifiability of the upstream and downstream of the military industrial chain, it is expected that with the gradual disclosure of the interim report, the advance receipts of other OEMs will also be revealed. Therefore, the delivery volume and advance payment of the downstream mainframe will fully verify the high prosperity of the military industry.
Upstream and midstream direction: Under the background of comprehensively strengthening training and preparing for war, the domestic military industry has entered a major development opportunity period of "short-term/three-year order and production capacity increase substantially, and medium-term/seven-year equipment system upgrade". During the 14th Five-Year Plan period, the procurement mode of the military industry will be changed from "rolling procurement" to "batch merger and large single procurement", and accordingly the proportion of advance payment is expected to be greatly increased. The original intention of large advance payment is to increase procurement and promote production expansion. Therefore, the demand for military orders is very strong, and the downstream OEMs will constantly put the demand for military industry ahead, and the prosperity is very strong. It is believed that the performance of upstream and midstream enterprises will maintain a high year-on-year growth in 2021Q2, and it will also show an increasing trend from the previous quarter. With the gradual disclosure of the data in the interim report, the high prosperity and continuous performance of the military sector will be fully verified, and the upstream and downstream of the sector will usher in a resonance effect.
The military sector has reached a period of earning money for performance. In terms of performance, as mentioned above, the performance of the military sector will continue to be honored, and the entire military sector enterprises will usher in a high growth dividend period in the next 3 to 5 years; In terms of valuation, from the perspective of growth, we should try our best to avoid companies whose valuations are constantly being killed in the future. That is to say, after the war preparation bonus is over, the development of some military enterprises will meet the ceiling as the downstream models enter a stable development period. We should choose product-driven military enterprises that can achieve long-term growth by relying on product expansion capabilities. If these enterprises can maintain or expand their valuations in the future, then we can earn money with confidence.
1) From the perspective of the industry, the military industry will bring long-term growth space because of the continuous confrontation and upgrading of technology. Taking the United States as a mirror, the compound growth rate of US military expenditure has reached 4.7% in the past 60 years, and its military expenditure accounts for about 4% or more in GDP for a long time. The simultaneous development of the US economy and national defense has made the US military sector rank fourth in annualized rate of return in the past 40 years. At present, China becomes rich before it is strong, and focusing on the development of military industry is an important guarantee for economic achievements. However, China’s national defense and economic strength do not match. In 2019, military expenditure accounted for only 1.89% of GDP. Therefore, China’s "14 th Five-Year Plan" clearly pointed out that "promoting the simultaneous improvement of national defense strength and economic strength". It is estimated that military expenditure should at least be on par with the United States in GDP, so China’s military expenditure growth rate or long-term GDP growth rate.
The combination of equipment gap filling and actual combat training makes the high prosperity of the military industry highly certain. The current military industry is the starting point of the bumper harvest period of equipment scientific research achievements in the past 20 years, focusing on high-growth tracks such as missiles, aero-engines, military aircraft and national defense informationization. On the other hand, technological confrontation exists forever, and the emerging weapons and equipment are endless and the assembly cycle is as long as several decades, which also brings long-term deterministic growth, such as unmanned aerial vehicles, all-electric push ships, electromagnetic weapons, laser weapons, etc. Or the weapon system is constantly upgraded, such as avionics system, which brings great development space to the military industry.
2) From the perspective of enterprises, the current military sector has entered the performance cashing period, and the EPS of most military enterprises will continue to be cashed. Our key is to find enterprises with technology and product expansion capabilities to gain long-term growth space, and the valuation of these enterprises can be expanded or maintained. The way for military enterprises to achieve long-term growth is: relying on the continuous expansion of technology or products, they can penetrate into the equipment that is constantly iteratively updated, and then gain sustained growth momentum. This requires military enterprises:
The product direction conforms to the future equipment development trend. For OEMs or core subsystem vendors, it is necessary to choose enterprises that meet the current or future war mode and have new equipment and products reserves, such as fighter planes, unmanned equipment, laser weapons, etc., which will usher in significant development; For the upstream supporting manufacturers, it is necessary to choose the basic electronic/material suppliers that conform to the equipment development trend, which can continuously penetrate in the direction of all kinds of emerging equipment and civilian products, which will bring a large space for long-term growth, such as the increasing penetration rate of carbon fiber composite materials and titanium alloys in emerging equipment, and the continuous upgrading of national defense information technology will bring about an accelerated demand for special chips.
Product-driven rather than channel-driven. With high R&D investment, technology and products have core competitiveness, and then gain strong expansion ability, whether it is horizontal expansion or vertical integration of products, or expansion to other high-end equipment products such as large aircraft and commercial aviation development based on the characteristics of military-to-civilian conversion, or expansion to the field of military trade to usher in greater market space.
Individual stock investment:
1) The core card position enterprise of the high-growth subdivision track of military industry. As a cornerstone product of military industry, the penetration rate of emerging equipment will continue to increase and then achieve long-term growth. The characteristics of high-barrier industries make these core card companies have a high market share in their respective sub-tracks, which proves the company’s ability, and its order rhythm also determines the delivery of the entire industrial chain. In other words, the orders and performance of these enterprises cannot be released, and the prosperity of the military industrial chain may be falsified. Under the certain high-growth industry dividend, it will bring great performance flexibility to these core card companies. Such as Fushun Special Steel, Ziguang Guowei and AVIC Hi-Tech.
2) Military OEM or core subsystem manufacturer. Fully enjoy the industry dividend with an almost monopolistic industrial position, and once new equipment is installed, it will bring decades of revenue growth. These enterprises are not only the beneficiaries of the high-certainty and high-growth dividends in the military industry brought about by the construction of war preparedness capacity, but also gain long-term growth in the process of continuous confrontation and upgrading of weapons and equipment technology with their industrial monopoly status. For the main engine factory, the productivity requires the change of production relations, and the transformation and upgrading of the military industry to adapt to the comprehensive training and preparation for war is ready to come. The governance structure of the military main engine factory will also be continuously improved, and the profitability of the enterprise will also be continuously improved under the influence of scale effect. Such as: AVIC Shen Fei, Xiangdian, Hangfa Power, Hongdu Aviation, Aerospace Rainbow and Hangfa Control.
3) Military enterprises with strong expansion capability. Relying on the continuous expansion of technology or products, it can penetrate into the equipment that is constantly iteratively updated, or expand in the direction of civilian use, and then gain sustained growth momentum. This requires military enterprises: products meet the development trend of equipment, such as continuous installation of unmanned equipment, continuous upgrading of national defense informationization, and continuous infiltration of advanced materials such as carbon fiber into new equipment; Product-driven rather than channel-driven, with high R&D investment, technology and products have core competitiveness and thus strong expansion ability, whether it is horizontal expansion or vertical integration of products, or relying on the characteristics of military conversion to civilian to expand to other high-end equipment products such as large aircraft and commercial aviation development. Such as: Zhenhua Technology, Western Superconductor, Shanghai Hanxun, AVIC Heavy Machinery, Tunan, Beimo Hi-Tech.
4) integration of defense and civilian technologies-style military enterprises. With the gradual development of China’s high-end equipment industries such as large aircraft and commercial aero-engines, due to the universality of military and civilian technologies, this will bring more long-term growth space to many military enterprises. Such as: AVIC Optoelectronics, Yingliu, Ruichuang Micro-Nano and Baoti.
Source: Tongshun-Change Eyes