In the context of the continuous improvement of industry fundamentals, the valuation of the A-share defense and military industry index fell to an eight-year low. Military industry revenue and profits hit new highs, and the growth rate of military spending will return to 7% in 2022.securitiesTimes·Databao launched the “Bottom Planter” series of national defense and military industries, scanning the key investment areas of defense equipment expenses, and looking for directions for the next two years.
Industry valuations fell to
According to data treasure statistics, since 2022, the national defense and military industry index has been continuously adjusted. After falling to a near 23-month low of 1140.83 on April 26, market sentiment was boosted again, and the industry index rebounded. From the beginning of this year to April 26, the national defense and military industry index has dropped by 41.25%, ranking second from the bottom in the first-tier Shenwan industry, only slightly higher than the 41.66% of the electronics industry.
Also falling with the index are sector valuations. On April 26, the overall rolling price-earnings ratio of the defense industry was 41.44 times, and the valuation was at its lowest level since 2014.via AVICsecuritiesAccording to estimates, the median price-earnings ratio of core military companies corresponds to about 32 times in 2022 and about 15 times in 2025. Industry PEG (price-earnings-to-earnings-growth ratio) close to 1 is cheap enough.
The valuation of the defense industry index has fallen, mainly due to the continuous impact of rising energy prices and repeated epidemics, but the fundamentals of the defense industry have not changed significantly. According to statistics from Databao, in recent years, the revenue of the defense industry has grown steadily, with an annual growth rate of more than 6%. In 2021, industry revenue will exceed 500 billion yuan for the first time, with an annual growth rate of 12.77%, the highest in the past five years.
net profitOn the other hand, the defense and military industry performed equally well. Except for 2019, the overall net profit of the sector has shown an upward trend in the past five years.Especially in 2020, when the “Thirteenth Five-Year Plan” ends, the sector willperformanceThe growth rate is as high as 79.62%, and the net profit is close to 25 billion yuan; in 2021, the net profit of the sector will continue to increase steadily by more than 10% to 27.715 billion yuan, nearly doubling from 13.915 billion yuan in 2019.
In contrast, the U.S. arms giantlockheed martinIn fiscal year 2021, the revenue was US$67.044 billion, a year-on-year increase of 2.52%; the net profit was US$6.315 billion, a year-on-year decrease of 7.58%. Northrop-Grumman achieved revenue of US$35.667 billion, down 3.08% year-on-year; net profit was US$7.005 billion, up 119.66% year-on-year.
Military spending growth returns to 7%
According to data from the Ministry of National Defense, the national budget for national defense spending in 2022 is 1,476.081 billion yuan, an increase of 7.1% over the previous year’s budget execution and 5.5% higher than the main expected target for China’s economic and social development in 2022. In 2021, my country’s military spending will only account forGDPof 1.18%. China‘s defense spending still has a lot of room for growth, and it may be higher than GDP growth for a long time in the future.
In recent years, the proportion of national defense spending on equipment has increased year by year. From 2010 to 2017, my country’s equipment expenditure increased from 177.359 billion yuan to 428.835 billion yuan, with an average annual compound growth rate of 13.44%. The proportion of equipment expenditure in military expenditure increased by 7.9 percentage points to 41.11%.
The Ministry of National Defense stated that it is necessary to promote the construction of our military’s weapons and equipment to a new level from a new starting point.CNACsecuritiesIt is believed that the core logic of the demand-side development of the military industry during the “14th Five-Year Plan” is mainly focused on the rapid increase in the “quality” and “quantity” needs of the third and fourth generations of backbone equipment, especially the high-sea defense and long-range strike equipment. The aerospace field (as well as related upstream materials and military electronics) is expected to become a key investment field for military equipment in the military industry.
External disturbances are limited
Since March, the geopolitical conflict between Russia and Ukraine has become the focus of global attention. The stock prices of the US arms giants have soared and hit record highs. From February 23 to the present, Northrop Grumman,lockheed martinThe stock price rose 16.36% and 13.46% respectively;General DynamicsThe correction began in late April, and there is still a 4.93% increase;Raytheon TechnologyAfter the stock price high, it continued to pull back, and now all the gains have been erased.
After the A-share military industry index closed up 6.68% from February 23 to March 1, it entered a downward range with the broader market from March 2, and began to rebound slightly after April 26.Golden Eagle FundIt is believed that the geopolitical conflict between Russia and Ukraine has no obvious benefit to the fundamentals of the defense industry, but the war has suddenly increased the uncertainty of the global industrial chain and suppressed market sentiment.
China Merchants FundSaid that with the continuous tension and escalation of the peripheral geopolitical situation, the attention of the defense and military industry has once again increased, and the industry’s prosperity is expected to continue to rise.
The profitability of military stocks is stable
29 net profit continued to grow
According to statistics from Databao, the average ROE in the defense and military industry in 2021 will be 4.92%, while the agency expects that the average ROE will reach 6.46% in 2022, a year-on-year increase of 1.54 percentage points. At the same time, the agency unanimously predicts that the industry’s net profit compound growth rate in the next two years will reach 39.65%.
The “14th Five-Year Plan and 2035 Vision Goals” first put forward the goal of realizing the century-old goal of the founding of the army in 2027, and proposed to “accelerate the modernization of weapons and equipment, accelerate the upgrading of weapons and equipment and the development of intelligent weapons and equipment”. my country’s weapons and equipment have entered a period of accelerated construction.
According to data treasure statistics, a total of 29 military stocks have achieved continuous growth in net profit for five consecutive years. 2 stocks with a market capitalization of 100 billion are listed, which areAviation powerandAVIC Shenfei. In absolute terms, the net profit of 6 shares in 2021 will exceed 1 billion yuan,AVIC Optoelectronics、AVIC ShenfeiNet profit topped the list, reaching 1.991 billion yuan and 1.696 billion yuan respectively.
Starting from the change in net profit, the net profit of 7 shares in 2021 will increase by more than 50% year-on-year.Zhenhua Technology、Triangle DefenseDoubled year-on-year. Extending the time line, compared with the net profit in 2017, the profit of 22 shares has doubled,Gold InfraredLeading the pack, with an 18-fold increase in net profit,Zhenhua Technology、Hongyuan Electronics、Steel Research Gona、Parker New Materials、Visualization TechnologyAn increase of more than 4 times.
In the first quarter, the domestic epidemic was repeated and it was a low season for military delivery, but the overall performance of the industry was excellent and the prosperity was improving. In the first quarter, the net profit of 25 shares increased by more than 50%, and 16 shares doubled.North NavigationThe increase in net profit was as high as 26.34 times, mainly due to the recognition of investment income from the disposal of subsidiaries;Zhonghaida、Guanglian AirlinesThe increase is more than 10 times. According to the unanimous prediction of more than 5 institutions,Zhongjian Technology、Chinese soldier red arrowNet profit is expected to double in 2022;aerospace rainbow、Jing JiaweiandTriangle DefenseIt is also expected to achieve more than 50% growth.
In terms of funding, from January to April this year,Northbound FundsA total of 30 shares have been added, and the rate of 20 shares is more than 20%.One machine in Inner MongoliaThe position increased by 314.95% compared with the end of last year;Shanghai Hanxun、Morning Air、Aerospace appliances、Zhongzhi Co., Ltd.、Sky Sea DefenseandTorch ElectronicsPositions increased by more than 100%. From the perspective of the proportion of foreign shares held in circulating A shares,Guangqi TechnologyandNorth Morocco High-Techabove 3.2%;AVIC Electromechanical、Guangwei Composites、Zhongzhi Co., Ltd.、HTCIt accounts for more than 2.8% of the outstanding shares.
(Article source: Securities Times Network)