Trends in aerospace technology industry: waiting for fundamental repair, actively adding and undervaluing white horses

Industry status

    In the current period (5.13-5.24), the Shanghai Composite Index fell 2.08%, the GEM Index fell 3.17%, and the defense and military industry index (CITIC) fell 4.78%, 2.70 percentage points lower than the Shanghai Composite Index and 1.61 percentage points lower than the GEM. The military industry ranked 26/29 in terms of growth in the current period.

    comment

    The industry valuation is still at a low level, waiting for the fundamentals to be repaired. As of April 24, 2024, the CSI military industry index PETTM is in the 3-year 27.57% quantile, and the industry valuation is still lower than the historical average. We believe that: 1) the aerospace technology industry has strong growth certainty and demand rigidity. As demand repression factors are gradually lifted, the industry fundamentals may be gradually repaired; 2) At present, the industry valuation has been at a historical low, and the allocation value of the sector is prominent. It is recommended to actively increase allocation and underestimate white horses.

    The policy continues to catalyze the development of low altitude economy, and domestic large aircraft bring new opportunities. 1) Beijing and Guangdong have successively released three-year plans for the development of low altitude economy, making clear plans for the expected scale of low altitude economy, the number of enterprises, and the flight time. We believe that in the past 2-3 years or the critical period of centralized evidence collection for low altitude enterprises, various regions have successively launched low altitude economic support policies, which can effectively and continuously support the development of low altitude economy.

    2) The C919, a large domestic aircraft, has received more than 1000 orders from more than 30 customers, and AVIC Xifei said it is participating in the design of C929 components. We believe that the C919 has gradually entered the stage of large-scale delivery and operation, the development of C929 wide body airliner model has been steadily promoted, the development of domestic large aircraft is expected to open up the domestic aviation industry market space, and the core links of the industrial chain are expected to continue to benefit.

    The prosperity of aviation going to sea has improved, and attention has been paid to opportunities in emerging fields such as energetic materials. 1) The delivery of Airbus 1Q24 aircraft increased by 11.8% year on year to 142 aircraft, and the order of 170 aircraft was obtained in 1Q24. We believe that since 2021, the order volume and delivery volume of overseas aviation manufacturers have continued to grow, the release of downstream backlog demand and the recovery of overseas production capacity has not been as expected, and domestic manufacturers have ushered in new opportunities to improve their supply share. 2) Energetic materials are one of the most prominent subdivisions of the industry's supply and demand contradiction at present. We believe that the energetic materials industry may enter a new round of expansion cycle under the mismatch of supply and demand, laying the foundation for the release of downstream equipment demand in the industrial chain. It is suggested to focus on the potential investment opportunities brought by the supply side reform.

    Valuation and recommendations

    We maintain the earnings forecast, investment rating and target price of the company. We believe that 1) the current industry valuation is at a low level, and the positive margin of the fundamental plane of the sector has improved. It is recommended to actively add white horses to the core track, and recommend: AVIC Shenfei, AVIC Optoelectronics, AVIC Heavy Machinery, Philips, AVIC High tech; 2) The development of domestic large aircraft industry is expected to open up the market space of the aviation industry, and the core links of the industrial chain are expected to continue to benefit. Recommended: AVIC Xifei, Triangle Defense; 3) Energetic material industry may usher in supply side reform. It is suggested to focus on investment opportunities in relevant industrial chains. It is suggested to focus on: Jinaobo (not covered), Guoke Military Industry (not covered), Haohua Technology (not covered).

    risk

    The orders and product delivery of the industrial chain were less than expected, and the demand was less than expected.