Dongxing Securities: Military Industry Enters Three Year Strong Cycle, Recommends Hongyuan Electronics and Other 9 Stocks

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Source: Dongxing Research Circle

Report Summary

1. The orders in various fields of military industry during the "14th Five Year Plan" are full, and some models may increase several times. First, the external environment is becoming increasingly tense, and geopolitical issues continue to heat up. India has recently purchased a large number of weapons and equipment, and the US military has frequently demonstrated its military strength in Taiwan and the South China Sea. In order to ensure the balance of military forces among regions, it is imperative for China to strengthen equipment development. Second, the upgrading of the US blockade on China's scientific and technological fields has made the autonomous and controllable requirements represented by electronic components more urgent. Military electronics are highly autonomous and controllable, and there is a rigid demand for domestic substitution, which will continue to benefit. Judging from the current situation, the orders in various fields of military industry during the "14th Five Year Plan" are very full, and some models may increase several times compared with the "13th Five Year Plan". We believe that the military industry has seen a significant turning point, and the industry as a whole has entered a strong cycle of at least three years. It is suggested to focus on military platform companies, such as military infrared detectors, military power supplies and connectors Dali Technology 、 Guangdong Ganhua 、 New Lei Neng 、 AVIC Optoelectronics And other enterprises. They have a relatively rich product line, and the product itself has a good extensibility and versatility. In this cycle, they are expected to obtain orders in various services and arms such as land, sea and air, and in various equipment models such as aircraft and missiles. If such companies can make good breakthroughs in their civilian products at the same time, they will have a broader space.

2. The demand for aviation equipment and missiles will increase significantly. According to World Air Force 2020, the number of Chinese warplanes is only 66% of that of the United States, and the number of old models is relatively large. In terms of fighters, China's third-generation fighters account for 57%, while the United States' third-generation and third-generation semi fighters account for 85%. At present, the number and proportion of mature fighters, such as J-11, J-15, and J-16, which are relatively mature, need to be increased urgently. New models, such as J-20 and Zhi-20, are still in low speed production. External tensions may promote them to enter medium and high speed production faster. Suggested attention AVIC Shenfei Such as Guangdong Ganhua, Xinleineng, AVIC Optoelectronics AVIC Avionics Survey 、 North Motech And other parts enterprises, Aerospace rainbow And other UAV companies. The main growth point of missiles comes from the potential war preparation demand. More intensive combat training will increase missile consumption, and the increase in the number of fighters will also increase the number of matching missiles. It is suggested to pay attention to Dali Technology Hongdu Aviation And other core objects.

3. The military electronics sector has a certain degree of independence, and the prosperity will be maintained for a long time. with Ziguang Guowei For example, the logic of profit growth of Unisplendor Microelectronics is that the supply of military semiconductors falls short of demand, and the quantity and price rise simultaneously. At the same time, the company has opened the valuation space by relying on the rapid development of civilian FPGA and 5G security chips. In the context of import substitution, purely civilian semiconductor companies have been fully expected by the market, but the expectation of military semiconductor companies turning to civilian has not yet been reflected. After years of research and development, some military electronics companies have set a technological benchmark with the leaders, and have market competitiveness in terms of cost. We are optimistic that the military electronics company with core technology will usher in the "Davis Double Click" of military product profit growth and civilian product valuation improvement. The platform company in the infrared chip field, Dali Technology, high-end MLCC and RF chip field Hongyuan Electronics 。

4. In the post Beidou cycle, the aerospace information sector will continue to work. On June 23 this year, the last Beidou-3 global networking satellite was successfully launched, making China the second country in the world to have a global positioning system. At present, the development of the Beidou industry is in a small, scattered and disorderly pattern. Most of the middle and upper reaches companies are in the field of low-end equipment competition. The competition is fierce and the profit growth is weak. We believe that in the short term, without strong policy support, it is difficult for Beidou equipment manufacturers to enter the high-end civil field, and the company's development prospects are limited. The largest space for independent development of Beidou lies in the downstream application end, such as rail, transportation, architecture, etc. At present, we recommend focusing on Beidou equipment manufacturers with military products as the main orders Beidou Xingtong Etc. In terms of satellite Internet, the construction of China's LEO satellite communication network is about to start, which will become a new focus of China's space infrastructure construction. On July 7, China's first high-speed satellite Internet aircraft successfully completed its flight, and passengers enjoyed high-speed networking at a rate of more than 100 megabytes on the aircraft, initially demonstrating the economic benefits brought by satellite networks. We believe that with the promotion of the construction of LEO satellite communication network, there are better opportunities in the satellite industry chain. Suggested attention Kangtuo infrared , Hongyuan Electronics and other core targets.

Risk tip: military orders were less than expected, and the construction of LEO satellite communication network was less than expected.

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