Abstract:The international environment determines the deterministic growth of the military industry, and the current sector is at the bottom of valuation and sentiment, with high medium and long-term allocation value.
1.During the turbulent period of the international situation, the importance of national defense and security has become prominent
China's biggest judgment on the global political situation: the world is undergoing major changes unseen in a century. National defense and security are the primary fronts in the great power game. **Focusing on the profound reshaping of the international order, he has repeatedly pointed out that the world is facing "great changes unseen in a century" and showing a state of accelerated evolution, and one of the most important aspects of this "great change" is the great power game under the Thucydides trap. The national defense and military industry is the strategic highland of the great power game, and it is the primary position, and it is also the foundation of the economy and people's livelihood.
The Russian-Ukrainian war has not yet ended, the Palestinian-Israeli conflict has resumed, and the Israel Defense Forces have declared that they have entered a state of war. The international community has further intensified its antagonism, the instability of the global geopolitical pattern has increased sharply, and armament expectations may increase significantly. At present, under the background of global geopolitical tension and China's failure to realize the reunification of the motherland, the urgency of national defense modernization has increased significantly.
2.Military spending has risen steadily, and the structure has improved
The military industry is a typical TOG industry, and against the backdrop of a relatively low proportion of military trade demand, the amount of national defense and military expenditure basically determines the overall procurement scale of the military industry. Therefore, it is of great significance to the changes in the scale and structure of military spending. According to the draft budget report of the National People's Congress session, China's military budget for 2023 is 155 trillion yuan, an increase of 7 compared with the number of budget implementations in 20222%, an increase of 01pct。The military budget accounts for about 128%, a slight decrease of 001pct。
Compared with the relevant parties of "NATO", there is still a lot of room for improvement in China's defense spending. At present, China's defense spending is still not commensurate with its economic status, and the proportion of defense spending in GDP for that year in 2022 is 120%。The "14th Five-Year Plan" clearly states that "promote the simultaneous improvement of national defense strength and economic strength", and we believe that during the entire "14th Five-Year Plan" period and even until 2027, when the "100th anniversary goal of the founding of the army" is achieved, the growth rate of China's defense expenditure may be higher than the GDP growth rate for a long time, and the proportion of defense expenditure in GDP is expected to further increase.
With the rise and fall of major powers, China has ushered in "great changes unseen in a century", and in order to cope with various uncertainties, accelerating the upgrading of equipment and strengthening military training for warfare, and enhancing strategic deterrence have become an inevitable choice in the new era. In addition, the "14th Five-Year Plan and Long-Range Objectives for the Year 235" proposes to ensure that the centenary goal of the founding of the armed forces is achieved by 2027, and that the new military reform and military modernization represented by joint operations under the conditions of informationization will be accelerated.
3.The investment logic of the military industry is sorted out
The premise that the military industry is a growth-driven sector and the current situation of depth and low valuation, the supply and demand of the industry resonate.
Demand side: 1) Surrounding situation: The Russia-Ukraine conflict and other events reflect the importance of independent and controllable equipment systems2) Steady growth of military spending: the growth rate of the national defense budget in 23 years exceeded 7%;3) Policy support: The Report of the 20th National Congress of the Communist Party of China reaffirmed the new national defense and army building goals4) Substantial expansion of the industry: The military industry determines production by sales, which further verifies the high demand boom.
Supply side: 1) The continuous increase of high-quality private enterprises: the in-depth development of military-civilian integration, and the level of supporting scale of private enterprises has been improved2) Improvement of governance of state-owned enterprises: equity incentives continue to be carried out, and the vitality of core military state-owned enterprises is expected to be enhanced3) Assetization is expected to accelerate: The level of assetization is expected to continue to increase.
Industry configuration ideas are recommended to pay attention to:
Aero engines: Fushun Special Steel, Hangfa Control, Steel Research Gaona, Tunan Co., Ltd., Huaqin Technology, Wanze Co., Ltd., Parker New Materials, Aerospace Science and Technology.
Missile: Blit.
Military aircraft: AVIC Shenfei, AVIC Xifei, Hongdu Airlines, AVIC Heavy Machinery.
Nuclear deterrence, new domain and new quality direction: Xiangdian Co., Ltd., Aerospace Rainbow, China UAV, Wang Zixin Materials.
Informatization: Ziguang Guowei, Zhenhua Technology, AVIC Optoelectronics.
Reform of state-owned enterprises: Tianao Electronics, Guorui Technology, Sichuang Electronics, Guihang Co., Ltd., etc.
Reference Material**:
1.2023-12-6Milky Way**—Witness the turning point, when the storm rises again.
2.2023-11-8Huatai**—Demand landing, accelerating growth.
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