Guotai Junan released a research report saying that pessimistic pricing expectations in the military sector have basically been sufficient
Since 2022, the military sector has successively experienced negative disruptions such as “industry price control concessions”, “delays in intermediate orders”, and “value-added tax reform”. Market expectations have continued to decline, causing the sector to continue to adjust. Looking at the present moment, the sector's pessimistic expectations for pricing are basically sufficient:
1) The gross margin of some segments such as aviation and aerospace improved steadily in 2023Q3, and the time when price cuts had the greatest impact on the industry's profits has already arrived;
2) Personnel adjustments in the industry are nearing completion, the mid-term adjustments are gradually being implemented, and the period of greatest order pressure has also arrived.
Judging from the valuation and transaction dimensions, as of 2024.04.12, the military sector is 45.5 times the PE-45.5 times, which is 0.98% in the past ten years.
The overallocation ratio of partial equity funds to the defense and military sector fell from 1.65% in 2023Q3 to 0.54% in 2023Q4.
Pessimists have cleared their expectations, the micro-trading structure has been optimized, and the conditions for stock prices to rebound are in place.
According to the Guotai Junan Research Report, it is relatively difficult to verify demand in the defense and military sector, and reconstruction is expected to take more time, but the direction of demand is clear, the margin of valuation safety is high, and the transaction structure is not crowded.
Judgments based on short-term geographical friction do not form the cornerstone of a rebound in national defense and military industry. Market opportunities are a decline in future demand uncertainty, focusing on advanced combat equipment and leading Hakuba stocks, giving priority to mainframe manufacturers with strong bargaining power in the industrial chain, and focusing on subsystems/components/raw materials, etc.
On the other hand, focus on “new quality productivity” related directions with intensive industrial and policy catalysts, such as the low-altitude economy/commercial space/satellite internet.
Dongwu Securities also recently released a research report saying that it is optimistic that the military industry will overfall in the early stages and kill opportunities for a steady rebound, that orders for various equipment lines will be signed one after another. Individual personnel changes will not affect the operation of the military system. Under the catalyst of medium- to long-term heavy market value management by military central enterprises, short-term organizational actions to stabilize stock prices, and under the influence of private enterprise management announcements to increase holdings, the industry is expected to usher in a continuous trend of renewed growth rate and valuation repair.
Defense and military related enterprises:
China Aviation Science and Engineering (02357), China Shipbuilding Defense (00317)