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On the 22nd, the board of directors of the company agreed on a joint venture between the company and Dongguan Yangming Precision Plastic Hardware Electronics Co., Ltd. to establish Guangdong Huazhan Electronics Co., Ltd., with a registered capital of 20 million yuan, of which Aerospace Electric invested 102 million yuan in cash, with an investment ratio of 51.00%. Dongguan Yangming invested 98 million yuan in physical assets and cash, with an investment ratio of 49.00%.

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Jointly set up Guangdong Huazui with Dongguan Yangming to build a research and production base for civil connectors

Dongguan Yangming was founded in September 2001. Its main business is precision molds, precision parts design and manufacturing, and electronic connector development, production and sales. Its products are widely used in computer motherboards, network communications, digital cameras, etc. Related products have successfully entered well-known domestic and foreign companies such as ZTE, TYCO, SAMSUNG, Vtech, FCI, etc.

The company and Dongguan Yangming jointly established Guangdong Huazhan Electronics Co., Ltd. with the aim of building a civil connector development and production base. Using the advantages of aerospace appliances in technology, brands, marketing channels, etc., and combining Dongguan Yangming's precision mold and precision parts manufacturing capabilities, the company will accelerate its industrial layout in the Pearl River Delta region, while also laying the foundation for entering the 5G communications market in the future, expanding the scale of the industry, and enhancing the competitiveness of the aerospace appliance market.

In order to better achieve the purpose of establishing Guangdong Huazhan as a joint venture between the two parties, Dongguan Yangming promised Aerospace Electric that within 36 months from the month following the establishment of Guangdong Huazhan, Guangdong Huazhan should achieve a cumulative net profit of no less than 37.5 million yuan after deducting non-recurring profit and loss. This does not include the profit formed by connector products designed and developed by Aerospace Electric and commissioned by Guangdong Huazhan as agreed in the contract. After the establishment of Guangdong Huazhan, the profitability of aerospace appliances will further increase.

Connectors have broad military and civilian space, and intelligent manufacturing further enhances competitiveness

More than 70% of the company's products are sold to military enterprises such as aerospace, aviation, electronics, ships, weapons, etc., which is expected to fully benefit from the recovery of the military industry. Benefiting from the rapid development of national defense informatization construction, the growth rate of the company's demand for military connectors and other products is expected to continue to be higher than the average growth rate of the military industry. This year, under the condition that the impact of military reform is eliminated and compensatory orders begin to be released, the company's military goods may show a rapid growth trend.

High-end civilian demand such as communications and new energy vehicles is expected to become a growth point for the company's future performance. The company has been deeply involved in the communications field for many years, has good cooperative relationships with telecommunications giants such as Huawei and ZTE, and is actively developing the 5G communication field. The rapid development of new energy vehicles has brought about a large demand for connectors. It is estimated that the NEV connector market space will exceed 8 billion yuan in 2020. The company has now provided connectors in small batches to some NEV manufacturers.

Jointly with Siemens to build an intelligent manufacturing project for aerospace appliances to meet the needs of “multiple varieties, small batches and customization”, improving production efficiency and responsiveness to customer needs, thereby enhancing the company's competitiveness. Since 2012, aerospace electrical appliances have been upgraded through intelligent manufacturing. The number of employees on the production line has dropped by 53.3%, the per capita monthly output has increased from 33,000 to 107,000 pieces, the overall qualification rate of parts has also increased from 80% to more than 95%, and assembly efficiency has increased 200% from the current level. In September of this year, the company's self-developed intelligent production line execution system obtained software copyright and was successfully applied on the J30 intelligent inspection production line, breaking the long-term monopoly of foreign software on intelligent production lines.

Micromotor's business technology is leading the way, and its performance has maintained relatively rapid growth

The holding subsidiary, Guizhou Linquan, is a high-tech enterprise integrating R&D and large-scale production. It is the “National Precision Micro Electric Engineering Technology Research Center”, the “Micro Motor Professional Technology Center”, the “Micro Motor Testing Center” and the “National Defense Science and Technology Industry Enterprise Technology Center” approved by the Ministry of Science and Technology. Revenue has maintained a rapid growth trend in recent years. Linquan's micromotor in Guizhou is mainly positioned at the high-end. It is involved in the four major fields of expertise of micromotors, secondary power supplies, servo control, and telemetry communication. Downstream covers major military industry groups, and some product technologies are at the forefront of the world. In an environment where the military industry maintains a high level of prosperity, Guizhou Linquan's performance is expected to maintain relatively rapid growth in the future.

Optical communication devices have vast space for civilian use, and military applications need to be expanded urgently

Jiangsu Aolei Optoelectronics Co., Ltd., a holding subsidiary, is one of the main manufacturers of optoelectronic products in China. Its main products include optical transceiver modules, coupling devices, butterfly packages, coaxial packages, and product solutions. The company's products are famous for their industrial-grade products and have a high influence in the fields of video surveillance, industrial power, etc., and are expected to open up the telecommunications and data center markets with more market space in the future. The company is actively exploring the application of optical communication devices in military products. At present, military line construction work has been completed, and new product development is progressing steadily. With strong support from the Aerospace Science and Industry Group, the company's products are expected to be widely promoted, creating new growth points.

The only listing platform for the 10th Aerospace Academy, and the injection of high-quality assets is worth looking forward to

The asset securitization rate of the 10th Aerospace Academy is low, and subsequent capital operations can be expected. Aerospace Electric is the only listed company under the 10th Aerospace Academy. Its revenue is only about 20% of the 10th Aerospace Academy, and the total profit is about 40% of the 10th Aerospace Academy. The asset securitization rate of the 10th Aerospace Academy still needs to be improved, and it is expected that some high-quality assets will be injected into aerospace appliances in the future.

Profit forecasts and investment suggestions: Performance is expected to continue to grow rapidly, capital operation is worth looking forward to, and maintaining the rating for increasing holdings

The pace of upgrading of national defense equipment is accelerating, market demand for high-end electronic components continues to grow, and steady growth in the company's military goods business can be expected. The company is vigorously developing markets in various fields of communications, rail transit, electricity, and new energy vehicles, and the consumer goods business is expected to see new growth points. The company is the only listing platform for the 10th Aerospace Academy, and it is expected that assets will be injected. The company's net profit from 2018 to 2020 is estimated to be 384, 473, and 585 million yuan respectively, with year-on-year increases of 23.52%, 23.24%, and 23.58% respectively. The corresponding EPS for 18 to 20 years was 0.90, 1.10, and 1.36 yuan respectively. Corresponding to the current stock price PE was 31, 25, and 20 times, respectively, maintaining the shareholding increase rating.

(Article source: CITIC Construction Investment)