Investment logic

Backed by the sixth Aerospace Institute, it will build an international first-class aerospace power company: aerospace Power is a listed company of civilian products cultivated by the sixth Aerospace Institute under the Aerospace Science and Technology Group, and its main products are hydraulic torque converters and special pumps for the conversion of liquid rocket engine technology to civil use. The sixth Aerospace Institute is a "liquid rocket power national team". Its products include missile weapons and carrier rocket main power systems, upper-stage power systems, attitude and orbit control power systems and spacecraft propulsion systems. The products are used in missiles, rockets, satellites, spacecraft, detectors and other spacecraft. The income of the six hospitals in 2015 was 14.45 billion yuan, and the total profit was 1.01 billion yuan. The sixth Academy has clearly defined the goal of building an international first-class aerospace power company, and plans to achieve a business income of 34 billion yuan and a total profit of 1.7 billion yuan by 2020. The number of tasks of the sixth Hospital this year (Chang 5, Chang 7, etc.) is higher than that of last year, and the pre-research models such as Chang 9 are eye-catching.

The development of space power comes first: the capacity of large carrier rockets is the most powerful proof of national strength, and it is also the main body of the space game among great powers. The level of launch vehicle technology reflects a country's ability to ultimately use space and develop space technology. According to international aerospace data, engines account for 1/3 of the cost of rockets. This year, the number of annual space launches in China will exceed 20 for the first time, which is "the densest launch year in history", of which 15 are major special missions or maiden missions, which will directly benefit the efficiency of the sixth Aerospace Academy. At the same time, it is expected that the long March 9 heavy-duty rocket will soon be launched, which will open up new space for the future development of the sixth Academy. In addition, in the future manned spaceflight, Chang'e III, the International Space Station, Mars probe and other spacecraft launch missions, all aircraft propulsion systems will be undertaken by the sixth Academy.

The Aerospace Science and Technology Group has a clear direction for asset securitization, and aerospace engine asset integration takes the lead: the Aerospace Science and Technology Group has clearly proposed to increase the asset securitization rate from 15% to 15% during the 13th five-year Plan period. The outline of the 13th five-year Plan of the sixth Institute clearly states that it will achieve outstanding results in the field of asset securitization and achieve listing as a whole. At present, the national aero-engine group company has been established in the aero-engine field, and the China Shipbuilding heavy Industry Group has also injected the ship engine into Sail shares and changed its name to China Power. We believe that the Aerospace Science and Technology Group's aerospace engine assets are also strongly expected to take the lead in promoting securitization within the group.

The restructuring of aerospace institutes has been accelerated, and the allocation value of the military industrial sector is obvious: we expect that the recent guidance on the restructuring of military institutions will be approved by relevant state departments, and the final obstacles to military asset securitization are expected to be removed. The restructuring of military scientific research institutes will release rich technological dividends and resource dividends, greatly improve the asset quality and profitability of listed companies, and effectively boost the military industry sector. Recently, the former chairman of Aerospace Power has resigned, and Tan Yonghua, president of the sixth Aerospace Academy, has become a candidate for directors of the company. It is expected that the personnel adjustment will open a new chapter in the development of Aerospace Power. Around the establishment of the "long March 9" project, we expect that the sixth Academy will make rapid progress in asset integration and carrier construction, and Aerospace Power, the only listed platform of the sixth Academy, will undertake a more important mission.

Investment suggestion

We believe that after the completion of the integration of engine assets of aviation and marine systems, the integration of aerospace engine assets has become a general trend. In 2008, under the strong promotion of Lei Fanpei, then deputy general manager of the Aerospace Science and Technology Group and former president of the sixth Academy, the Aerospace Science and Technology Group supported the sixth Academy, the "Aerospace liquid Power National team", to become stronger and bigger by integrating the aerospace liquid power assets of the first and eighth academies to the sixth Academy. Eight years later, industrial integration has basically matured, and capital operation has become an integral part of the topic. We expect to achieve a breakthrough in aerospace engine asset securitization in the near future. Aerospace Power, as the only platform for aerospace engine asset integration, has a broad space.

Valuation

Considering the huge high-quality assets and strong restructuring expectations of the sixth Aerospace Institute, from the perspective of market capitalization, 13 billion of the market capitalization of listed companies is unable to carry the huge volume of aerospace engines. From a long-term point of view, the 13th five-year Plan goal of the sixth Aerospace Academy is 1.7 billion profits per year, and the market capitalization target after asset integration should be more than 50 billion yuan. We give Aerospace Power a "buy" rating, with a target price of 30 yuan in the next six months.

Risk

Asset restructuring fell short of expectations.