Summary:
China's defense spending grew at a compound annual rate of more than 10% during the “12th Five-Year Plan” period. During the “13th Five-Year Plan” period, the country paid attention to national defense sector construction. The compound annual growth rate of defense spending is expected to exceed the GDP growth rate and remain in the 5%-10% range. During the “13th Five-Year Plan” period, the growth rate of new demand and replacement demand for advanced equipment is expected to be higher than the growth rate of China's national defense costs. According to a combination of qualitative and quantitative methods, the compound annual growth rate of aerospace equipment demand is expected to be around 10%-15%.
In the next 20 years, the market demand for mainline and regional passenger aircraft in China is expected to be around 6 trillion yuan, and the number of new passenger aircraft owned will exceed 5,000. If the demand for upgrades and replacements is taken into account, the total potential demand will far exceed 5,000. In the next five years, China's main fighter models such as the J-20, the Yun20, and the Direct 20 are expected to be installed at an accelerated pace. The domestic market demand for large domestic transport aircraft alone is expected to reach hundreds in the future, and the market size will be around 400 billion yuan. The company is a leading supplier of private aerospace parts manufacturing. It has 15 years of development experience and is one of the few suppliers in the industry with large-scale development capabilities. With the rapid increase in defense spending and the accelerated installation of new equipment, the company will significantly benefit from the growth of the industry.
Profit forecast: It is predicted that the company's revenue will increase by 40%, 35% and 25% respectively in 2018-2020. The net profit returned to the mother will reach 536 million yuan, 709 million yuan and 914 million yuan respectively, and EPS will be 0.37 yuan, 0.49 yuan and 0.63 yuan, taking into account the company's current stock price, giving the company an “increase in holdings” rating.
Risk warning: 1) the risk that the progress of equipment updates and replacement is lower than expected; 2) the risk that the company's main military product demand falls short of expectations.