Focus on military information processing equipment to help national defense informationization. The company is mainly engaged in the research, development, manufacture and sales of military electronic information equipment and related modules, and has the ability to develop military electronic information equipment products from modules, equipment to systems. At present, the company has a number of military products have been individually stereotyped or equipped with the weapon system.

The policy supports the prosperity of the catalytic industry, and domestic substitution drives the demand of the industry: judging from the total investment of upstream funds, China's defense budget in 2020 is expected to grow by 6.6%, with strong industry certainty. In the composition of military expenditure, the proportion of equipment expenditure has been rising continuously since 2010, from 177.359 billion yuan in 2010 to 428.835 billion yuan in 2017, with an average annual compound growth rate of 13.44%. It has now become the largest part of the military budget. From the perspective of market segmentation, the downstream customers of the national defense information industry are mainly operational command and support units, from various departments of the Central military Commission to various services and arms, and war zones. National defense informatization includes equipment informatization, and there is a large market space. According to the Investment Promotion Bureau of the Ministry of Commerce, it is estimated that by 2025, defense information expenditure may reach 251.3 billion yuan, accounting for 40% of defense equipment, of which the core areas are expected to maintain a compound growth of more than 20%.

From the company's point of view, the company's own R & D strength highlights the company's core competitiveness and occupies an important position in the industry. driven by policies, it is expected to benefit from the vigorous development of the industry: 1) the company's military electronic information equipment and product level are perfect. Has achieved independent control. 2) in terms of technical strength, the company's products have excellent performance and lead the industry in terms of technical level. The company's products have been won or selected many times in competitive bidding or competitive negotiations. In addition, as the lead unit, the company has carried out a virtualization-based military proprietary cloud technology model, and developed and implemented unified technical agreements and standards. 3) the entry threshold of military products is high, and the company, as a private enterprise, already has the relevant qualifications and has a high degree of recognition among the customers of the national defense army.

4) the R & D strength of the company is strong, and the steady growth of R & D expenses is sustainable.

In terms of command and control information processing equipment, the command and control equipment independently developed by the company has participated in the military integration project to meet the military requirements and self-controllable requirements. Benefiting from the rising demand from downstream customers in 2020, the accusation that the equipment business, as the company's main business, has effectively boosted the company's performance. In the first three quarters of 2020, operating revenue increased by 53.68% compared with the same period last year. With the continuous development of national defense informatization, we believe that the company is expected to maintain its leading position in the field of accusation equipment, expand its market space and achieve steady growth.

Under the trend of radar software, the radar equipment management mode may change later, and the company's demand for soft mine related products is expected to increase: first of all, as the "software" radar technology pays more attention to the standardization and modularization of the system and the definability of the software, the versatility of each component of the system will be effectively improved. The company entered the forefront of the industry earlier and has accumulated a certain first-mover advantage. The company is expected to enter more radar models, the scale of business is expected to grow rapidly. At present, the company's soft mine plate business volume is small, and the future performance is more flexible. Secondly, with the development and progress of modern radar, the development speed and requirements of modern radar are gradually increasing. The detection environment and targets of modern radar systems are constantly changing and developing, and the ability of radar systems to adapt to different application needs and potential needs in the future is expected to become more important. In the future, the requirements for the radar system will gradually increase, and the industry entry threshold may also be raised. The company is expected to give full play to its technical advantages, establish technical barriers and consolidate its industry influence.

In the field of wireless communications, although the company has not formed considerable revenue in this business at present, if its broadband ad hoc network baseband processing chip is successfully developed, it can fill the gap in related fields in our country, which is of great significance. The company will also use this as a starting point to develop a more advanced and widely applicable series of system products to enrich the number of the company's products. In addition, the business is progressing smoothly. At present, some models of terminals have completed product development or finalization, and the performance is more flexible.

Investment suggestion: the command and control equipment independently developed by the company has participated in the military integration project to meet the military requirements and self-controllable requirements. Benefiting from the rising demand from downstream customers in 2020, command and control information processing equipment, as the company's main product, has effectively boosted the company's performance. With the continuous development of national defense informatization, we believe that the company is expected to maintain its leading position in the field of accusation equipment, expand its market space and achieve steady growth.

The company's software radar information processing equipment has broken through a number of technologies and won the bid for military radar projects for many times.

Under the trend of military radar software, the volume is just around the corner. In addition, the company's wireless communication business is in storage, and its portable wireless command terminal uses self-developed self-organizing network technology to realize real-time sharing of battlefield situation. At present, some models of terminals have completed product development or finalization, and the performance is more flexible.

Benefiting from the modernization of national defense and civil and military domestic alternative demand, the company's follow-up performance is more flexible. From 2020 to 2022, we estimate that the company's operating income will be 9.05,11.84 and 1.552 billion yuan respectively, the net profit will be 3.40,4.37 and 534 million yuan respectively, the EPS will be 4.50,5.79,7.06 yuan respectively, and the price-to-earnings ratio will be 45X, 35X and 29X respectively. Considering the continuous improvement of the profitability driven by the continuous expansion of the national defense information business of the company, and referring to the 2021 average price-earnings ratio of comparable companies. For the first time, the company was given a "highly recommended" rating.

Risk tips: military spending growth is not as expected; gross profit margin decline risk; product research and development is not as expected; upstream supplier price increase risk; epidemic impact superimposed economic downside risk business impact; order growth is not as expected; major customer concentration is high risk.