Key points of investment
Leading domestic defense radar, benefiting from strong market demand, the company's profits continued to improve. The company received two core business injections from CLP Electronics 14. It has a full spectrum of military and civilian radar products, and is a leading domestic defense radar company. Core Drivers: 1. Domestic and foreign trade demand for defense radars is booming, with sufficient orders and good new signings; 2. Demand for traditional civilian radars is stable, planning and construction of low-altitude airspace sensing systems is being implemented at an accelerated pace and new volume is being released; 3. Central state-owned enterprises promote the localization of industrial software on a large scale, and the company is expected to benefit as a national team.
Defense radar: accounts for more than 50% of total revenue, benefiting from equipment replacement and military trade demand, the market continues to thrive 1. In terms of domestic sales, China's defense spending has maintained a growth rate of more than 7%, and equipment costs account for more than 40%, improving strategic early warning capabilities and speeding up weapon deployment to drive demand for defense radars; China's military radar market is expected to reach 56.5 billion in 2025, the CAGR will reach 13% in 2020-2025, and domestic sales orders are highly sustainable.
2. In terms of foreign trade, global military spending has been growing for 9 consecutive years, reaching a record high. As a popular category, defense radar is expected to continue to prosper. In 2023, according to SIPRI, the net global export value of radar as the core category of sensing equipment and air defense systems with radar as the core detection equipment increased by 86% and 146%, respectively, compared to 2020.
Civilian radars: Demand for traditional weather radars/air control radars is stable, and low-altitude economic growth is expected to accelerate release 1. During the “14th Five-Year Plan” period, the construction scale of traditional weather radars is expected to exceed 500, and water radars will benefit from trillion-dollar treasury bonds or accelerated large-scale deployment; in the same period, the investment budget for civil aviation control systems was 30 billion dollars, an increase of 20% over the 13th Five-Year Plan. Air traffic control radars may benefit from the expansion of market demand and domestic replacement.
2. The low-altitude economy is integrated into the country's strategic emerging industries, and all regions are speeding up the formulation of territorial development plans and implementation plans. Under the development model led by local governments, planning and construction of a low-altitude economic sensing system that has sunk down to the territorial deployment has gradually begun. As a core sensing device, market demand is expected to be released at an accelerated pace.
Central state-owned enterprises are promoting the localization of core industrial software on a large scale. The scale of localization replacement may exceed 20 billion dollars in 2026, and the company is expected to continue to benefit as a national Xinchuang team.
Company advantages:
With a full spectrum of military and civilian radar products, the radar market is in high demand and industry concentration. As an industry leader, the company is expected to be “strong and strong”; actively layout the low-altitude economy, and its existing products have the advantage of extending and expanding the low-altitude market; and the industrial software sector is deeply entrenched in central state-owned enterprise projects, which are expected to benefit from market expansion and localization replacement.
Profit forecasting and investment advice
The company's 2024-2026 revenue is expected to be 36.8/42.4-90 billion yuan, up 12%/14%/16% year on year; net profit to mother will be 7.3/8.4/990 million yuan, up 21%/16%/17% year on year, corresponding PE 23/20/17 times. Considering the company's leading defense radar position and the long-term growth of new businesses related to the low-altitude economy, it was covered for the first time and given a “buy” rating.
Risk warning
Domestic military and civilian radar demand fell short of expectations, radar military trade business execution fell short of expectations, etc.