Main points of investment
The company's operating performance continued to improve: in mid-2020, operating income reached 20.198 billion yuan, an increase of 11.10% over the same period last year. The net profit was 740 million yuan, an increase of 16% over the same period last year. The comprehensive gross profit margin was 20.1%, which decreased slightly.
Due to the impact of the epidemic, the performance of the company's main subsidiaries AVIC Optoelectronics and China Direct shares declined in the first quarter of 2020, but the report showed double-digit growth, reflecting the good situation that the downstream industry began to speed up production in the second quarter.
The three quarterly reports of major subsidiaries continued the upward trend: in the first three quarters of 2020, major subsidiaries continued the upward trend. The operating income of China Direct shares increased by 15.75% over the same period last year, the net profit increased by 21.21%, and the contract liabilities increased by 40.24%. The operating income of AVIC increased by 11.23%, and the net profit increased by 32.25%. Hongdu Aviation's operating income increased by 77.38%, and its net profit increased by 115.89% over the same period last year. AVIC's operating revenue increased by 12.38% year-on-year, and its net profit increased by 55.75%. All show a high degree of prosperity.
The defense industry is in the upstream channel: the proposal of the CPC Central Committee on the formulation of the 14th five-year Plan for National Economic and Social Development and the long-term goals of the year 2035, examined and adopted at the Fifth Plenary session of the 19th CPC Central Committee in November 2020, makes strategic arrangements for speeding up the modernization of national defense and the armed forces, and clearly proposes to "ensure the realization of the centenary goal of the founding of the army in 2027." The White Paper "China's National Defense in a New era" issued in July 2019 points out:
The strategic goal of China's national defense and army building in the new era is to basically achieve mechanization by 2020, strive to basically realize the modernization of national defense and army by 2035, and build the people's army into a world-class army in an all-round way by the middle of this century. The prosperity of the national defense industry has been improving for a long time.
Fully benefit from the development strategy of the Aviation Industry Group: the company has recently completed the acquisition of a limited 100% stake in AVIC helicopter. Since 2019, the listed companies of Aviation Industry Group have been operating frequently, including equity incentive, share repurchase, asset divestiture and so on. We believe that as the only listing platform for the aviation industry group in Hong Kong, there is still room for capital operation in the future.
As a scarce target of Hong Kong stock defense industry, the discount rate is expected to narrow: the company's subsidiaries and related A-share defense and military industry listed companies have a dynamic PE of more than 50 times in 2020, the company is the only target of Hong Kong listed aviation companies, with scarcity. Combined with the prosperity of the national defense industry and the company as the most important platform company in AVIC, it will fully benefit from the development of the industry and group companies, and the valuation discount is expected to be repaired.
Investment advice: we expect earnings per share from 2020 to 2022 to be 0.22 yuan, 0.25 yuan and 0.31 yuan respectively. The corresponding PE is 28.2,24.3 and 20 times respectively, and the buy-A suggestion is given.
Risk tips: uncertain product research and development, uncertain order delivery, future capital operation is not up to expectations, military industry risk.