Inventory in the military sector has gradually bottomed out. The industry will begin a new inventory cycle with subsequent orders placed, and the entire industry chain is about to recover.
The Zhitong Finance App learned that in the first three quarters of 2024, Fangzheng Securities released a research report saying that in the first three quarters of 2024, due to factors such as delays in the issuance of industry orders, the military industry continued to be under pressure, and overall revenue and profit declined. Profitability weakened year-on-year due to a decrease in the scale of revenue and an increase in administrative expenses and sales expenses, which led to an increase in expenses during the period. However, judging from now on, sector inventory has gradually bottomed out. The industry will begin a new inventory cycle with subsequent orders placed, and the entire industry chain is about to recover. The performance of the quarterly report for '24 is in line with market expectations, and the follow-up pace is still the focus of attention on order placement.
The main views of Fangzheng Securities are as follows:
The fundamentals of the 24Q3 military sector are under pressure, and the year-on-year improvement in the performance of some companies indicates an upward trend in the industry
In the first three quarters of 2024, the military sector achieved revenue of 405.635 billion yuan, a year-on-year decrease of 5.79%; net profit to mother was 24.458 billion yuan, a year-on-year decrease of 26.9%. In terms of profit level, the sector's overall gross margin was 20.28%, down 1.2 pct year on year; net margin was 6.03%, down 1.74 pct year on year. Affected by factors such as delays in the issuance of industry orders, the industry's third-quarter results continued to be under pressure, and overall revenue and profit declined. Profitability weakened year-on-year due to a decrease in the scale of revenue and an increase in administrative expenses and sales expenses, which led to an increase in expenses during the period.
On the balance sheet side, inventory was 306.67 billion yuan, up 4.04% year on year, the lowest inventory growth rate since 20Q3. Judging from this, the industry's inventory inflection point is or near, and a new inventory cycle is expected to begin. Advance receivables plus contract liabilities were $146.898 billion, down 5.88% year on year; notes receivable and accounts receivable were $342.162 billion, up 1.87% year on year; and notes payable were $347.896 billion, up 3.53% year on year. The delay in orders suppresses the restoration of industry fundamentals. Industry demand is expected to improve in the fourth quarter, and I am optimistic that the sector will continue to improve in the future.
Looking at the segment segment, the shipping sector benefited from the continuous upward trend in the industry cycle. Revenue and profit increased year on year, while profits from the rest of the sectors declined year on year. At the company level, out of the 123 companies that were monitored, 44 had positive year-on-year net profit deducted from the mother in the Q3 single quarter, accounting for 35.8%. Among them, 14 had an increase of more than 100%, accounting for 11.4%. Some companies' Q3 single-quarter performance increased year-on-year. Combined with recent industry orders announced by many companies, industry demand has gradually shown signs of recovery. Therefore, although the fundamentals of the industry are still under pressure in the short term, the upward trend in the industry has been confirmed.
The inflection point of orders is near, a new inventory cycle is expected to begin, and the industry beta reversal is imminent
The fundamentals of the military sector continue to be under pressure in the short term due to continuous delays in the pace of industry demand. At present, sector inventory has gradually bottomed out. The industry will begin a new inventory cycle with subsequent orders placed, and the entire industry chain is about to recover. The performance of the quarterly report for '24 is in line with market expectations. The follow-up pace is still the focus of attention. Recently, a number of listed military companies have disclosed order contract announcements, indicating that the recovery of the industry may have begun, and now it is necessary to seize the opportunities of the military industry's left-side layout.
It is recommended to focus on three main lines:
1. Countercyclical+planned weighted assets. The second export growth curve will open up the upward ceiling for OEMs: China Airlines Shen Fei (600760.SH), China Airlines Xifei (000768.SZ), China Airlines Power (600038.SH), and China Aviation Electric Measurement (300114.SZ). 600893.SH
2. The trend of new products is clear, and an inflection point was established in 2025: Highly elastic missile industry chain-Northern Navigation (600435.SH), Aerospace Electronics (002025.SZ), Hongyuan Electronics (603267.SH), Changyingtong (688143.SH), Phillivan (300395.SZ), Zhongbing Red Arrow (000519.SZ), Hongdu Airlines (), Guangzhou United Airlines (300900.SZ), Silinger (Dow); Joint Warfare/New Area New Quality Warfare - Haig Communications (600316.SH 688115.SH 002465.SZ), Zhongke Star Map (688568.SH); Underwater - Western Materials (002149.SZ), China Haiphong (600764.SH); Data Link - 712 (603712.SH), Xinjinggang (300629.SZ), Zhimingda (); Xincheng Flying Chain - National Power Co., Ltd. (Dubai), Torch Electronics (). 688636.SH 688103.SH 603678.SH
3. Inventory cycle enters inventory replenishment, and mature supply chain undervalued enterprise value restoration: Connectors - China Aviation Optoelectronics (002179.SZ); Hangfa Foundry - Tunan Co., Ltd. (300855.SZ); Forging - AVIC Heavy Equipment (600765.SH), Aerospace Technology (688239.SH), Parker New Materials (605123.SH); Materials - Western Superconducting (), Guangwei Composites (300699.SZ). 688122.SH
Risk warning: the risk of changes in the international situation, the risk of changes in the pace of military orders, technology research and development risks, etc.
