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GF strategy Dai Kang: 19 years of military industry will also "remaining around the beam"

January 11, 2019 08:45
Author:Dai Kang
source: Dai Kang's strategic world

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Summary
In the 19-year period, A-share earnings are negative for the whole year, and the industries with counter-cyclical earnings and policy counter-cyclical cycles are expected to acquire structural institutions. Our key point is that the military industry has both the profit counter-cyclical and policy counter-cyclical attributes, which need to be closely watched.

Foreword: Looking at the military from a strategic perspective -

  We are at 12.3The annual strategy "Song of Ice and Fire" pointed out that the 19-year A-share earnings are negative for the whole year, and the industries with counter-cyclical earnings and policy counter-cyclical cycles are expected to acquire structural institutions. Our key point is that the military industry has both the profit counter-cyclical and policy counter-cyclical attributes, which need to be closely watched.

The market performance this year has also initially verified our judgment -From the beginning of the year 19 to the present (closed on January 9), the military industry's cumulative increase was 8.12%, the highest increase was 11.34%, ranking first in the first-tier industry..

We will continue to launch a series of strategic perspectives on the industry's series of reports, one by one to analyze the investment opportunities of the profit counter-cyclical industry and policy hedge counter-cyclical industries. "Strategy to see the military: "The rest of the voice" is the first of this series of reports, aimed at:Comprehensive liquidity, risk appetite, profit and policy countercyclical, international comparison and thematic opportunities, answering the investment logic of the military industry throughout the year after the “incitement” in the spring.

  From a strategic point of view, we believe that in the spring of "incitement", the 19-year military industry will also "remaining around the beam" -

  (1) No riskinterest rateLow position——19 years of economic downside pressure, no riskinterest rateIt will continue to be low, and the military has both the growth stock attribute and the low goodwill advantage, which will be one of the key directions for the growth stock style;

  (2) Risk preference improvement——At present, the ERP of the Shanghai Composite Index has exceeded the mean + 2 times standard deviation. At the same time, it is expected that the supervision will enter a loose period in 19 years, and ERP is expected to fall marginally.PerformanceExpected (ie risk appetite)-driven military stocks will usher in a deployment opportunity;

  (3) Profit + policy countercyclical——In 19 years, corporate profits have negative growth throughout the year. Historical experience shows that counter-cyclical industries will have significant excess returns, while military industry has the advantages of profit counter-cyclical and policy hedging cycle;

  (4) International comparison + subject investment——The integration of military and civilian is conducive to the scale effect of “hard technology” and the improvement of the profit rate of Chinese enterprises to hedge the decline of profits. At the same time, the military industry in 19 years will continue to receive thematic investment opportunities: research institutes, restructuring, assets Securitization.

Report summary

In the 12.3 annual strategy "Song of Ice and Fire", we recommend the military industry from the two dimensions of profit counter-cyclical and policy counter-cyclical. Since the beginning of the year, the military industry has risen by more than 10%, ranking first in the primary industry. From a strategic point of view, in addition to the spring "incitement", this round of military industry has a deeper logic, and will still "revolve around the beam" -

Liquidity: Military industry has growth stock attribute + low goodwill advantage, benefiting from low risk-free interest rate

Global liquidity turning point eases domesticcurrencyThe policy continues to be loose and expected, the risk-free rate of return will continue to be low, and the growth stock style will benefit. According to empirical data, military stocks are highly correlated with growth styles. At the same time, the goodwill of military industry is relatively low, and it is less affected by the impairment of goodwill in the 18-year report. It will be an important direction for the evolution of growth style in the future.

  Risk appetite: regulatory easing cycle, ERP highs down, military stocks driven by risk preference

The Shanghai Composite Index (ERP) has exceeded the mean + 2 times standard deviation. It is expected that financial supervision will enter a easing cycle in the past 19 years. According to empirical data, REP will fall at a high level and stock market risk appetite will rise. Military stocks are driven by long-term profit expectations (ie risk appetite) and have high allocation value.

  Profit counter-cyclical period: 19 years of negative earnings growth, military industry profit reverse cycle can get excess returns

In 19 years, A-share earnings have a large probability of negative growth. In the history of the recovery, in the year of negative corporate earnings growth, the industry with a reverse profit cycle can obtain higher excess returns. Military industry is a typical profit counter-cyclical industry. At the same time, in the late 13th Five-Year Plan in 19 years, military orders are expected to increase.

  Policy counter-cyclical: military industry is the key direction of China's manufacturing, can counter-trend and leverage

The “bail-out” of private enterprises is one of the potential ways to dredge “wide currency”, especially the military and private enterprises with leverage, which is one of the few quality options! In the past few rounds of profit decline cycle, military private enterprises have been able to counter-trend leverage; as of 18Q3, the leverage ratio of military and private enterprises is only 33.5%, far lower than the industry's overall 54.6%, with a lot of leverage. At the same time, military industry is also the focus of Chinese manufacturing, and can get moreCreditResource tilt.

  International comparison: military-civilian integration, "hard technology" raises profit margin

The ROE of Chinese companies is significantly lower than that of US companies because of the lack of “hard technology” and the squeeze of profit margins. We expect that within 19 years, the external demand will fall back and the Chinese enterprises will have limited leverage. Improving the profit rate of Chinese enterprises will be one of the important means to hedge the economic downturn. The integration of military and civilian can bring about the scale effect of “hard technology”, increase profit margins, and hedge earnings down.

  Reforming the "main theme": research institutes reform + mixed reform + asset securitization

In 19 years, further reform and opening up will be the "main theme". The military industry is an important position for reform and opening up. It has multiple thematic investment opportunities: military industrial research institutes, military and industrial reforms, and military industrial group securitization are all key areas for reform and opening up. .

  ● Core hypothetical risks:China’s monetary and fiscal policies exceeded expectations.

(Article source: Dai Kang's strategic world)

                (Editor: DF078)

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