Ordnance Group "no-restriction reform" Zhongnan Diamonds will benefit

The development of the Weapon Industry Group lacks funds. Although the frequent issuance of debts in recent years is a financing route, the current asset-liability ratio has reached 60%. How to use the financing platform and industrial integration platform of listed companies to promote the restructuring of the group companies and Resource integration is a question for the group to think about. Therefore, the future group may explore ways to list military assets. In particular, the professional restructuring action at the sub-group level is basically over, and it is very likely that the sub-group's high-quality assets, especially those with better profitability, will be injected into the corresponding listed companies in the future.

China Ordnance Industry Group Co., Ltd. recently disclosed that the Ordnance Group has formulated and issued the "Key Points for the 2014-2015 Work of the Group's Comprehensive Deepening Reform Leading Group", the reform of the military research management system, the reform of the headquarters's streamlined examination and approval items, the mixed ownership system and the key personnel. The pilot of stock incentives, the reform of the three systems, the separation and transfer of the "three offerings and one industry", and the reform of military industrial units will be promoted in an orderly manner.

Chairman Yin Jiaxu called for vigorously promoting the "no-restriction zone reform" under the legal and policy framework. Don't wait, don't expect, don't drag, don't be afraid. Identify the breakthroughs and focus of reform, and actively carry out pilot projects in the areas of mixed ownership, employee stock ownership, and selection of professional managers. The group leaders also proposed that all reforms should have a timetable to ensure that “a blueprint is drawn to the end”. The market expects that the capital feast of the Weapons Industry Group will be opened soon.

Weapons Group pushes "no-restriction reform"

Established in July 1999, China Ordnance Industry Group Co., Ltd. is a large-scale state-owned key enterprise established on the basis of some enterprises and institutions affiliated to the former China Ordnance Industry Corporation, representing the development direction and level of China's weapon industry. At present, the proportion of military and civilian products is about 3:7. The Weapons Group initially achieved a leap from traditional weapons to high-tech weapons, and its business scale jumped to the platform of 100 billion yuan. The reform and restructuring made a major breakthrough. In 2013, it ranked 161th among the world's top 500 companies; it ranked 8th among the top 500 Chinese manufacturing companies. In 2013, the company achieved a main business income of 3.816 billion yuan, an increase of 5.65% compared with 2012, a profit of 10.05 billion yuan, and an economic added value of 7.32 billion yuan. From January to March 2014, the company achieved a revenue of 88.213 billion yuan from its main business.

No-restriction reform refers to matters that do not prohibit the laws and regulations, national and local policies on the premise of following laws, policies, and procedural justice. Anything that is conducive to "three further liberation" is conducive to the promotion of enterprise development. In order to increase the income of employees, all units and departments of the Weapons Group must make bold reforms.

Through the analysis of Yin Jiaxu's speech, we summarize the main contents of its reform ideas without the restricted area. The main contents related to the capital market include the following:

First, promote the ownership of mixed ownership and key personnel, and carry out equity incentives. Pay attention to bold transformation in the mechanism, emancipate the mind, change business ideas, and take value creation as the foundation. Including wide open doors, introduction and cooperation.

Second, select professional managers to promote institutional innovation.

Third, its military industrial units must carry out reforms. Fourth, the business process must have revenue and value added. Through innovation and transformation and upgrading, we will make our company bigger and stronger, and become a quality and efficiency enterprise.

Fifth, the current and future period, the pricing of military products has undergone fundamental changes, and the price has become an important factor in whether or not to order. Easy to use, applicable, durable, inexpensive, and use has become an essential requirement for equipment. Competition will be normal. Turn. To change the concept of work, firmly establish the military product is the idea that the commodity is the "God".

Sixth, we will promote structural adjustment and plan for the development of civilian products on the premise of doing a good job, becoming stronger, and doing superior military products.

The idea of ​​no-restriction reform will bring the following changes to its listed companies:

First, emphasize efficiency, reduce costs and expenses. Under the same income level, the net profit level of listed companies is expected to improve. Second, individual shareholding and the selection of professional managers are conducive to improving management and enhancing work initiative. Therefore, it is conducive to the improvement of the company's profitability; third, the commercialization of military prices, with military customers as God, may bring down the price of military products, but its impact on the net profit of related companies is expected to make up for the cost reduction and efficiency gains. Fourth, mixed ownership reform will bring reform forces outside the system, and promote the regulation of sub-groups and listed companies to be more standardized and more transparent. The quality assets of the corresponding sub-groups may be injected into the listed company, and asset integration is expected to accelerate.

Group's professional restructuring has uncertainty

At present, the total number of listed companies in the Weapons Group reaches 12 (11A+1H), which is second only to China Aviation Industry Group in the military industry group. However, the listed company's assets are relatively small. According to the data of March 31, 2014, the total assets of 11 A-share listed companies are 66.1 billion yuan, and the net assets are 26 billion yuan, accounting for 22% of the group's total assets and net assets. % and 21.5%.

The group still has a large amount of assets not listed.

In the listed companies, except for the North Navigation and Optoelectronics shares, the remaining companies basically do not engage in military products business (Northern Ventures) to provide a small number of tank structural parts, and Beihua has a small amount of military products. Although the state encourages military enterprises to reform and support the listing of military assets, the weapons industry's photoelectric defense assets, rocket assets, and even core military assets such as tanks, gunpowder and guns may be listed and financed, with the help of capital market development.

The development of the Group also lacks funds. Although the frequent issuance of debts in recent years is a financing route, the current asset-liability ratio has reached 60%. How to use the financing platform and industrial integration platform of listed companies to promote the restructuring and resource integration of the group companies. It is a question for the group to think about. Therefore, the future group may explore more ways to list military assets. In particular, the professional restructuring action at the sub-group level is basically over, and it is very likely that the sub-group's high-quality assets, especially those with better profitability, will be injected into the corresponding listed companies in the future.

As early as 2009, the Weapons Group proposed to reorganize more than 110 member units into more than 30 specialized sub-groups in more than three years, of which more than 10 specialized sub-groups should be built to have an important position at the national level. In the market, the industry leader with important voice and influence finally built the weapons group into a world-class defense group and China's important equipment manufacturing and fine chemical and special chemical industry bases.

The Weapons Group has a large number of high-quality assets such as optoelectronic defense, mineral resources, special chemicals, heavy equipment, etc. There are huge opportunities in future integration, and it is likely that it will be another military group that will undergo a large-scale restructuring after AVIC. In the context of China’s military informationization revolution, the group’s military products

Production is in a new round of development. Military products have high technical content and strong profitability. After being injected into listed companies, the company's profitability will be significantly improved.

Since the national promulgation policy supports the transformation of the military industrial group share system, there is no institutional obstacle to the listing of military assets. After the integration of specialized sub-groups, the Weapons Group will use the capital market to form a group of competitive specialized listed companies through IPO or using existing listed company platforms for asset injection. However, the professional reorganization of the group will be carried out in an orderly and step-by-step manner, and there is certain uncertainty.

Three main lines of investment: informationization, civilian products, professional restructuring

The current world weapon industry is developing in the direction of informationization, and the military products of the Weapon Industry Group are also increasing the development of high-tech information products; the three core systems have been formed in the civilian products, and some civilian products have developed well; the group specialization and restructuring stage has ended. It is expected that assets of a certain size will be injected into relevant listed companies in the future. According to the above three points, we believe that the investment opportunities of the listed companies of the Weapons Group have the following three aspects.

First, the informationization of military products brings opportunities, and companies engaged in the production of informationized military products will enjoy steady growth. This type of company is mainly a photovoltaic stock.

After the injection of defense assets into Xiguang Group, Optoelectronics became a manufacturer of informational military products. Its products mainly include four series of precision guided weapon system, precision guidance seeker series, aviation display and control information equipment product series and ground display control information equipment product series. These products have stable profitability and are currently in the process of strengthening national defense construction. Very good development scenario.

Second, civilian products companies with good development momentum. Some of the Group's civilian products have a good development momentum, high market share and large market space. Such companies will benefit from macroeconomic growth and the enormous resource integration capabilities of the Weapons Group, which includes Lingyun, which manufactures auto parts, and Jinxi axles that produce train axles and trucks (the axle market share is over 50%) And the Jiangnan Red Arrow, which is engaged in diamond manufacturing.

Third, benefiting from the ongoing professional restructuring of the group, it is likely that there will be companies with asset injections. After the weapons group launched the “no-restriction zone reform”, many listed companies have the possibility of asset injection. At present, the companies with strong expected asset injection include Optoelectronics, Jinxi Axle, Changchun Yidong, Beihua, and North Venture.

The group currently has 12 listed companies, including 11 A-share listed companies and one Hong Kong listed company An Jieli. These companies currently have higher P/E ratios. However, we believe that most of these listed companies have military informationization, certain growth, and asset injection expectations. We are optimistic about the future development of these companies, and the high market valuation is reasonable. Among the listed companies in the group, companies with large investment value include Jinxi Axle, Optoelectronics and Lingyun.

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