AviChina Industry & Technology Company Limited (2357 HK): Defence is defensive amid the market downturn
- Buy Entry – 5.2 Target – 6.0 Stop Loss – 4.85
- AviChina Industry & Technology Company Limited is principally engaged in the research, development, manufacture and sale of civil aviation products. The company operates its business through two segments. The Aviation Entire Aircraft segment is engaged in the manufacture, assembly, sales and servicing of helicopters, trainers and other aircraft. The Aviation Parts and Components segment is engaged in the manufacture and sale of aviation parts and components.
- Healthy growth in 1H21 results. Revenue grew by 33.06% YoY to RMB27.9bn. GPM increased by 0.97ppt to 39.3%. Net profit attributable to the owners of the parent company grew by 39.7% YoY to RMB1,199mn, which was due mainly to the growth craft segment and aviation ancillary system and related business segment. In 2H21, 5G communications and new energy vehicles are the two fields that the company sees as opportunities of business growth.
- The recent catalyst for the stock could be the announcement of broadening the 2018 pilot program to allow Red-chip companies to make domestic listings. It has a higher potential to be dual-listed in mainland China. Meanwhile, market sentiment of the stock is positive as long as there are military tensions between China and countries such as Japan and the US.
- Consensus estimates per the 12-month target price at HK$7.61, implying a 26% upside potential. EPS is forecasted to grow at 32.6%/17.5%/13.5% for FY2021/22/23F, which would bring forward P/Es down to 16x/13x/12x FY2021/22/23F.