China Heavy Industry's 100 billion military products order to be released

On September 11, China Heavy Industries disclosed a plan to raise nearly 8.5 billion yuan to acquire the major equipment assembly assets and investment military and military equipment of the major shareholder China Shipbuilding Industry Corporation (hereinafter referred to as “Zhongzhou Heavy Industry”). And the military and civilian integration industrial technology transformation projects and supplementary liquidity.
There are three uses for this fundraising, but the most interesting thing is the injection of military assets. The newspaper has previously reported exclusively that China Heavy Industries will inject assets into Dalian and Wuhan to provide construction and follow-up services for the naval aircraft carrier formation (see the 2015 B7 edition of this newspaper on June 17, 2013). The company's plan to increase the number of listed companies is that the major shareholders of Dalian Shipyard Group Co., Ltd. (hereinafter referred to as "Da Ship Group"), Wuchang Shipyard Group Co., Ltd. (hereinafter referred to as "Wuchuan Group") Equipment assembly business and assets.
According to China Heavy Industry, in addition to the successful “Liaoning”, China still needs more than three aircraft carriers. In the next 5 to 10 years, China is likely to further build one or more domestic aircraft carriers and its supporting combat groups. The cost of each aircraft carrier formation is nearly 20 billion US dollars. This means that China’s heavy industry, which has nearly 80% of the equipment installed in the Navy, will receive at least hundreds of billions of equipment orders.

Aircraft carrier concept detonation market
China Heavy Industries, which has been suspended for nearly 4 months, announced on September 11 that the company intends to issue 2.208 billion shares to 10 specific targets at a price of not less than 3.84 yuan per share, raising no more than 8.48 billion yuan.
Among them, 3.275 billion yuan was used to acquire the major equipment assembly business and assets of the Dachuan Group and the Wuchuan Group; the 2.661 billion yuan was used for military military equipment and military-civilian integration industrial technology transformation projects; and the other was not more than 2.544 billion yuan to supplement working capital. Among them, Dachuan Group and Wuchuan Group are subsidiaries of CSIC Group, the controlling shareholder of the listed company. The acquisition constitutes a connected transaction.
The most influential investor nerve is undoubtedly the injection of the military products business of the Big Ship Group and the Wuchuan Group. On September 11th, China Heavy Industries opened its daily limit on the day of resumption of trading. At most, it stopped the daily limit with more than 13 million hands, and the amount of funds sought after it exceeded 7 billion yuan. On September 12, China Heavy Industries once again closed the daily limit.
According to reports, the Big Ship Group is currently the largest construction base for surface ships in China. It is mainly engaged in the research and development of large-scale surface ships, missile destroyers, oil-water supply ships and other types of large-scale water surface and military auxiliary ship products. Since 1949, the Big Ship Group has built a total of 44 models and 820 ships. It is the shipyard with the strongest development and production capacity of Chinese surface ships and the largest number of ships built by the Navy. After the completion of this non-public offering, China Heavy Industries will undertake the military final assembly business and related assets held by the Big Ship Group.
Wushu Group is a large-scale modern comprehensive enterprise and an important military production base mainly engaged in shipbuilding. It is mainly engaged in the assembly and supporting production of surface water, underwater military ships and auxiliary ships. After the completion of this issuance, the company will give full play to the advantages of the Wuchuan Group in the military and military trade, and build one of the most advanced and complete naval equipment manufacturing bases in China.
The securitization of major military assets is the answer to the company’s “significant and no precedents”. In fact, this asset injection is the fourth step for the major shareholder CSSC to gradually realize the overall listing. Previously, from 2009 to 2012, China Heavy Industries had incorporated some of its assets into listed companies through IPOs, asset restructuring, and issuance of convertible bonds.
The concept of China’s heavy industry involving aircraft carriers is no longer a secret. The Dalian Shipyard, which was injected into the listed company earlier, is famous for rebuilding the aircraft carrier “Liaoning Ship” that has been delivered to the Navy.
In addition, the footsteps of the major shareholder CSSC to inject assets into listed companies are far from over. On September 11th, Guo Gongjun, the director of China Heavy Industry, said at the investment briefing held in Shanghai that the uninvested assets of the major shareholders accounted for about half of the group's assets, including 28 research institutes and some key military enterprises.
"The reason why the research institutes have not been injected is the institutional reasons. Most of them belong to the public institutions and have not been reformed. Some military enterprises have not been injected for more complicated reasons, some of which are historical reasons, and the warrants are incomplete. Some of them are not implemented in the past debt-to-equity swaps. According to the requirements of the Central Committee and the Central Military Commission, the restructuring work must be completed by the end of 2015. The uninjected assets will be injected in batches after the problem is solved. The mature batch will be injected into batches.” Guo Tongjun also said that 28 institutes under the CSIC Group are The market share of ship equipment R&D is over 80%. In 2012, the revenue exceeded 30 billion yuan and the profit exceeded 3 billion yuan.

Military orders or over 100 billion
The aircraft carrier formation has always been the most expensive military equipment. How much does it cost to build an aircraft carrier formation?
According to a brokerage analyst, if according to the world average, it is estimated that there will be about 10 ships supporting the Liaoning aircraft carrier in the future, plus a nuclear-powered submarine costing hundreds of millions of dollars. It is estimated that the cost of the ship formation in China is 15 billion to 220. Billion dollar level.
“China’s heavy industry’s order to acquire the supporting aircraft of the Liaoning aircraft carrier formation is a matter of fact, and China still has the need to increase the formation of aircraft carriers,” the analyst said.
China Heavy Industry has also made such a statement in the plan for the increase: "According to the speculations of domestic and foreign military experts, China needs more than three aircraft carriers from the perspective of several sea areas protection; from the perspective of forming combat effectiveness, in the future 5~10 In the middle of the year, China is likely to further build one or more domestic aircraft carriers and its supporting combat groups. According to foreign experience, the construction of aircraft carrier formations plays an extremely important role in the national industrial upgrading. Each aircraft carrier formation cost nearly 200. One hundred million U.S. dollars."
"Even if only one aircraft carrier formation is added, the listed company can get a big cake of nearly 100 billion yuan from the position of China Heavy Industries A shares first military stocks," said the analyst.
In addition, the maintenance costs of the aircraft carrier formation will also bring continuous benefits to the company. "If the Navy builds two more aircraft carriers in the future, China Heavy Industries will increase its aircraft carrier construction revenue by 40 billion yuan, and its annual maintenance income will reach 3.6 billion. Therefore, for an aircraft carrier construction company like China Heavy Industries, the aircraft carrier revenue has just begun.” Some insiders judged.
China Heavy Industries is also quite confident about the increase in military orders. At the exchange meeting on September 11, Guo Tongjun revealed that the company's current military products accounted for about 20% of the orders, and will reach 30% in 2015.
"According to this calculation, China Heavy Industry's military orders in 2013 will contribute more than 10 billion yuan in revenue, and will be expected to exceed 25 billion yuan in 2015." The analysts expect.
What is the profit of military products? This issue has been repeatedly asked by the media and investors. The company has not disclosed it on the grounds of confidentiality, but both the company level and the market level are optimistic about the profit margin of military products orders.
However, Guo Tongjun said at the exchange meeting on September 11 that military products have obvious advantages compared with civilian products. The specific performance is that the order is stable, the military products are designated for production, and the state places orders according to the equipment investment plan. The civilian products market fluctuated greatly. For example, the ship market was hot in 2005-2006, and it quickly turned cold in the face of the financial crisis.
Hua Wei, chief financial officer of China Heavy Industry, also euphemistically stated at the meeting that the target assets to be acquired this time will achieve a net profit of about 177 million yuan from January to May this year. By the end of this year, the profit of these two major assets will be greatly higher. In the above figures.
Li Wei, an analyst at Northeast Securities, believes that the gross profit margin of traditional civilian ships is relatively low, and the gross profit rate contribution rate of military-related assets in 2014 is expected to reach more than 50%.
However, some insiders also reminded that although the market has given high marks to the injected aircraft assets, the net profit of the assets to be injected in 2012 is only 346 million yuan, and the release of aircraft carrier orders may take 5 years, 10 years or even longer. The performance of listed companies after completing asset injection still needs to be observed.


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