Fengnian Capital Chang Bin: How to depict the gold panning roadmap of the military industry

Securities Times Network (www.stcn.com) January 20 news

Securities Times reporter Zhang Guofeng

Since the Eighteenth National Congress, military-civilian integration has gradually risen to a national strategy, and the status of the military industry has become increasingly prominent. The report of the Nineteenth National Congress emphasized "adhering to the unity of rich countries and strong armies, strengthening unified leadership, top-level design, reform and innovation, and the implementation of major projects, deepening the reform of national defense science and technology industry, forming a pattern of in-depth development of military-civilian integration, and building an integrated national strategic system and capabilities."

With the gradual implementation of the state's supporting policies, the reform of China's national defense science, technology and industry is expected to be further accelerated. Similar to other industries, the development of the military industry is also inseparable from the promotion of capital. Industry insiders pointed out that the military industry belongs to the capital, technology and talent-intensive high-input and high-risk industries, and its long cycle and large investment characteristics determine that the space for capital can be played is huge. In this context, capital is becoming a new variable in the military industry, and while a number of listed companies that have joined the military and converted from the military to civilians have grown rapidly, the overall industry and venture capital funds have become more and more active.

This once unknown industry is gradually approaching life, and is revealing its huge gold rush to the world little by little. What are the gold digging points in the eyes of the venture capital community in this mysterious and attractive industry? A few days ago, the securities times road venture capital exchange reporter interviewed Chang Bin, a partner of Fengnian Capital who has been rooted in the industry for many years, and talked about investment opportunities in the military industry.

The industry is only the tip of the iceberg

In the venture capital industry, the number of institutions investing in the military industry is a dime compared with other industries, and institutions like Fengnian Capital that only invest in the military industry are even rarer.

Fengnian Capital was founded at the end of 2014 by zhao feng, Chang Bin, Pan Teng, Ma Xiao and Zhan Siliang, the core executives of former Jiuding and Dachen. In September of the following year, Fengnian Capital Military Industry Phase I Fund was officially established, raising more than 300 million yuan, which was the first special military fund in China. In August last year, Fengnian Capital's Phase III Military Industry Fund was officially established, with a total scale of 1 billion yuan, refreshing the scale record of the domestic market-oriented military industry fund. Up to now, there are nearly 30 military enterprises managed and invested by Fengnian Capital.

"At present, for the military industry, whether it is a civilian enterprise participating in the military or a military unit in the traditional industrial sector, the capital market has been reflected in the tip of the iceberg." When it comes to the current situation of the entire industry, Chang Bin opens like this.

In Chang Bin's view, in the past few years, there have been no large-scale targets in the military industry, and the reason is closely related to China's national defense military construction system. "In 1998, China's national defense military construction system began to enter a new period, but it did not enter a period of rapid development until 2014, and the development process of weapons and equipment has the characteristics of small batches, multiple batches, multiple varieties and long cycles. In addition, in the past two years, the reform of China's national defense force construction, that is, the depth of military reform, has affected the development of military enterprises. These two characteristics have led to the past few years, although there have been private enterprises with profits of more than 50 million, but not many. ”

The number of civilians in the military is expanding rapidly

However, he said bluntly that in the past two years, although there are constraints of the phased system, it is difficult to achieve great leaps and bounds of development, but it has accumulated good conditions and environment for the future.

Chang Bin said that Chengdu, Xi'an, Nanjing, and other cities are all key areas for civilian participation in the military in China. Taking Chengdu's military-civilian integration industrial park as an example, as of the end of last year, there were more than 10 enterprises with profits of more than 50 million yuan in the park, half of which were in the process of applying for listing. He judged that in the next two or three years, there will be large-scale civilian military enterprises, and there will be a larger sample volume landing in the capital market in the next five years, and in the next ten to twenty years, it will be a strong cycle of the entire industry.

Judging from what Chang Bin observed, at present, the total number of civilians participating in the military in the industry is rapidly expanding. From the perspective of statistical data, if only four certificates (that is, "weapon equipment quality management system certificate", "weapon equipment scientific research and production confidentiality qualification certificate", "weapon and equipment scientific research and production license certificate" and "equipment undertaking unit capital certificate") are counted, there are currently more than a thousand on the market. Due to the caliber of the qualification review, there are still a large number of enterprises that have not obtained qualifications for the time being, but this has not reduced the enthusiasm of the people to join the army.

In addition to the number, Chang Bin believes that the civilian participation in the army is moving from general support to overall and subsystem. "It can be seen that more and more civilian enterprises participating in the military have gradually established their own core competitiveness, and formed an independent closed loop, forming their own system from scientific research, production, supply chain, quality system, qualification system, etc." Chang Bin said.

At the same time, the trend of private enterprises' independent grouping and system open source is becoming more and more obvious. Chang Bin believes that there is a serious surplus in the research and development field of simple support, and it is possible to become cannon fodder in the future. At present, many listed companies should be more cautious when dealing with private enterprises, simply seeking large-scale corporate mergers and acquisitions.

The last piece of cake for asset securitization

"Military assets are equivalent to the last piece of the cake of asset securitization in the assets owned by the whole people. The depth of its impact on the capital market is 15 to 20 years, and for the construction of the national defense force system is 50 years. Chang Bin said.

In Chang Bin's view, the recent reform of the military industrial institute is only the first step in the change of the entire ownership system, and once the state-owned institutes have realized a large amount of capitalization, they will immediately enter the second round of system integration. Once the restructuring has achieved phased results, the way out is very narrow for enterprises that have not participated in the construction of the main battle sequence or institutes that have not participated in the rapid integration of the state-owned system.

In this case, Chang Bin said bluntly that expanding vertically and horizontally is the only way out. Vertical is to do deep, do fine, horizontal is integration, but is the real effective integration of technology and the market up and down closed loop. "When M&A, we must think deeply about our own strategic system, whether we want to do simple cobbling together profits and concept hype, or hope to become part of the weapon system or combat system in a long cycle."

In addition, Chang Bin said, there is an alternative reform in addition to the traditional reform. For example, The Ordnance Group has two institutes that jointly take out high-quality assets and form a cooperative company with a company's management system and external capital, which is a thorough reform method, because they are very familiar with information, products, technology, channels, processes, and threshold systems. "The most fundamental problem of the system is to solve the problem of interest mechanism, the state-owned system will cause a phenomenon for a long time in the future, called the crowding out effect, reform enterprises will squeeze out those that do not change, and will also squeeze out the traditional enterprises that do simple supporting facilities, especially in the supporting fields of some key institutes."

Future investment opportunities

The industry believes that in 2018, the military reform is gradually coming to an end, the industry's order growth is expected to usher in a compensatory repair, superimposed on the "13th Five-Year Plan" equipment procurement before the low and high characteristics, the industry fundamentals will be significantly improved. Second, the reform of the military industry has gradually entered the deep water. Achieving military-civilian integration is the ultimate goal of this round of military reform. The reform of the military industry is expected to enter the deep water area, and the military-civilian integration will gradually transition from quantitative change to qualitative change.

"From the current point of view, by the middle and late of 2018, some of the impact of military reform will be eliminated, and there will be planned and institutional two-way hedging, which should be a good era for the industry to have a great improvement." Talking about the development prospects of the industry this year, Chang Bin judged it this way.

So what are the investment opportunities in the industry next?

Since 2013, the domestic military field has begun to comprehensively implement the reform of centralized management of material procurement, and has issued more than 10 regulatory documents, which in Chang Bin's view has a far-reaching impact on the entire industry.

From the perspective of a unified model, it will bring a very cruel competition system, and the enterprises that do repeated construction only have differences in life and death, and the entire supply system will be shuffled in batches. "The subtle changes in procurement rules have brought challenges to many enterprises, and only enterprises that consolidate their internal strength and actively seek change can survive, especially those in the industry that are truly prepared, can self-finance scientific research, and use demonstration verification to accelerate the later development cycle."

In Chang Bin's view, this stage is the key construction cycle of the "Belt and Road" initiative, and its core point is that economic output needs the effective guarantee of the security system. "At present, China has begun to build some systems, such as the first overseas military base that China has built in the past two years, as well as the Beidou system. Infrastructure construction is only the first step, will it be batched in the future, the current planning of the guarantee system has just begun. ”

Chang Bin also mentioned the old and brand new military trade market. He pointed out that the categories of military trade are becoming more and more abundant, and even contain some large weapon systems. "Because the iterative speed of weapons and equipment continues to increase, overseas is a market with diversified needs, which also reflects the results of the construction of the national weapons and equipment system."

Chang Bin said that in the military trade cycle, the foreign trade market and the domestic research and development sequence system are different, from the inspection period to this demand, to the later stage to complete the process of almost three years. "Overall two opportunities, big platform and big overall. The concept of a large platform is something we sell, such as a tank, to be sold into the entire equipment sequence, including lifting mechanisms, transport mechanisms, command units, etc., so the large platform system is urgently needed. In general, some private enterprises now present a large overall, especially in the military industry system, the depth of participation is much greater than the expectations of the family. The national defense structure of a big country has basically possessed the potential and ability of foreign exports, and the military trade market is an area that needs special attention in the future investment sequence. ”

(Securities Times Network Newsletter Center)

This article originated from the Securities Times

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