21 February 2019
Defense-related stocks are gaining favor amid China's efforts to beef up its military capabilities. Photo: Reuters
Defense-related stocks are gaining favor amid China's efforts to beef up its military capabilities. Photo: Reuters

Aerospace Communication to benefit from military industry boom

The start of the year saw stocks related to the military industry gaining investors’ favor. As tensions in the South China Sea mount, countries step up moves to strengthen their military capabilities.

China’s Central Military Commission has released guidelines to introduce reforms into the military structure, including a modernization program with Chinese characteristics. The country is building a second aircraft carrier.

North Korea, meanwhile, rattled the region with a fourth nuclear test.

Investors may find Aerospace Communication Holdings Group (600677.CN) a good addition to their portfolios.

The company’s businesses span aerospace defense equipment, textiles and commercial services.

Its core business is telecom services for the military network.

If the Chinese army wants to win the war in the era of information, this business will be of increasing importance for the defense industry.

In September the company agreed to sell a 51 percent stake in one of its subsidiaries, Aerospace Times Electronics Co. Ltd., based in Zhejiang province, in order to focus on its core business.

Then in October, it announced plans to issue more shares to support its proposed acquisition of a 51 percent stake in Hipad Intelligence Technology and 36.9 percent of Jiangsu Jiecheng Vehicle-borne Electronic Information Engineering Co. Ltd.

Hipad is a renowned original design manufacturer of mobile phones with nearly a 20 percent share of the market. Its clients include Lenovo and ZTE. It also plans to explore the market for wearable smart devices.

Jiangsu Jiecheng’s main business includes communication systems.

Aerospace Communication’s share price peaked in June and fell to a low of 14 yuan (US$2.13) in September.

It rose above a resistance level with high transaction volume recently. It’s worth the attention of investors.

This article appeared in the Hong Kong Economic Journal on Jan. 8.

Translation by Myssie You

[Chinese version 中文版]

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Department of Investment Analysis at HKEJ

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