|By ACN Newswire||
|May 23, 2014 04:39 AM EDT||
Backed with policies, AVIC will build China's Lockheed Martin
A new round of reform was initiated by the Third Plenary Session of the 18th CPC Central Committee among state-owned enterprises in China, in which, the reformation of military industrial enterprises is acting as a leading driving force of the SOE reform. The injection of core assets of aeronautic defense business by AVIC, AviChina's parent company, into the listed company demonstrates the open-up attitude of the authorities in charge of military industry as to the reorganization and listing of military industrial enterprises. Upon completion of the acquisition, CITC will integrate warplane assets which comprise the production, research and development of warplanes of the third and fourth generations, and assets related to air-surface missiles. By taking ownership of those defense equipment assets that are of utmost strategic significance in AVIC, it will be the first domestic-listed enterprise specialized in entire warplane production, comparable to Lockheed Martin in China. The reform in the national defense and the military industry, together with the advancement of the securitization of military industrial assets, will be a catalyst for the entire military industrial sector, which in turn will create a series of catalytic effect on the affiliated companies of AVIC, including subsidiaries such as AviChina and AVIC Avionics.
With business scope extended to defense equipment, AviChina targets to be China's answer to Boeing
AviChina is the only overseas-listed company of Aviation Industry Corporation of China and this assets reorganization will extend the Company's aviation business to cover defense equipment. AviChina has previously expanded its civil aviation manufacturing business through assets reorganization, merger and acquisition and has become the largest manufacturer of civil helicopters and a leading supplier of avionics systems in China. As the Company expands into the defense equipment sector, it is believed that it will help AviChina broaden its presence in the industry chain, optimize its investment portfolio and develop into China's answer to Boeing.
Major investment banks raised the ratings for AviChina considering the benefits that the company will continue to enjoy
The market's growing interests in the securitization of military industrial assets indicates an unprecedented development opportunity for the military industry sector in China. Investment in companies connected with the military industry will be the focus in 2014. Therefore, AviChina's substantial subscription will directly benefit from the appreciation of CITC. Based on the average P/E of the military industry sector of A shares, a huge sum of future earnings can be secured even on a conservative estimate. Subscription of CITC shares will also enable AviChina to participate in a more diversified aviation business, share the benefits brought by the continuous growth in China's national defense industry, integrate the current business with the defense assets, and facilitate the sound development of the overall industrial chain. Also, considering the continuous and stable growth of the existing business of AviChina, the profitability of the Company is expected to grow significantly. AviChina is the largest platform for assets integration under AVIC. Considering its importance and strategic position, Goldman Sachs, Citibank and BOCI raised the target price and maintained the "Buy" rating for AviChina.
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