Defense Series: Avionics Systems and Embedded Computer Industry Chain Analysis

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According to recent news from Jane’s Defence, China’s J-20 has been equipped with a new domestic WS-15 engine and has conducted prototype flight verification.

Defense Series: Avionics Systems and Embedded Computer Industry Chain Analysis

Image: J-20

Source: Xinhua News

The new engine can bring a series of performance improvements, one of which is the maneuverability of the fighter.

In various videos, the maneuverability of the fighter is astonishing. These super strong performances are not only due to the pilot’s superb driving skills but also rely on the fighter’s automatic control technology. Fighter automatic control is a system integration project, one of the key cores is the avionics system’s embedded computer, which controls various parts of the fighter.

In the avionics system, what roles do embedded computers play? What is the market space? What are the industry barriers? With these questions, let’s take a look at the avionics system-embedded computer industry chain—this industry chain includes various links:

Image: Avionics System Embedded Computer Industry Chain

Source: M&A Excellence

Upstream——Integrated circuits, electronic components, system software, printed circuit boards, structural parts, and auxiliary materials, with representative companies including Unisoc, China Software, Fenghua Hi-Tech, Dongtu Technology, etc. In the defense field, the localization rate of electronic components is already relatively high, but the localization rate of core components still needs to be improved. According to the prospectus of Zhimin Technology, imported integrated circuits still account for about 50% of the total integrated circuit procurement.

Image: Competitive Landscape of Integrated Circuit Design Sub-sectors

Source: New Era Securities

Midstream——Embedded system research and manufacturing. In the defense field, embedded computer systems consist of embedded software and embedded hardware. Companies procure integrated circuits, other electronic components, circuit boards, etc., from upstream, use their technology to design and assemble hardware, and write software according to customer requirements, installing the software on the hardware to form an integrated embedded computer system.

From the industry competitive landscape, the embedded computer in the defense field mainly consists of large state-owned enterprises and a few private enterprises. Large state-owned enterprises have strong technology, deep industry accumulation, a larger proportion of supporting models, and have established relatively stable cooperative relationships with downstream customers, giving them an inherent competitive advantage. As the defense procurement field gradually opens up, some quality private enterprises are expected to increase their market share due to fast technology updates, flexible management, strong service capabilities, and cost-effectiveness.

Representative private enterprises include Zhimin Technology, Sichuan Saidi, and Jieshi Zhitong.

Downstream——Embedded system applications. Embedded computers can be applied in many fields, such as industrial control, consumer electronics, communication devices, etc.

Image: Application Range of Embedded Computers

Source: Huqing Yuanjian

In this article, we focus on the defense aviation field, where application terminals are various defense aircraft. Currently, this field is dominated by state-owned enterprises, among which, China Aviation Industry Group is a representative enterprise, with many listed companies under it covering various types of defense aircraft.

The recent growth situation of participants in the industry chain is as follows:

Zhimin Technology (Chengdu, Sichuan Province)——In the first half of 2022, realized revenue of 271 million yuan, a year-on-year increase of 54.66%; net profit attributable to shareholders of 50 million yuan, a year-on-year increase of 8.43%.

In 2022, the company’s performance report shows: the annual net profit attributable to shareholders is expected to be 75 million yuan, down 32.31% year-on-year.

Sichuan Saidi (Chengdu, Sichuan Province)——In the first half of 2022, realized revenue of 86 million yuan, a year-on-year increase of 98.99%; net profit attributable to shareholders of 5 million yuan, a year-on-year increase of 167.19%.

Jieshi Zhitong (Beijing)——In the first half of 2022, realized revenue of 36 million yuan, a year-on-year decrease of 51.18%; net profit attributable to shareholders of -27 million yuan, a year-on-year decrease of 675.61%.

Wind’s consensus expectations for the industry chain’s prosperity are as follows:

Image: Wind Institution Consensus Expectations (Unit: 100 million yuan, %)

Source: Wind, M&A Excellence

This report will be updated to the industry chain map

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【Industry Chain Map, Copyright, Content and Disclaimer】1) Copyright:All rights reserved. Violators will be prosecuted. No reproduction, excerpting, copying, or dissemination without permission. 2) Respect for Originality: If there are citations without source attribution, please contact us, and we will delete or correct the relevant content. 3) Content: We only conduct industry chain research, aimed at serving the construction of the real economy and the development of science and technology, This article is based on publicly disclosed financial reports, audits, announcements, and other information of publicly listed companies within various industry chains, does not adopt non-public information, does not contact any interested parties, does not endorse future changes, does not support any form of decision-making basis and does not provide any form of investment advice. We strive for accurate information but do not guarantee its completeness, accuracy, or timeliness, nor do we bear responsibility for any personal decisions or market changes.Content only serves the needs of industry chain research and academic discussion, does not provide information related to the securities and futures market, does not serve individuals related to the virtual economy, securities and futures market, and those without information discernment ability. If you are one of the above individuals, please cancel your subscription to this account and do not read any content on this page.4) Format:: We only present part of the content on WeChat, and the format of the title content is determined independently. If there are any objections, please cancel your subscription to this account.5) Theme: Given the huge workload, we only cover part of the industry and do not guarantee that all the industry chains you need are covered. We also do not accept any form of private consultation or Q&A, please understand. 6) Platform: The content is only presented on the WeChat platform and is not responsible for any other platforms. We reserve the right to take legal action against counterfeit and infringing platforms. 7) Integrity: The above statement, this page content, and all content of this platform (including but not limited to text, images, charts, industry chain maps) constitute an inseparable part. Please do not browse, click, forward, or comment on any form of this page and all content of this platform without reading and agreeing to all terms of this statement in detail.

【Reference Materials】This report references the following materials, special thanks.[1][2][3]

【Data Support】Some data is supported by the following institutions, special thanks—— Domestic market: Wind Data, Eastmoney Choice Data, Wisdom Bud Patent Database, Data.im Database, Lixingren, Qichacha; Overseas market: Capital IQ, Bloomberg, Reuters, in no particular order. For domestic and overseas research, these companies are essential. If you have a demand for purchasing data terminals from these institutions, please contact us.

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