Company Profile

    　　Wuhan Guide Infrared Co., Ltd is a China-based company, principally engaged in the research anddevelopment, manufacture and distribution of infrared thermal imagers and integrated photovoltaicsystems. The Company is also engaged in the provision of traditional ammunition and informationammunition and technology services, and house leasing business. The Company distributes itsproducts within domestic market and to overseas markets. (Source: Reuters)Event

    　　Wuhan Guide Infrared (the company) announced that it has inked a procurement contract with amilitary trade company on complete WQ systems, with the contract amount reaching CNY 153.23million.

    　　Comments

    　　The bulk orders of complete weapon systems marked a crucial step for the company to making militarytrade expansion.

    　　It was mentioned in H120 financial report, the company got approvals of exporting multipleequipment products for governments and forged a strategic partnership with a military tradecompany who boasts foreign trade permits of WQ equipment. And in the reporting period, thecompany for the first time achieved bulk sales, which was a milestone in complete WQ systemsbusiness.

    　　The company, taking international market demand into account, will continuously push forward theexports of WQ equipment products.

    　　The procurement contract marked not only a crucial step for the company in military trade marketbut also a significant step in exports of complete weapon systems.

    　　As the company has got approvals of exporting multiple complete WQ systems and has been workingin complete weapon systems for years, its development potentials are promising.

    　　With intensified military conflicts in several nations and regions, the military market of weapon systemsis buoyant.

    　　Weapon systems are usually in great demand as consumables. As in military conflicts regionsrepresented by Middle East, Caucasia and Balkan, most wars are on land, the demand for tankarmors, antitank guided missile systems and unmanned aerial vehicles is great.

    　　Based on the statistics of SIPRI, China exported roughly 9,000 red arrow-8 antitank missiles and 2,000red arrow-73 ones during 2010-2019.

    　　Earnings forecast and investment recommendationAs orders of military products in China increased significantly, both internal and external markets willprosper. We maintain our earnings forecasts and estimate its net profits to be CNY 1.094 billion/ CNY1.330 billion/ CNY 1.608 billion for 2020/2021/2022, implying a P/E ratio to be 53X/43X/36X, basedon the closing price on November 27th 2020. Reaffirm “Outperform”.

    　　Potential risks

    　　slower-than-expected R&D progress of new products; slower-than-expected design finalizing ofweapon systems in China and its implementationThis English translation of the original Chinese version <大额军贸合同落地 武器系统空间广阔> issued by Industrial Securities on November 30, 2020 is for information purpose only. In case of adiscrepancy, the Chinese original will prevail.

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