Aviation giant mulls A-share float for aircraft making subsidiary in Chengdu

AVIC Zhonghang Electronic Measuring Instruments Co Ltd, a subsidiary of Aviation Industry Corp of China Ltd, announced on Wednesday evening that it plans to purchase 100 percent of the equity of AVIC Chengdu Aircraft Industrial (Group) Co Ltd by issuing shares to AVIC.

Shares of Zhonghang Electronic Measuring Instruments have suspended trading on Shenzhen Stock Exchange since Thursday. The company said it would disclose the detailed transaction plan within 10 trading days, or before Feb 2, according to its statement.

Based on the current weight rules, the company's potential listing is expected to account for 10 percent of the index weight, and the military sector is likely to embrace a leading stock in the A-share market, TF Securities predicted.

The market value of AVIC Chengdu Aircraft could reach 200 billion yuan ($29.6 billion) after it goes public through a backdoor listing, while the company's current market value stands at 6.25 billion yuan. This year, the net profit of AVIC Chengdu Aircraft is foreseen to reach 4 billion yuan, according to TF Securities.

"Backdoor listings can help provide a new channel for equity financing and create an opportunity for listed companies to restructure and improve their balance sheets," said the China Index Academy.

In the first three quarters of 2022, sales revenue of AVIC Zhonghang Electronic Measuring reached 1.45 billion yuan and net profit came in at 195 million yuan. In 2021, sales of the company achieved 1.94 billion yuan and net profit reached 307 million yuan, according to its earnings reports.

Founded in 1958, AVIC Chengdu Aircraft has been a major base for the development, production and export of China's aviation weapons and equipment. The company has also been a key manufacturer of civil aircraft parts.

For military aircraft, the company has developed and produced thousands of J-5, J-7 and J-10 stealth fighter jets. The company also developed the nose of the AG600, a large amphibious aircraft. For civil aircraft, it has carried out some related tasks in helping develop the homegrown single-aisle aircraft C919 and the regional aircraft ARJ21, along with their manufacturer Commercial Aircraft Corp of China.

AVIC Chengdu Aircraft has accumulatively produced and delivered more than 10,000 civil aircraft subcontracted products, according to the company.

By the end of 2021, the total assets of AVIC Chengdu Aircraft reached 151.18 billion yuan. In 2021, operating income of the group achieved 56.73 billion yuan and net profit reached 98.9 million yuan, according to its earnings.

State-owned enterprises have accelerated their reform, which is expected to boost sentiment in the sector, according to a research note by CITIC Securities.