Equipment procurement into the "collective procurement" era?

Equipment procurement into the era of "collective procurement"?

The Army Equipment Department released on August 20, "on accelerating the promotion of Army equipment high-quality, high efficiency, high speed and low-cost development of the initiative" has become a hot topic of discussion in the capital markets. The initiative letter said, to further accelerate the promotion of army equipment "high quality, high efficiency, high speed and low cost" of the "three high and one low" development, to build a new pattern of army equipment construction.

In addition to emphasizing the "three highs and one low" of army equipment, the initiative also proposes to form a "scalable advantage that can be released, sustainable, and can be made up for"; to break away from the "emperor's daughter does not worry about marriage "closed mindset, breaking the" fertilization of outsiders "industry barriers, the introduction of high-quality resources, forcing industrial upgrading; adhere to the fine-tuning, cost control, reduce the process of consumption, and effectively squeeze out the management of unnecessary "moisture "; strengthen supply chain management and production cost control, vigorously promote the opening of raw material procurement, sub-systems, competition for excellence, large quantities of ladder price reduction, multi-point tapping the potential, price concessions, through the lean management to achieve the overall price optimization.

For all the signals issued by the initiative, some voices believe that this may mean that military products to enter the "procurement" era.

In 2019, the "centralized purchasing" first implemented in the pharmaceutical field has brought considerable impact on the industry as a whole. Pharmaceutical giant Hengrui Medicine said in its 2021 semi-annual report, "affected by the national and local band purchasing, the company's traditional generic drug sales decline. For the six drugs involved in the third batch of volume purchasing, which was implemented in November 2020, sales revenue fell 57% YoY during the reporting period. On the other hand, the main product, karelizumab, started to implement the negotiated price of health insurance since March 1, 2021, with a reduction of 85%."

This is certainly not to say that the "collection" is a bad thing, after the implementation of the new system, the people to buy drugs is convenient, the pharmaceutical companies are also more to innovative drugs, in the long term are conducive to the development of China's pharmaceutical industry. Hengrui Medicine, for example, its 2021 semi-annual report also pointed out that: "innovative drug sales revenue increased steadily, during the reporting period, innovative drugs to achieve sales revenue of 5.207 billion yuan, an increase of 43.80%, accounting for the proportion of the overall sales revenue of 39.15%, the gradual harvesting of innovation results in the company's performance growth played a pulling effect. "

But, "collective purchasing" in the short term may form the impact of the capital market is still worried about the military industry is not to be so. In this regard, some analysts believe that the purchase price is likely to be cut, but taking into account the "procurement" in fact, has long been into the practice of procurement of military equipment, and then refer to the implementation of the "procurement" of the aerospace sector example, "procurement The impact of the "collective purchasing" is still subject to speculation depending on the specific business areas.

Galaxy Securities said in a review on the 24th, in order to be able to meet the current rigid military budget framework to prepare for the number of equipment requirements, reduce the procurement price of equipment or become an important hand. Analysis of the initiative's core demand is "cost reduction", coupled with the "quality and accelerate the price reduction", especially "accelerate" emphasis, which can reflect the current stage of the military customers' urgent The company's business is a very important part of the company's success.

But the document is still only limited to the "Initiative", whether the later operational details need to be tracked. Moreover, the aerospace sector in April this year has been implemented in the component "procurement", but the price reduction is very limited, basically within 5%, its impact on gross margins can be completely through the scale effect of batch production to erase, but the aviation carbon fiber is different from the components, the price reduction is larger.

So, the analysis is that, with the air force and the rocket force and other equipment demand volume, high-volume procurement is the trend, for many product models, a high degree of customization of non-standard products, procurement is more difficult to operate, bargaining space is low. For carbon fiber, high-temperature alloys, titanium alloys and other standardized products and lower technical barriers to machining business may be more affected.

Huajin Securities pointed out that some of China's midstream and downstream military enterprises such as components, forgings, special materials, there are raw material purchase price is high, resulting in poor business efficiency, the cost of transfer to the military. This regulation to make clear initiatives on this issue, aimed at controlling the cost of military products from the source, with a certain degree of relevance, military processing enterprises need to further optimize the raw material procurement system, control product costs, and in the long run will improve corporate efficiency.

And, general military procurement generally exists in the order hurry, more varieties, the characteristics of a single product volume is small, military enterprises often have orders must be completed, but due to the amount of less class more than lead to the cost of higher than the market level of the problem. The implementation of large quantities of ladder price reductions, in line with the logic of the market economy, effectively protect the interests of enterprises.

In addition, the sub-system competition will reduce the different volume, type of enterprise homogenization vicious competition, improve the core technology advantage of the central enterprises, state-owned enterprises background military enterprises survival environment; at the same time for the private background of the military/military dual-use enterprises, played a reshuffle, reshape, the effect of the selection of the best, low-efficiency private military enterprises are facing a reshuffle.

However, it should be pointed out that the "collection" does not mean relaxing the quality of equipment. The initiative emphasizes: "We must adhere to the quality first, efficiency first, adhere to the high quality as a prerequisite for low cost, low-cost oriented high-quality, must not fall into the misunderstanding of the low bid, not to reduce the quality of the cost of false low price, and make every effort to promote the organic unity of high-quality and low-cost." Huajin Securities also believes that the bidding of high-tech military products to meet the military test requirements for the highest priority principle, with industry-leading technology to meet the demand for weapons and equipment using high-tech enterprises, are not affected.