Group 1 - The aviation equipment sector saw a rise of 0.46% on January 21, with Huayin Technology leading the gains [1] - The Shanghai Composite Index closed at 4116.94, up 0.08%, while the Shenzhen Component Index closed at 14255.12, up 0.7% [1] - Key stocks in the aviation equipment sector included Huayin Technology, which rose by 7.81% to a closing price of 104.21, with a trading volume of 48,700 lots and a transaction value of 502 million [1] Group 2 - The aviation equipment sector experienced a net outflow of 368 million in main funds, while retail investors saw a net inflow of 309 million [2] - The stock with the highest net inflow from main funds was AVIC Power, with 263 million, while Guangwei Composite had a net inflow of 94.37 million [3] - The overall trend showed that retail investors were more active, contributing to a net inflow despite the main funds' outflow [2][3]

Summary of the Conference Call for AVIC Xi'an Aircraft Industry Group Co., Ltd. (中航西飞) Industry and Company Overview - AVIC Xi'an is a key supplier of critical components for the C919 aircraft, contributing approximately 1/6 of the total aircraft value, benefiting from the ramp-up in C919 production, leading to steady growth in civil aviation revenue [2][5][6] - The company is actively involved in international subcontracting, collaborating with Boeing and Airbus, maintaining a technological edge [2][6] - In the military aircraft sector, AVIC Xi'an produces significant products such as the Y-20, Y-8/9, and the KJ series, with plans to introduce a stealth bomber, indicating a broad market potential for military trade [2][4] Core Insights and Arguments - AVIC Xi'an plays a crucial role in the domestic large aircraft project, supplying key components like wings and fuselage for the C919, which account for 50% of the structural workload and approximately 1/3 of the aircraft's total value [3] - The Y-20 has a notable supply-side scarcity, with demand from both large countries and smaller nations, enhancing its military trade prospects [4] - The management team underwent significant changes in July 2025, with a younger leadership focusing on investor relations and increasing external communication, leading to improved operational efficiency and profitability [7] Future Development and Potential - AVIC Xi'an plans to continue developing existing product lines, including new medium transport aircraft and stealth bombers, while also expanding into the drone sector with the HH series cargo drones, having signed intent procurement contracts with courier companies [8] - The company is expected to see steady revenue growth in the civil aviation sector as C919 production capacity increases, alongside ongoing international collaborations to enhance its technological capabilities and market competitiveness [2][6][8] Additional Important Points - The company’s stock incentive programs have significantly improved cost efficiency, with performance growth outpacing revenue growth [7] - AVIC Xi'an's involvement in international subcontracting with major global aerospace manufacturers is crucial for maintaining its industry-leading position [2][8]

Summary of the Conference Call Industry Overview - The focus is on the military industry, particularly in the context of China's military modernization and export potential, with two key areas of interest: domestic large aircraft and high-end military trade [2][3][4] Key Points and Arguments Domestic Large Aircraft - The domestic large aircraft, specifically the C919, is highlighted as a significant player in the market, aiming to compete with Airbus and Boeing [5][6] - The C919 has completed the third phase of certification for the European market, with expectations to finalize all certifications by mid-2027 [6][7] - The aircraft has already achieved over 4 million safe flights domestically, indicating operational success [7][8] - Future production targets for the C919 are projected to reach 200 to 400 units by 2030 to 2035, supported by a robust supply chain [8][9] - The development of derivative models, such as high-altitude and extended-range versions, is underway to meet diverse customer needs [9][10] Military Trade - The export of advanced military aircraft, such as the FC-1 (also known as the JF-17 or Thunder), is seen as a catalyst for expanding China's military trade [13][19] - The demand for the FC-1 from countries like Pakistan is expected to enhance China's military supply chain and promote further exports of advanced military equipment [13][19] - Upcoming defense exhibitions in Saudi Arabia and Singapore are anticipated to serve as platforms for showcasing China's military capabilities and fostering international military trade relationships [20][21] Investment Strategy - The investment strategy emphasizes a focus on companies that can create long-term value, particularly those involved in the second growth curve, which includes new business areas like commercial aerospace and military exports [4][5] - The military industry is characterized by a shift towards bottom-up stock selection, with a focus on individual companies that demonstrate potential for growth and profitability [4][5] Additional Important Content - The military industry is experiencing structural changes, with three main segments identified: military trade, military-to-civilian transitions, and domestic military equipment construction [3][4] - The military trade sector is expected to benefit from increased global military spending, particularly as geopolitical tensions rise [16][17] - The U.S. defense budget is projected to increase significantly, which may further stimulate global military trade dynamics [16][17] - The conference also discussed the importance of technological advancements in military equipment and the need for a comprehensive military industrial base to support these developments [17][18] Company-Specific Insights - Torch Electronics is highlighted for its growth potential in specialized electronic components and new materials, with a focus on military applications [23][24] - The company is recognized as a leading supplier of multilayer ceramic capacitors (MLCC) in the military sector, with plans for expansion into new materials for aerospace and missile applications [25][26] - Torch Electronics has implemented multiple employee stock incentive plans to align the interests of management and employees, which is expected to support long-term growth [26][27] This summary encapsulates the key insights from the conference call, focusing on the military industry, investment strategies, and specific company developments.

Industry and Company Analysis Summary Industry Overview - The large aircraft industry, particularly the C919, is experiencing significant acceleration, marking a turning point in a trillion-yuan market. This is evidenced by a collective surge in stock prices within the large aircraft and aviation sectors, indicating a strong market response to recent developments in China's civil aviation and aerospace industries [1][2]. Key Developments 1. The European Union Aviation Safety Agency (EASA) has completed compliance flight tests for the C919, providing a core evaluation of "good performance and safety reliability," which signifies the entry of the domestically produced large aircraft into the global market [3]. 2. The successful completion of national energy bureau evaluations for several gas turbine innovation development demonstration projects, including the "Taihang 7," "Taihang 15," and "Taihang 110," indicates progress in China's gas turbine technology [3]. 3. The C919 has reportedly accumulated over 1,000 orders, translating to a market scale exceeding 650 billion yuan based on the Eastern Airlines procurement price of 653 million yuan. Including the maintenance and spare parts market, the total lifecycle market potential approaches one trillion yuan [3]. 4. The CJ-1000A domestic aircraft engine is expected to begin mass installation in 2027, which will alleviate supply chain bottlenecks and accelerate performance realization [3]. 5. Siemens Energy, a leading overseas gas turbine manufacturer, plans to increase its capacity from 17 GW in 2024 to over 30 GW by 2028-2030, reflecting robust global growth in the gas turbine industry [3]. Investment Recommendations 1. **Large Aircraft Sector**: Companies benefiting from the accelerated delivery of the C909 and C919, particularly those with high domestic production rates in structural components, include AVIC Xi'an Aircraft Industry Group, Hongdu Aviation Industry Group, Triangle Defense, Runbei Aerospace Technology, and Quanzhi Co., Ltd. [4]. 2. **Domestic Engine/Gas Turbine Sector**: Companies poised to benefit from the accelerated industrialization of domestic engines and gas turbines include AVIC Power, AVIC Control, AVIC Technology, Hangya Technology, Tunang Co., Ltd., Yingliu Technology, AVIC Aerospace, AVIC Materials, Parker New Materials, and Lian Ce Technology [4]. Risk Factors - Potential risks include the possibility of aircraft deliveries not meeting expectations and the slower-than-anticipated industrialization progress of domestic aviation engines and gas turbines [4].

Core Viewpoint - The large aircraft concept stocks are experiencing significant gains, with multiple companies reaching their daily price limits [1] Group 1: Stock Performance - Aviation Power Control and AVIC Aircraft are hitting the daily limit up [1] - Previously, Beimo High-Tech and Aviation Power Technology also reached their daily limit up [1] - Hangya Technology has increased by over 10% [1] - Other companies such as Aviation Power Dynamics, AVIC Xi'an Aircraft, and AVIC Shenyang Aircraft are also seeing upward movement [1]

Market Overview - Major stock indices in the Asia-Pacific region showed mixed results, with the Shanghai Composite Index surpassing 4100 points, while Hong Kong's main indices were in the red [1] - The South Korean Composite Index broke through 4900 points for the first time, with Hyundai and Kia Motors both rising over 12% [1] - A-shares experienced a contraction in trading volume, with the Shanghai Composite Index up 0.29% and the Shenzhen Component Index up 0.09%, while the ChiNext Index fell by 0.7% [1][2] Trading Volume and Stock Performance - The total trading volume in the Shanghai and Shenzhen markets was 2.73 trillion yuan, a decrease of 324.3 billion yuan from the previous trading day [1] - Over 3500 stocks in the market rose, with 103 stocks hitting the daily limit [1] Sector Performance - The electric grid equipment sector showed strong performance throughout the day, with stocks like China West Electric, Dalian Electric Porcelain, and Guangdian Electric all hitting the daily limit [3] - The AVIC index opened high and saw all constituent stocks in the green, with AVIC Aircraft, AVIC Power, AVIC Control, and AVIC Technology all hitting the daily limit, while Hongdu Aviation rose nearly 9% [4][5] Hong Kong Market - The three major indices in Hong Kong collectively declined, with the Hang Seng Index and Hang Seng Technology Index both dropping over 1%, and the Hang Seng China Enterprises Index down over 0.8% [6] - Most tech stocks in Hong Kong fell, with Bilibili down over 7%, Alibaba and Alibaba Health down over 3%, and other companies like Kuaishou and JD Health down over 2% [6] Commodity Performance - Gold and silver prices reached new highs, with spot gold nearing $4700 and silver up over 3.6%, marking a year-to-date increase of over 30% [7] - The cryptocurrency market continued to decline, with Bitcoin dropping nearly 3% and over 250,000 individuals facing liquidation, totaling approximately $871 million [7]

Investment Rating - The report rates the military industry as "Overweight" [12] Core Insights - The military industry is expected to have a long-term positive trend, supported by the 20th National Congress of the Communist Party of China, which emphasizes achieving the centenary goal of building a strong military and advancing the modernization of national defense and the military [7][8] - The military sector has recently experienced a decline, with the defense and military index dropping by 5.66%, underperforming the market by 5.21 percentage points [12][13] - Major aerospace state-owned enterprises have set goals for the 14th Five-Year Plan, focusing on advancing aerospace defense industries and internationalization [8][9] Summary by Sections Industry Performance - The military sector index fell by 5.66% from January 12 to January 17, 2026, while the Shanghai Composite Index decreased by 0.45% and the ChiNext Index increased by 1.0% [12][13] - The China Securities National Security Index performed the best among military indices, with a decline of 1.77% [15] Major News in the Military Industry - Internationally, Russia has conducted large-scale strikes on Ukrainian military and energy facilities using precision-guided weapons and drones [21][22] - Domestically, the aerospace industry is focusing on key tasks for the 14th Five-Year Plan, including advancements in manned lunar missions and deep space exploration [8][9] Investment Recommendations - Recommended companies include: 1. Assembly: AVIC Shenyang Aircraft Corporation, AVIC Xi'an Aircraft Industry Group, Aero Engine Corporation of China 2. Components: AVIC Optoelectronics, Zhimin Technology, Shaanxi Huada, Ruichuang Micro-Nano, Unisoc 3. Subsystems: Aerospace Electronics, Guorui Technology, Guobang Electronics, AVIC Avionics, Northern Navigation, Aerospace Nanhu 4. Materials and Processing: Jiachih Technology, AVIC High-Tech, Western Materials, Aviation Materials, Hangya Technology, Guangwei Composite, Filihua, Huayin Technology, Bolite [9][10]

Investment Rating - The report maintains a "Positive" investment rating for the aerospace and defense sector [9]. Core Insights - The report indicates that during the 14th Five-Year Plan period, the production pace of domestic commercial aircraft and the self-sufficiency of commercial aviation engines are expected to accelerate, becoming significant growth drivers for the military aviation sector. This is anticipated to lead to a revaluation of related stocks in the aviation sector [3]. - Over the next 20 years, the global commercial aviation market is projected to reach approximately 48.5 trillion yuan, averaging about 2.4 trillion yuan annually. The Chinese market is expected to accumulate around 10 trillion yuan, averaging over 500 billion yuan per year [6]. - By 2029, China's civil aviation fleet is expected to require more than 400 new commercial aircraft annually, with a cumulative need for nearly 2,000 aircraft during the 14th Five-Year Plan period [6][18]. Summary by Sections Domestic Commercial Aircraft - The domestic commercial aircraft market is expected to break the oligopoly of Airbus and Boeing, which currently hold over 90% of the global market share. The C919 aircraft has various models, including the basic, extended, and plateau versions, with plans for an extended version to enhance market coverage [6][25][33]. - The structure of the C919 aircraft is primarily produced by domestic manufacturers, achieving basic localization. The body structure accounts for approximately 30%-35% of the total value, while the engine and onboard systems account for 20%-25% and 25%-30%, respectively [38][39]. Domestic Commercial Aviation Engines - The domestic commercial aviation engine market is projected to exceed 2.9 trillion yuan over the next 20 years, with an expected demand for over 900 engines annually by 2029. Currently, the market is dominated by foreign manufacturers, with no domestic engines in operation as of 2024 [7][46][49]. - The report highlights that the domestic engine manufacturer, AVIC Engine, is making strides towards self-sufficiency, with products like the CJ1000 and CJ2000 engines showing technological maturity [7][46]. Commercial Aviation Industry Chain - The commercial aviation industry chain consists of three main segments: aircraft body, onboard systems, and engines. Key players include AVIC Xi'an Aircraft Industry Group, AVIC Heavy Machinery, and others, which are positioned to benefit from the growth of the domestic aircraft market [8][9]. - The report emphasizes the importance of achieving self-sufficiency in the aviation engine sector, as it is currently a critical bottleneck for domestic aircraft production [7][46].

Core Insights - The report highlights the promising outlook for the commercial aerospace sector and increased attention on large aircraft and military trade [2][3] - The construction of a space power is accelerating, with a focus on breakthroughs in reusable rocket technology and the development of new industries such as commercial aerospace and low-altitude economy [5][13] - Airbus has set a record for civil aircraft orders, with a total of 8,754 aircraft in backlog by the end of 2025, indicating strong market demand [5][13] - Military trade is expected to improve, with significant defense export growth reported in the UK, reaching over £20 billion in 2025 [5][14] Investment Strategy - The report recommends focusing on companies that align with the "S-curve" evolution, emphasizing supply chain reform and automation trends, with specific recommendations for companies like Aero Engine Corporation and AVIC [5][15] - It also suggests targeting companies involved in military trade, large aircraft, and low-altitude economy, highlighting firms such as Guorui Technology and China Power [5][15] - New emerging industries such as commercial aerospace, AI, and quantum computing are also identified as key areas for investment, with recommendations for companies like Ruichuang Micro-Nano and Ziguang Guowei [5][15] Company Valuation and Financial Analysis - The report provides detailed financial metrics for key companies in the defense and aerospace sector, including expected earnings per share (EPS) and price-to-earnings (PE) ratios for 2025 and 2026 [6] - For instance, Aero Engine Corporation is projected to have an EPS of 0.22 CNY in 2025, with a PE ratio of 184.41x, indicating strong growth potential [6] - Other companies like AVIC Heavy Machinery and Guorui Technology are also highlighted for their expected profitability and market positioning [6][25][27]

Group 1 - The company, AVIC Xi'an Aircraft Industry Group (000768), specializes in the manufacturing of large and medium-sized transport aircraft, bombers, and special-purpose aircraft [1] - The company highlighted that its product types and structures differ from those of other enterprises in the same industry, leading to variations in gross profit margins [1]