军工行业本周观点：春暖花开

Investment Rating - The report maintains a "Strong Buy" rating for the defense and military industry, indicating a positive outlook for investment opportunities in this sector [3]. Core Insights - The defense and military sector is expected to benefit from the demand transmission, with the industry fundamentals nearing a turning point. The report suggests that the next phase of investment logic will return to fundamental drivers, supported by new orders and equipment unveilings [3][4]. - The military index has shown a relative underperformance compared to the broader market, but recent events such as the unveiling of new equipment and the establishment of a low-altitude economic development department have catalyzed interest in the sector [3][9]. - The report highlights a significant contract signed by a subsidiary of Guangwei Composite, worth 3.664 billion yuan, which is expected to drive growth in the aviation and engine equipment supply chain [1][3]. Summary by Sections Market Review - The military index increased by 0.33% during the week of December 23-27, while the CSI 300 index rose by 1.36%, resulting in a relative underperformance of -1.03 percentage points. However, the military index has outperformed the broader market since May 2024, with a gain of 20.03% compared to 10.45% for the CSI 300 [9][20]. - The report notes a divergence in performance among sub-sectors, with the aviation and engine segments outperforming due to the unveiling of new equipment like the "Sichuan Ship" [9][26]. Investment Highlights - The report emphasizes the importance of traditional main battle equipment and engine sectors, as well as high-elasticity directions that can transcend the "14th Five-Year Plan" cycle. Specific companies to watch include AVIC Shenyang Aircraft, Aero Engine Corporation of China, and others [3][8]. - The report indicates that passive funds have shown consistent net inflows into military ETFs, reflecting strong confidence in the sector. The total net inflow for military ETFs reached 154 million yuan, marking a significant increase [32][36]. Valuation Insights - As of December 27, the military sector's price-to-earnings ratio (TTM) stands at 61.27, placing it in the 79.92 percentile historically. This valuation is slightly lower than the previous week, indicating a potential buying opportunity as the sector approaches a recovery phase [2][38]. - The report suggests that most companies within the military sector are expected to have valuations below 30 times earnings by 2025, supporting the view that the sector remains attractive for long-term investment [39][41].