Shenwan Hongyuan Securities·2025-06-08 15:29Investment Rating - The report rates the defense and military industry as "Overweight" indicating a positive outlook for the sector compared to the overall market performance [5][29]. Core Insights - The military trade system's equipment progress has been officially validated by Pakistan, significantly enhancing the industry's valuation potential and the performance of related listed companies. The report suggests June as the best time to focus on this sector [5]. - The Chinese military trade advancements confirmed by Pakistan mark a milestone event, indicating a shift towards higher-end, higher-value products, thus opening up new market opportunities [5]. - The fundamental changes in the military industry are solidifying the upward trajectory of the sector, with rapid growth expected across all fields, particularly benefiting companies related to consumable weapons [5]. - The normalization of the two major satellite communication constellations is accelerating, with a preliminary completion of global networking expected by 2025, which will drive downstream applications and expand the scale of constellation construction [5]. - The report recommends increasing attention to the military sector, focusing on elastic/theme varieties, including precision-guided weapons, underwater capabilities, and advancements in AI/robotics [5]. Market Review - Last week, the Shenwan Defense and Military Industry Index rose by 0.41%, while the CSI Military Industry Leader Index increased by 0.37%. In comparison, the Shanghai Composite Index rose by 1.13%, and the ChiNext Index increased by 2.32%, indicating that the defense sector underperformed relative to the broader market [6][11]. - The report highlights the top five performing stocks in the defense sector, with North Chemical Co. leading at a 13.22% increase, followed by *ST Xinyan at 12.5% and Chengfei Integration at 11.58% [14]. Valuation Changes - The current PE-TTM for the Shenwan Military Industry Index is 63.85, placing it in the historical mid-range since January 2014, with a valuation percentile of 43.02% since January 2019 [15]. - The report provides a detailed valuation table for key companies in the defense sector, indicating projected net profits and PE ratios for the upcoming years [21].