Changjiang Securities·2025-06-17 12:18Investment Rating - The report maintains a "Positive" investment rating for the aerospace and defense industry [10]. Core Insights - The report focuses on the Middle East region, analyzing the high military trade scale due to complex geopolitical issues, and highlights the growth opportunities for Chinese equipment in this market [2][5]. - China's military equipment, particularly advanced fighter jets and drones, is expected to gain market share in the Middle East, driven by recent successful military engagements [6][8]. - The report emphasizes the improvement in China's supply capabilities, which is crucial for expanding its military exports [7][8]. Summary by Sections Military Trade Demand in the Middle East - The Middle East accounts for 26.03% of global military trade orders from 1985 to 2024, driven by ongoing conflicts rooted in religious and ethnic complexities [5][19]. - China's military trade share in the Middle East has decreased significantly over the past two decades, primarily due to limitations in aircraft supply [5][29]. Performance of Chinese Equipment - Pakistan has been a major customer for Chinese military equipment, achieving notable success in recent conflicts, which may enhance the demand for Chinese products in international markets [6][8]. - The performance of Chinese military equipment, such as fighter jets and drones, has been validated in recent conflicts, indicating a potential increase in overseas orders [6][8]. Supply Chain Improvements - The report highlights the growing range of domestically produced military equipment in China, which is expected to facilitate greater exports [7][8]. - Key manufacturers like AVIC and others have developed several potential blockbuster models that can be exported, improving their profitability [7][8]. Investment Recommendations - The report suggests that the military industry is poised for profitability improvements due to increased global demand driven by recent conflicts [8]. - It recommends focusing on core manufacturers that will benefit from military trade, particularly in aircraft, drones, and missile systems [8].