ZHESHANG SECURITIES·2025-06-23 09:02Core Insights - The report emphasizes a turning point for the defense and military industry in 2025, driven by internal demand recovery and accelerated military trade, with a focus on military trade, restructuring, and new domains and qualities [3][4][31] - The military trade sector is expected to open up significant growth and valuation opportunities, with a global arms race enhancing China's market share [4][41] - The report highlights key recommended companies in the defense sector, including AVIC Xi'an Aircraft Industry Group, Hongdu Aviation Industry Group, and China Shipbuilding Industry Corporation, among others [4][5] Summary by Sections Industry Overview - The defense and military industry is projected to return to a growth trajectory in 2025, with a focus on military trade, restructuring, and new domains and qualities [3] - The military trade sector is anticipated to experience a turning point, with significant potential for growth as global military competition intensifies [4] Financial Performance - In Q1 2025, the military sector (excluding shipbuilding) reported revenues of 760 billion yuan, a year-on-year decrease of 5%, and a net profit of 41.1 billion yuan, down 32% year-on-year [18][4] - The overall net profit margin for the military sector was approximately 5.4%, reflecting a decline of 2.2 percentage points compared to the previous year [18][4] Key Recommendations - The report recommends focusing on leading companies in various segments, including aviation equipment, engine equipment, naval equipment, and land equipment [5] - Specific companies highlighted for investment include AVIC Xi'an Aircraft Industry Group, Hongdu Aviation Industry Group, and China Shipbuilding Industry Corporation, among others [4][5] Market Trends - The military trade sector is expected to benefit from geopolitical tensions, particularly in the context of conflicts such as the Russia-Ukraine war and the Israel-Palestine conflict, which are driving demand for military equipment [54][56] - The report notes that the global arms race is intensifying, with both internal demand and military trade acting as dual drivers for growth in the defense sector [57]