NORTHEAST SECURITIES·2025-06-29 13:44Investment Rating - The report rates the defense and military industry as "Outperforming the Market" [2] Core Views - The global geopolitical situation remains tense, with ongoing conflicts such as the Russia-Ukraine war and rising risks in the Middle East, leading to an intensified arms race and increased focus on military construction [4][38] - The defense industry is expected to see a recovery in demand as the "14th Five-Year Plan" approaches its final year, with long-term growth certainty supported by clear development goals for 2035 and 2050 [4] - The upcoming military parade on September 3 will showcase both traditional main battle equipment and new combat forces, highlighting advancements in military capabilities [3][40] Summary by Sections Market Review - The defense and military index rose by 6.90% last week, outperforming major indices such as the Shanghai Composite and Shenzhen Component [12] - The current PE (TTM) for the defense and military sector is 79.92 times, with sub-sectors showing varied valuations: aerospace equipment at 143.52 times, aviation equipment at 69.14 times, ground weapons at 174.36 times, naval equipment at 50.76 times, and military electronics at 102.36 times [20][21] Key Recommendations - Recommended companies include: 1. Downstream manufacturers: Hongdu Aviation, AVIC Shenyang Aircraft, AVIC Xi'an Aircraft, and AVIC Helicopter [4] 2. Military new technologies: Lianchuang Optoelectronics, Guangqi Technology, and Zhongjian Technology [4] 3. Underwater equipment: Hailanxin, Yaxing Anchor Chain, and Zhongke Haixun [4] 4. Missile industry chain: Feilihua, Guoke Military Industry, and Zhongbing Hongjian [4] 5. Military titanium materials: Western Superconducting [4] 6. Electronic components: Hongyuan Electronics and Aerospace Electronics [4] 7. Military trade direction: Zhongwu Drone [4] Industry Dynamics - Recent policies related to deep-sea technology indicate significant development potential, particularly for specialized equipment like UUVs, supported by top-level planning [3] - The military trade market is expanding, with recent announcements of procurement from Pakistan for Chinese fighter jets, indicating a growing opportunity in military exports [39]