Shenwan Hongyuan Securities·2025-12-30 11:23Investment Rating - The report maintains a positive outlook on the defense and military industry, suggesting an "Overweight" rating due to anticipated growth and investment opportunities in the sector [4][25]. Core Insights - The defense and military sector is entering a recovery phase, with expectations of improved order delivery and performance in the fourth quarter of 2025. The "14th Five-Year Plan" is expected to drive significant growth in military orders from sporadic to more consistent patterns [4][20]. - Geopolitical uncertainties are increasing demand for consumable weapons and military trade, presenting substantial investment opportunities. Key areas of focus include new main battle equipment, consumable weapons, military trade, and military intelligence [4][20]. - The report highlights the recent surge in the defense and military index, which rose by 6%, outperforming major indices such as the Shanghai Composite and the ChiNext [5][11]. Market Review - The defense and military index increased by 6%, while the military leader index rose by 5.12%. In comparison, the Shanghai Composite Index increased by 1.88%, and the CSI 300 Index rose by 1.95% [5][11]. - The report notes that the average increase for the civil-military integration index was 8.45%, indicating strong performance in this segment [5][11]. - Top-performing stocks in the defense sector included Shenjian Co. (61.2%), Aerospace Engineering (43.39%), and China Satellite (36.24%) [5][11]. Valuation Changes - The current PE-TTM for the defense sector is 88.65, placing it in the upper range historically, with a valuation percentile of 72.84% since January 2014 and 98.82% since January 2019 [12][19]. - The report indicates a slight differentiation in valuations among sub-sectors, with aerospace and aviation equipment showing relatively high PE valuations since 2020 [12][19]. Key Investment Targets - Recommended stocks include high-end combat capabilities such as AVIC Shenyang Aircraft (600316.SH) and AVIC Xi'an Aircraft (600767.SH), as well as new quality combat capabilities like Unigroup Guowei (002049.SZ) and Chengdu Huami (688709.SH) [4][19].