Shenwan Hongyuan Securities·2026-03-02 10:06Investment Rating - The report maintains an "Overweight" rating for the defense and military industry, indicating a positive outlook compared to the overall market performance [3][27]. Core Insights - The defense and military industry is experiencing continuous improvement in fundamentals, with a notable increase in the performance and order forecasts. The "14th Five-Year Plan" is expected to progress steadily, suggesting sustained high allocation to the military industry [3][4]. - Recent geopolitical tensions, particularly the military actions by the US and Israel against Iran, are likely to heighten market interest and valuations in the military sector [3]. - The report highlights the ongoing recovery in the military industry, with expectations for improved order and performance in the first half of 2026, driven by the implementation of the "14th Five-Year Plan" and the delivery of new equipment [3][4]. - The commercial aerospace sector is projected to maintain high growth, with significant advancements in reusable rocket technology, exemplified by the upcoming recovery tests of the Zhuque-3 rocket [3][4]. - The report emphasizes investment opportunities driven by domestic demand growth and technological advancements in emerging fields, including military trade, commercial aerospace, and deep-sea technology [3][4]. Market Review - Last week, the Shenwan Defense and Military Index rose by 4.77%, outperforming major indices such as the Shanghai Composite Index, which increased by 1.98% [4][11]. - The top five performing stocks in the defense and military sector included Feilihua (40.02%), Tunan Co. (19.06%), and Aerospace Power (18.86%) [4][11]. - The average increase for the civil-military integration index was 6.63%, indicating strong performance in this segment [4][10]. Valuation Changes - The current PE-TTM for the Shenwan military sector is 102.36, placing it in the upper range historically, with significant differentiation among sub-sectors [12][20]. - The report notes that the aerospace and aviation equipment sectors are currently at relatively high valuation levels compared to historical data [12][20].