Summary of the Conference Call Industry Overview - The military industry is showing a downward trend, but the decline is narrowing, indicating signs of bottoming out. The revenue realization in the components segment is catalyzing the industry, with expectations for improved conditions in Q2 [2][4][10]. - The Longjiang Military Group categorizes over a hundred companies into main tracks (military aircraft engines, missiles) and new directions (new equipment, military trade, military-to-civilian transitions). The upstream components are recovering first, with improvements in cash flow and inventory for main manufacturers [2][5][6]. Key Insights - Q2 is expected to see a focus on emerging segments such as rocket forces, navy, army, and information support troops, with significant development potential following management system optimizations [2][8]. - The military industry is anticipated to accelerate recovery in 2025, driven by mobilization orders and systemic improvements, with missiles becoming a preferred investment choice [2][10]. - Military trade is benefiting from optimized national military trade management and global political changes, becoming a crucial aspect of the defense technology industry's international expansion [2][12][13]. Company-Specific Highlights AVIC Shenyang Aircraft Corporation (沈飞) - Selected as the "gold stock" for May due to low holdings, minimal competition, low valuation, and potential. The lack of disclosed 2025 operational targets enhances its safety margin and presents a contrarian investment opportunity [2][3][15][16]. - The company is currently valued at a static P/E ratio of around 30 times, which is at the lower end of its historical valuation range. Expectations for increased production tasks in 2025 are based on improved cash flow and contract signing [17][20]. - Future growth is supported by new aircraft models entering production phases, with a projected ROE close to 20% and significant asset scarcity [18][21]. Tunan Co., Ltd. (图南股份) - Tunan has shown improvement in Q1 2025 after a significant decline in Q4 2024. The company is expected to achieve approximately 330 million yuan in revenue in 2025, with a compound annual growth rate of 35% to 40% over the next two years [2][29]. - The company specializes in high-temperature alloy materials, with a strong focus on casting and deformation alloys, and is gradually extending its business into downstream products [23][26]. - Tunan's profitability is expected to improve significantly, with projections indicating a doubling of revenue and profit over the next three years [28][29][30]. Additional Important Points - The military industry is experiencing a structural shift with a focus on unmanned systems and advanced technologies, which will likely reshape operational dynamics and market opportunities [21][22]. - The management of military companies is increasingly focused on optimizing production and expanding capacity to meet future demands, particularly in the context of national defense strategies [20][14]. - The competitive landscape in the military sector remains relatively stable due to strong regulatory frameworks, which may provide a clearer path for companies to capitalize on emerging opportunities [11][12].

Investment Rating - The report maintains a "Positive" investment rating for the defense and military industry [3] Core Insights - The industry is experiencing a bottoming out phase due to multiple factors, but signs of improvement were observed in Q1 2025, particularly in upstream components and new directions [11][13] - Profitability has slightly fluctuated due to various influences, with ROE constrained by asset efficiency and net profit margin needing improvement [53][56] - Traditional main tracks show clear signs of recovery, while new directions are in the early stages of industrialization but exhibit initial growth potential [90][91] Summary by Sections Industry Overview - The military industry faced a decline in revenue and profit growth in 2024, but Q1 2025 showed a narrowing of profit decline to -24.6% [19][20] - The main track's revenue growth was affected by contract signing and delivery schedules, with a notable profit drop in Q4 2024, followed by a recovery in Q1 2025 [20][21] Main Track Performance - Upstream components are showing early signs of recovery, with revenue growth rates for upstream, midstream, and downstream segments varying significantly [25][29] - Downstream manufacturers experienced short-term performance pressure due to contract signing delays, but some companies like Hongdu Aviation showed strong growth [29][30] Profitability Analysis - The overall profitability of the military sector slightly decreased in 2024, with a marginal improvement in Q1 2025 [56][58] - The main track's profitability was impacted by price adjustments and demand fluctuations, with a slight recovery noted in Q1 2025 [58][61] New Directions - New directions in the industry, such as military trade and new equipment, are showing upward trends in Q1 2025, indicating potential for growth [101][110] - Specific segments like infrared and ammunition within new equipment are experiencing significant revenue growth, reflecting high market demand [104][110] Future Outlook - The report emphasizes the importance of selecting companies with enhanced product capabilities, increased penetration rates, and higher average transaction values as the industry approaches the end of the 14th Five-Year Plan [117][118] - Key investment opportunities are identified in companies like Aerospace Electric and Feiliwa, which are expected to benefit from the upcoming military spending and technological advancements [117][118]

Core Viewpoint - The article highlights the recent movements of social security funds in the A-share market, indicating a significant increase in holdings across various companies, with a focus on the newly added positions in the top ten circulating shareholders. Group 1: Social Security Fund Holdings - In the first quarter, social security funds entered the top ten circulating shareholders of 215 companies, with Zhongtong Bus having the highest number of new holdings at 3 [1] - Other companies with 2 new holdings each include Lens Technology, Inner Mongolia First Machinery, Anke Electric, Xueda Education, Focus Technology, Haixing Electric, Zhenhua Co., Juewei Food, Zhujiang Beer, Beidahuang, Anda Intelligent, *ST Songfa, Hehe Information, Aoshikang, and Limin Co. [1] Group 2: Company-Specific Insights - Zhongtong Bus saw a new holding value of 137 million yuan, with a net profit of 76.51 million yuan in Q1, representing a year-on-year increase of 80.52%. The company is expected to continue its upward profit trend due to strong overseas orders [2][3] - Lens Technology's new holding value reached 1.088 billion yuan, with Q1 revenue of 17.063 billion yuan, up 10.10% year-on-year, and a net profit of 429 million yuan, up 38.71% year-on-year, driven by growth in smartphone and computer-related businesses [3][4] - Inner Mongolia First Machinery's new holding value was 295 million yuan, with a Q1 net profit of 186 million yuan, reflecting an 11.03% year-on-year increase. The company is positioned to benefit from the global military trade market's upward cycle [4][5] - Anke Electric's new holding value was 251 million yuan, but it reported a net profit of 43.72 million yuan, down 28.92% year-on-year. The company is actively pursuing international collaborations following discussions at the Dubai Power Exhibition [5]

Group 1 - The core viewpoint is that Trump's "reciprocal tariffs" have significantly impacted global financial markets, with the military industry performing well due to its lower sensitivity to tariffs and a more determined future outlook [1] - The military sector's resilience is attributed to two main factors: limited impact from tariffs and a strong potential for future development [1] - Investment opportunities have emerged from the tariff impacts, particularly in the context of domestic military industry advancements and the potential for increased military trade with other countries [1] Group 2 - Policy uncertainty has been alleviated, with the "14th Five-Year Plan" mandating completion of defense and military construction, providing confidence to investors [2] - Recent government reports highlight emerging sectors like low-altitude and deep-sea economies, which are expected to contribute positively to the economy over the long term [2] - The military electronics sector shows clear signs of growth, and the military industry is expected to have a clear direction over the next three years, especially with the completion of the "14th Five-Year Plan" and the 2027 military goals [2]

Summary of Conference Call on Aerospace and Defense Industry Industry Overview - The conference call focused on the aerospace and defense industry, particularly in the context of recent market trends and investment opportunities related to military advertising and budget increases, specifically a 7.2% growth in military spending [1][2]. Key Points and Arguments - The aerospace and defense industry index has seen a growth of 7.71%, outperforming the national defense and military industry index by over 10 percentage points, indicating a significant recovery in this sector [2]. - The price-to-earnings (PE) ratio for the aerospace and defense industry index reached 50.76 times by the end of February, reflecting a 3.75 increase from the end of 2024, which is still considered low historically [2]. - Major state-owned enterprises in the aerospace and defense sector emphasized the importance of adhering to military strengthening guidelines and enhancing digital transformation during their 2025 work conferences [3]. - New orders in the aerospace and defense sector are expected to recover, with companies like Guokai Military Industry and LIG Navigation reporting significant new contracts, indicating a potential rebound in demand for missiles and smart munitions [4]. - The long-term revenue and net profit growth prospects for most companies in the aerospace and defense sector remain strong, supported by stable downstream demand [5]. - The military trade sector is highlighted as a critical area of focus, especially for missile and smart munitions, which have gained importance in recent global conflicts [5][6]. - The ongoing restructuring and mergers among state-owned enterprises are expected to enhance resource allocation and improve competitiveness in the aerospace and defense industry [7]. - The high growth potential in the aerospace and defense sector suggests that companies with strong performance and high productivity are likely to maintain elevated valuation levels [8]. Additional Important Insights - Companies involved in commercial aerospace, intelligent driving, and artificial intelligence are recommended for investment due to their intersecting business opportunities with the aerospace and defense sector [9]. - Attention is drawn to companies offering high cost-performance ratios in their products, such as low-cost rockets and munitions, which are expected to achieve economies of scale post-industrialization [9]. - Companies that can leverage mergers and acquisitions for market expansion and innovation are likely to see special premiums in their market valuations [10]. This summary encapsulates the key insights and projections regarding the aerospace and defense industry, emphasizing the potential for growth and investment opportunities in the coming years.