Investment Rating - The report suggests increasing attention to the military industry, focusing on elastic and thematic varieties, with a positive outlook for the sector as it enters a growth cycle driven by the 14th Five-Year Plan [4][5][6]. Core Viewpoints - The military industry is experiencing important marginal changes, with overall revenue and performance yet to recover. The industry saw a year-on-year revenue decline of 1.68% and a net profit decline of 10.95% for Q1-Q3 2025 [4][5][21]. - Profitability across various equipment sectors and industry chain segments has slightly decreased, but there is potential for improvement as scale effects become evident [4][5][23]. - Operational indicators show stable growth, indicating sustained industry prosperity, with significant increases in inventory and contract liabilities [4][5][26]. Summary by Sections 1. Revenue and Profit - The military industry reported a revenue of 483.6 billion yuan for Q1-Q3 2025, reflecting a year-on-year decrease of 1.68%. The decline is attributed to the need for recovery in industry demand [18][21]. - The aviation sector contributed the most to the industry's revenue and net profit, accounting for 46% and 58% respectively in Q1-Q3 2025 [38][42]. 2. Profitability Indicators - The overall gross margin and net margin for the military industry were 18.04% and 5.07% respectively, both showing a decline compared to previous years due to product price fluctuations and rising fixed costs [23][25]. - The military electronics sector maintained the highest profitability levels, while other sectors experienced slight fluctuations in margins [4][5][23]. 3. Operational Indicators - Key operational metrics such as inventory, accounts payable, and contract liabilities have shown significant year-on-year increases, indicating robust demand and production readiness [4][5][26]. - As of Q3 2025, the military industry had an inventory of 366.9 billion yuan, with a year-on-year increase of 13.19%, and contract liabilities of 220.4 billion yuan, reflecting a 30.96% increase [26][27]. 4. Key Companies to Watch - High-end combat capabilities: Companies such as AVIC Shenyang Aircraft Corporation, AVIC Chengdu Aircraft Industry Group, and others are highlighted as key players [6]. - New quality combat capabilities: Companies like Unisoc, Raycus Laser, and others are noted for their potential in the evolving military landscape [6].

Investment Rating - The report suggests an "Overweight" rating for the defense and military industry, indicating a positive outlook for the sector based on the upcoming growth cycle and government policies [5][26]. Core Insights - The defense and military industry is entering an upward cycle as per the "14th Five-Year Plan" recommendations, with expectations of performance recovery in Q4 2025 [5]. - The report highlights that the overall performance of the military industry is gradually improving, with a narrowing decline in net profit year-on-year for the first three quarters of 2025, and anticipates a return to positive growth in Q4 [5]. - The global military trade demand is expected to increase due to geopolitical uncertainties, creating a strong resonance between supply and demand in China's military trade [5]. - Key investment opportunities are identified in high-end combat capabilities and new types of combat power, with specific companies recommended for investment [5]. Market Review - Last week, the Shenwan Defense and Military Index decreased by 0.07%, while the overall market indices showed mixed results, with the Shanghai Composite Index rising by 0.11% [6]. - The military industry sector ranked 22nd among 31 Shenwan primary industries in terms of performance [6]. - The report notes that the average increase in the civil-military integration index was 1.93%, indicating a positive trend in this segment [6]. Valuation Changes - The current PE-TTM for the Shenwan military sector is 85.71, placing it in the upper range historically, with significant differentiation among sub-sectors [14][19]. - The aerospace and aviation equipment sectors are noted to be at relatively high valuation levels since 2020 [14][18]. Key Valuation Targets - The report provides a detailed valuation table for key companies in the defense and military sector, highlighting projected net profits and PE ratios for the upcoming years [20][22].

Investment Rating - The report maintains an "Overweight" rating for the defense and military industry, indicating a positive outlook for the sector compared to the overall market performance [3][5][26]. Core Insights - The defense industry is entering an upward cycle as indicated by the "14th Five-Year Plan" and recent quarterly reports showing a narrowing decline in performance, with expectations for positive growth in Q4 [5][6]. - The report highlights a significant recovery in quarterly earnings, with a projected return to year-on-year growth in Q4, driven by the realization of orders related to the "14th Five-Year Plan" and increased military trade [5][6]. - Global geopolitical uncertainties are expected to boost military trade demand, creating a strong resonance between supply and demand in China's military trade market [5][6]. - The report suggests increasing focus on flexible and thematic investment opportunities within the military sector, particularly in next-generation equipment and unmanned systems [5][6]. Market Review - Last week, the Shenwan Defense and Military Index decreased by 0.07%, while the overall market showed mixed performance with the Shanghai Composite Index rising by 0.11% [3][6]. - The report notes that the defense sector's performance ranked 22nd among 31 primary industries, with a notable average increase of 1.93% in the civilian-military integration index [3][6]. - Top-performing stocks in the defense sector included Donghua Testing (16.03%), Jianglong Shipbuilding (13.57%), and Gaode Infrared (11.76%) [3][6][13]. Valuation Changes - The current PE-TTM for the Shenwan Defense sector is 85.71, indicating it is at a historically high valuation level, with significant differentiation among sub-sectors [14][19]. - The report provides a detailed valuation table for key defense industry stocks, highlighting projected net profits and PE ratios for the coming years [20][22].

Investment Rating - The report maintains a positive investment rating for the military industry, suggesting a focus on key companies and sectors within the industry [8]. Core Insights - In Q3 2025, active funds reduced their allocation to the military sector, with a decrease of 0.57 percentage points, marking a continued trend of low allocation since Q1 2025 [3][4]. - The scale of military-themed funds has shown a recovery, increasing by 10.62% to 44 billion yuan in Q3 2025, indicating a potential shift in investor sentiment [21][22]. - Active funds have primarily increased their holdings in the aerospace sector while reducing exposure to other segments, reflecting a concentrated investment strategy [5][26]. Summary by Sections Fund Allocation Analysis - In Q3 2025, active funds had a military allocation of 872 billion yuan, which is 2.23% of their total holdings, a slight decrease from the previous quarter [12][13]. - The military sector ranked 26th out of 30 in terms of allocation changes among various industries, indicating a significant reduction in military exposure [17][19]. Holdings Concentration - The concentration of active fund holdings increased to 72.62% for the top 15 stocks, recovering above 70% after three consecutive quarters of decline [24]. - The top five stocks held by active funds include AVIC Shenyang Aircraft Company, Ruichuang Micro-Nano, and Aero Engine Corporation of China, with significant changes in the number of funds holding these stocks [31][33]. Sector Performance - The total assembly segment's market value share surpassed upstream segments for the first time, reaching 37%, while the upstream segment accounted for 36% [5][27]. - The aerospace sector accounted for 37% of the total market value held by active funds, with a notable increase in holdings compared to other segments [27][28]. Recommendations for Focus - The report suggests focusing on new-generation traditional equipment and new combat forces, highlighting key companies such as AVIC Shenyang, Feilihua, and various AI computing and military trade-related firms [6].

Investment Rating - The report maintains an "Accumulate-A" rating for the company [6] Core Views - The company has shown a profit margin improvement driven by automation and military trade growth, despite a slight decline in revenue and net profit in Q3 2025 [4][5] - The company is actively expanding its presence in the high-end military trade market, leveraging geopolitical tensions to enhance demand for its products [5] Financial Performance Summary - For the first three quarters of 2025, the company reported revenue of 7.894 billion yuan, a year-on-year increase of 11.07%, and a net profit attributable to shareholders of 386 million yuan, up 6.18% year-on-year [2] - In Q3 2025, the company achieved revenue of 2.167 billion yuan, a decrease of 6.59% year-on-year, with a net profit of 96 million yuan, down 3.85% year-on-year [4] - The company improved its gross margin by 0.57 percentage points to 14.77% and net margin by 0.17 percentage points to 4.47% in Q3 2025 [4] Market Position and Strategy - The company is focusing on the development of unmanned intelligent combat capabilities and actively exploring military trade markets, transitioning from mid-to-low-end products to high-end offerings [5] - The company has successfully upgraded its military trade products, achieving significant results in new market expansions, which is expected to enhance its foreign trade performance [5] Earnings Forecast - The expected EPS for 2025, 2026, and 2027 are 0.41, 0.49, and 0.56 yuan respectively, with corresponding PE ratios of 46.6, 39.8, and 34.6 based on the closing price of 19.34 yuan on October 29 [6]

Investment Rating - The report maintains a "Buy-A" investment rating for the company with a 12-month target price of 26.80 yuan [4][7]. Core Views - The company has shown significant improvement in revenue for Q3 2025, indicating a turning point in performance, with a year-on-year revenue increase of 162.5% and a quarter-on-quarter increase of 43.6% [1][2]. - The report highlights a substantial growth in contract liabilities, which increased by 145.5% to 0.85 billion yuan, indicating proactive inventory management in anticipation of demand recovery [3]. - The company is expected to benefit from both domestic and international demand, particularly in the military trade sector, which is projected to enter a substantial upcycle over the next two years [2]. Financial Summary - For the first three quarters of 2025, the company achieved a revenue of 1.523 billion yuan, a year-on-year increase of 18.02%, while the net profit attributable to shareholders was 6.06 million yuan [1]. - The projected net profits for 2025, 2026, and 2027 are estimated at 268 million yuan, 379 million yuan, and 457 million yuan, respectively, with growth rates of 204%, 41.5%, and 20.6% [4][10]. - The company’s gross margin for Q3 2025 was reported at 16.1%, down 3.8 percentage points year-on-year, while the gross margin for the first three quarters of 2025 was 19.9%, down 3.9 percentage points year-on-year [1].

Group 1 - The company is transforming into a leading radar enterprise through asset restructuring, with performance expected to continue improving [1] - The company is backed by CETC 14th Institute, with two asset restructurings expanding into microwave and information technology as well as radar systems [1] - The main business includes radar equipment, industrial software, and smart manufacturing, with radar equipment being the core business covering both military and civilian sectors [1] Group 2 - Continuous deepening of national defense information construction is driving steady business growth, with military radar equipment expected to benefit from ongoing upgrades [2] - The company has completed full industry chain coverage from chips to systems to complete machines, aligning well with the defense equipment construction needs [2] - The global military trade environment is favorable, with increasing military expenditures and a shift towards system sales, enhancing growth potential [2] Group 3 - Civilian radar is expected to further enhance the company's revenue, with significant opportunities in weather radar and air traffic control radar [3] - The company has received major contracts for weather radar and is positioned as a key player in low-altitude perception network construction [3] - The company is rated as a "buy" due to its core supplier status in radar systems, benefiting from both domestic demand and military trade [3]

Investment Rating - The report initiates coverage with a "Buy" rating for the company, highlighting its potential for significant growth driven by both domestic demand and military trade [6][7]. Core Insights - The company is positioned as a leading radar manufacturer in China, benefiting from two major asset restructurings that expanded its capabilities in microwave and radar technologies [16][19]. - The ongoing increase in national defense spending and the modernization of military equipment are expected to drive demand for the company's radar products, particularly in the military sector [37][41]. - The company has a diversified product portfolio that includes military and civilian radar systems, industrial software, and smart transportation solutions, which collectively support its revenue growth [25][27]. Financial Data and Profit Forecast - Total revenue is projected to grow from 3,400 million yuan in 2024 to 5,441 million yuan in 2027, with a compound annual growth rate (CAGR) of 21.5% [2]. - Net profit attributable to shareholders is expected to increase from 630 million yuan in 2024 to 1,153 million yuan in 2027, reflecting a CAGR of 26.3% [2]. - The company's earnings per share (EPS) is forecasted to rise from 0.51 yuan in 2024 to 0.93 yuan in 2027 [2]. Business Segments - Radar Equipment and Related Systems: This segment is the core of the company's operations, contributing significantly to revenue and profit margins. The company has seen a steady increase in the delivery of radar systems, which has positively impacted its financial performance [27][29]. - Industrial Software and Smart Manufacturing: The company is expanding its footprint in the industrial software sector, with expected revenue growth from 4.20 million yuan in 2025 to 5.74 million yuan in 2027 [9]. - Smart Transportation: The company’s smart transportation solutions are being implemented in various urban rail projects, although revenue growth in this segment is projected to decline due to market conditions [8]. Market Opportunities - The military trade sector is experiencing a historical opportunity for growth, driven by global increases in military spending and the company's enhanced product offerings [6][10]. - The demand for civilian radar systems, particularly in meteorology and air traffic control, is expected to further bolster the company's revenue streams [4][21]. Competitive Positioning - The company is backed by the China Electronics Technology Group Corporation's 14th Research Institute, providing it with a strong technological foundation and competitive edge in radar technology [19][25]. - The report compares the company's price-to-earnings (PE) ratios favorably against peers, indicating potential undervaluation and room for growth [7][10].

Core Viewpoint - Military stocks are experiencing a significant rise, with the military ETF (512660) increasing by over 1.5%. The ETF has seen a net inflow of over 360 million yuan in the last 10 trading days, bringing its total size to over 15 billion yuan, making it the largest in its category [1]. Group 1: Market Performance - The military ETF (512660) has attracted substantial investment, with a net inflow of over 360 million yuan in the past 10 trading days [1]. - The current scale of the military ETF exceeds 15 billion yuan, positioning it as the leader among similar funds [1]. Group 2: Industry Outlook - The growth in military expenditure is expected to continue, with positive procurement expectations for the "14th Five-Year Plan" and potential order increases anticipated to start in late Q4 [1]. - The focus on the 100th anniversary of the military in 2027 is expected to accelerate the delivery of new main battle equipment and elevate the demand for new combat capabilities, indicating sustained high industry prosperity [1]. Group 3: Structural Changes - There is an expectation for reforms that could enhance the asset securitization rate and industry chain collaboration within military groups, leading to improved asset injection expectations and significantly enhanced management capabilities [1]. Group 4: Global Market Position - The military trade sector is anticipated to enter a "Deepseek" moment, with a rapid increase in global market share, which will drive both the quantity and price of equipment demand [1]. - The expansion of civilian capabilities into strategic emerging fields such as low-altitude economy, commercial aerospace, and deep-sea technology is also expected [1]. Group 5: ETF Characteristics - The military ETF (512660) tracks the CSI Military Index, which comprehensively covers opportunities across various sectors including land, sea, air, and space [1]. - The index has demonstrated strong defensive qualities, showing the smallest decline during weak market conditions in 2018, 2022, and 2023, with particularly notable performance in 2023 [1]. - In 2024, the CSI Military Index is projected to rank first in terms of returns among similar indices, and it has shown significant gains during bull markets in 2019 and 2020, closely following military leaders and the CSI National Defense Index [1].

Investment Rating - The investment rating for AVIC Xi'an Aircraft Industry Group Co., Ltd. is "Buy" and is maintained [11]. Core Viewpoints - AVIC Xi'an is significantly undervalued in the large aircraft military trade market, with its core model Y-20 having notable scarcity on the supply side, as comparable models like the US C-17 have been discontinued and the Russian IL-76 is in low production [3][7]. - The medium transport aircraft market has greater potential compared to large transport aircraft, with the Y-9 model having a significant market opportunity in military trade [3][9]. - The company has focused on its main aircraft manufacturing business after multiple restructurings, and its management team has become notably younger, which may bring new dynamics to the company [6][20]. Summary by Sections Company Overview - AVIC Xi'an has undergone several asset restructurings and has become the only listed platform for large and medium transport aircraft in China [20]. - The company has a diverse product line including military transport aircraft, bombers, and civil aircraft, as well as international subcontracting business [22]. Financial Performance - The company's revenue has shown steady growth, with a compound annual growth rate (CAGR) of 6.59% from 2020 to 2024, increasing from 33.484 billion to 43.216 billion [24]. - In the first half of 2025, the company achieved a revenue of 19.416 billion, a year-on-year decrease of 4.49%, while net profit attributable to shareholders increased by 4.83% to 689 million [24][28]. Market Position and Opportunities - The Y-20 model is positioned as a leading strategic transport aircraft, with a maximum takeoff weight of 200 tons, filling a gap in the market as many comparable models have ceased production [46][49]. - The company is expected to benefit from the growth of the domestic large aircraft market, particularly with the C919 model, which is projected to have a production capacity increase by 33% by 2029 [8][9]. Management and Investor Relations - The new management team, predominantly composed of younger individuals, is expected to enhance investor relations and market value management [20][36]. - The company is actively working on value creation, realization, and management to improve operational efficiency and shareholder returns [36].