Core Viewpoint - The annual report of Taihao Technology Co., Ltd. indicates a challenging financial year with a net profit loss and no profit distribution planned due to negative retained earnings, while highlighting growth opportunities in military and emergency equipment sectors driven by government policies and market demand [4][14]. Company Overview - Taihao Technology focuses on military equipment and emergency response products, with a strategic emphasis on integrating military and civilian applications [11][12]. - The company has a strong presence in military communication systems, navigation equipment, and power supply systems, with a commitment to innovation and technology advancement [7][9][10]. Industry Situation - The military industry is experiencing short-term pressures but is expected to grow long-term, supported by increasing market demand and government policies, particularly in military trade [5]. - The emergency equipment sector is gaining traction due to rising disaster response needs, with government initiatives aiming to enhance the industry significantly by 2025, targeting a market scale exceeding 1 trillion yuan [6]. Financial Performance - In 2024, the company reported a revenue of 4.36 billion yuan, a 1.71% increase from the previous year, but faced a net profit loss of approximately 940 million yuan, a significant decline compared to the prior year [14]. - The company’s retained earnings were negative, leading to the decision not to distribute profits or increase capital reserves [4]. Product and Market Development - The company’s military equipment includes advanced communication systems and navigation devices, which are critical for military operations and are expected to see increased demand due to modernization efforts [8]. - The emergency power supply products are positioned to benefit from the growing data center market, with an estimated 10 billion yuan demand for high-capacity diesel generators driven by AI applications [10]. Strategic Initiatives - The company is exploring opportunities in the energy storage market, leveraging its existing technology and distribution networks to provide integrated solutions [11]. - Government funding initiatives, including a 1 trillion yuan special bond issuance for disaster recovery, are expected to boost procurement budgets for emergency equipment, positively impacting the company’s revenue [7].

Core Viewpoint - The Chinese government is committed to a coordinated development of national defense and economic construction, with a planned defense budget of 1.81 trillion yuan for 2025, reflecting a 7.2% increase from the previous year [1][2]. Summary by Sections National Defense Budget - The 2025 national defense budget is set at 1.81 trillion yuan, with a 7.2% increase from the previous year's execution [1]. - Central government expenditure is 1.78 trillion yuan, also showing a 7.2% growth compared to the previous year [1]. Allocation of Increased Defense Spending - The increase in defense spending will focus on developing new combat capabilities, enhancing traditional military forces, and improving military training and education systems [3]. - The budget is legally managed and approved by the National People's Congress, ensuring transparency in its allocation and use [2]. Strategic Objectives - The defense budget aims to enhance China's military capabilities in response to complex security challenges and to fulfill international responsibilities [2]. - The military modernization process is aligned with national modernization goals, aiming to achieve the centenary military objectives by 2027 [1][2]. Key Areas of Focus - Development of new operational forces and a new military structure [3]. - Improvement of reconnaissance, joint strike capabilities, and comprehensive support systems [3]. - Emphasis on practical military training and the development of a new military talent cultivation system [3]. - Ongoing reforms in national defense and military personnel policies to enhance training and living conditions for troops [3].

Industry Investment Rating - The industry investment rating is "Outperform the Market" and is maintained [2] Core Viewpoints - As of February 28, 2025, among the 120 tracked defense industry listed companies, 87 have disclosed their 2024 performance forecasts, with 24 companies showing positive growth year-on-year [5][13] - The shipbuilding sector is experiencing high growth, with companies like China Shipbuilding Defense, China Heavy Industry, and China Power reporting significant performance increases, with growth rates of 680%, 259%, 65%, and 23% respectively [6][13] - In the aerospace and aviation industry, companies such as AVIC Xi'an Aircraft Industry Group and material suppliers like Zhongjian Technology and Huayin Technology are also maintaining rapid growth, with AVIC Xi'an expected to achieve a net profit of 990 million to 1.076 billion yuan, representing a year-on-year increase of 15% to 25% [7][14] Summary by Relevant Sections Industry Overview - The defense industry is expected to see an inflection point in orders as the "Centenary of the Army Building" mission enters its second half, with new technologies and products aimed at enhancing equipment performance or reducing costs [8][19] Performance Overview - The defense sector's performance is reflected in the recent decline of the CSI Military Industry Index by 3.57%, while the overall market indices also experienced declines [20][21] Company Performance - Among the listed companies, 24 reported positive growth, while 29 showed positive but declining performance, and 28 reported losses with an increase in year-on-year losses [5][13] - Specific companies like AVIC Xi'an and Zhongjian Technology are highlighted for their strong performance forecasts, indicating a robust outlook for the sector [7][14] Investment Recommendations - Two main investment themes are suggested: 1) Aerospace and "gap-filling" new focuses, including companies like Feili Hua, Fenghuo Electronics, and others [8][19] 2) New technologies, products, and markets with greater elasticity, including companies like Aerospace Intelligence, Guorui Technology, and others [8][19] Valuation Levels - As of February 28, 2025, the CSI Military Industry Index stands at 10,288.33, with a PE-TTM valuation of 72.96 and a PB valuation of 3.31, indicating that both valuations are at historical mid-levels [26]