Core Viewpoint - The defense and military industry sector is experiencing a positive trend, with the "Bayi" defense military ETF (512810) showing an increase of over 1%, indicating a potential for a three-day consecutive rise in daily trading [1] Group 1: Market Performance - The controlled nuclear fusion concept stocks are actively trading, with Western Superconducting reaching a 20% limit up, Lianchuang Optoelectronics rising over 6%, and Yingliu Co. increasing by over 5% [3] - Major stocks such as China Shipbuilding, Guangqi Technology, and Aero Engine Corporation are also showing positive performance [3] - The market is anticipating a rapid improvement in the industry fundamentals in the fourth quarter, as several defense and military listed companies are expected to announce 2025 restricted stock incentive plans or disclose new major contracts [4] Group 2: Industry Developments - The construction of China's nuclear fusion device BEST has commenced, which will be the first to demonstrate nuclear fusion power generation internationally, with expectations for operational capability by 2030 [3] - A recent report from AVIC Securities highlights the clear rotation characteristics within the military industry sector, including themes such as nuclear fusion, low-altitude economy, commercial aerospace, deep-sea technology, large aircraft, and military trade [5] - The defense military ETF (512810) is positioned as an efficient tool for investing in core assets of the defense military sector, covering various popular themes including controlled nuclear fusion, commercial aerospace, low-altitude economy, large aircraft, deep-sea technology, and military AI [5]

Investment Rating - The report maintains a rating of "Add" for the company [4]. Core Insights - The signing of a significant contract with AVIC Technology, amounting to 615 million RMB (excluding tax), reflects the high prosperity of military trade, with expectations for substantial growth in domestic trade in the second half of the year [1][8]. - The company’s inventory reached a historical high of 3.628 billion RMB in the first half of 2025, a significant increase of 38.48% compared to the end of the previous year, indicating preparations for timely product delivery [8]. - The company plans to repurchase shares for employee stock ownership plans, demonstrating confidence in future development [8]. - Profit forecasts for 2025, 2026, and 2027 indicate net profits of 290 million, 378 million, and 441 million RMB respectively, with corresponding PE ratios of 116, 89, and 76 [8]. Financial Data and Valuation - Total revenue for 2023 is projected at 2.664 billion RMB, with a year-on-year decrease of 4%. A significant recovery is expected in 2025 with a projected revenue of 3.375 billion RMB, reflecting a 393% increase [3][16]. - The company’s net profit for 2023 is estimated at 303 million RMB, with a forecasted loss of 54 million RMB in 2024, followed by a recovery to 290 million RMB in 2025 [3][16]. - The current market capitalization is approximately 3.36 billion RMB, with a current share price of 49.74 RMB [4]. Shareholder Information - The major shareholder is China Aviation Industry Group Co., Ltd., holding a 16.6% stake in the company [4].

Market Overview - A-shares ended September with all major indices rising, with the ChiNext Index up approximately 12%, marking a three-year high, and the Sci-Tech 50 Index up over 11%, reaching a nearly four-year high [1] - The Shanghai Composite Index rose 12.73% in Q3, while the Shenzhen Component Index increased by 29.25%, and the ChiNext Index surged by 50.40% [1] - On September 30, the Shanghai Composite Index closed at 3882.78 points, up 0.52%, and the Shenzhen Component Index closed at 13526.51 points, up 0.35% [1] Sector Performance Non-Ferrous Metals - The non-ferrous metals sector saw significant gains, with companies like Jiangxi Copper and Jingyi Co. hitting their daily limit up [2][3] - The cobalt market experienced a sharp increase, with the average price of 1 cobalt reaching 337,000 CNY/ton, a rise of 29,000 CNY, marking the largest single-day increase this year [3] - Factors contributing to this surge include tightening global supply and strong domestic demand in the new energy sector [3][6] Semiconductor Sector - The storage chip sector was notably active, with Jiangbolong and Huahong Semiconductor reaching new highs, with Jiangbolong hitting a 20% limit up [7] - NAND flash prices are expected to rise by 5%-10% in the coming quarters due to high demand in the enterprise SSD market [9] Military Trade - The military trade sector saw a rise, with companies like Guorui Technology and AVIC Shenfei hitting their daily limit up [10] - Increased global security concerns due to the worsening situation in the Middle East are expected to boost defense spending, enhancing demand for Chinese military equipment [10]

Group 1 - The military industry sector is experiencing a resurgence ahead of the National Day, with expectations that China may quickly capture a significant share of the global military trade market [1] - The aerospace equipment segment is particularly active, with China's mid-to-high-end equipment becoming a popular choice in the global military trade market, focusing on products such as aircraft, ships, armored vehicles, and missiles [1] - Short-term prospects indicate that equipment with prior export experience or already in service domestically will likely see orders materialize first, while long-term expectations include increased defense technology exchanges between China and friendly nations [1] Group 2 - The Defense ETF closely tracks the CSI Defense Index, which includes listed companies under the ten major military groups and those providing weaponry and equipment to the armed forces, reflecting the overall performance of defense industry listed companies [2] - Among the 13 ETFs tracking defense and military sectors, the Defense ETF has the lowest management and custody fees at 0.40%, making it unique in its category [2] - As of August 29, 2025, the top ten weighted stocks in the CSI Defense Index account for 43.88% of the index, with key companies including AVIC Shenyang Aircraft (600760) and AVIC Xi'an Aircraft (000768) [2]

Group 1 - The China Defense Index (399973) has seen a strong increase of 2.86%, with notable gains from constituent stocks such as Huayin Technology (688281) up 11.71%, AVIC Shenyang Aircraft Corporation (600760) up 8.56%, and Western Superconducting Technologies (688122) up 7.34% [1] - The defense ETF (512670) rose by 2.70%, with the latest price reported at 0.84 yuan [1] - A defense agreement was signed between Saudi Arabia and Pakistan on September 17, stating that any attack on either country would be considered an attack on both [1] Group 2 - CITIC Securities indicates that China's military trade is transitioning from low-cost exports to high-end weapon exports, with domestic military products gaining competitive strength internationally [1] - The China Defense Index includes listed companies under the top ten military industrial groups and those providing weaponry to the armed forces, reflecting the overall performance of defense industry stocks [2] - As of August 29, 2025, the top ten weighted stocks in the China Defense Index accounted for 43.88% of the index, with major companies including AVIC Shenyang Aircraft Corporation (600760) and AVIC Aviation Power (600893) [2]

Core Insights - The defense and military industry index experienced a decline of -0.42% over the past week, ranking 13th out of 31 in the Shenwan primary industry classification [5][9] - Over the past month, the index fell by -9.03%, ranking last at 31st out of 31 [5][10] - In the past year, the index has increased by 40.43%, ranking 10th out of 31 [5][15] - The current PE-TTM for the defense and military industry is 84.84, which is at the 77.44th percentile compared to the past decade [5][15][16] Industry and Stock Performance Review Industry Performance - The defense and military industry index's performance over the past week, month, and year shows significant fluctuations, with a notable annual increase [5][9][15] - The industry is currently facing a high valuation level, with the PE-TTM at a historical relative high [5][15] Stock Performance - Top-performing stocks in the defense and military sector over the past week include: - Xingwang Yuda (11.84%) - Aerospace Electronics (7.76%) - Sichuan Chuangxin (4.77%) [5][20] - Conversely, the worst-performing stocks include: - Jinxin Nuo (-5.70%) - Torch Electronics (-5.75%) - Hongyuan Electronics (-5.88%) [5][20] Funding Data Tracking - The total transaction volume for the defense and military industry reached 257 billion yuan this week, representing an 88.28% increase year-on-year but a decrease of 8.22% week-on-week [5][34] - The military ETF fund shares increased by 2.12% compared to last week and 82.40% compared to last year [5][37] Industry News - The successful training of three types of carrier-based aircraft on the Fujian ship marks a significant milestone for China's naval capabilities [5][46] - The U.S. has indicated that aircraft engines and components may become important bargaining chips in negotiations with China, highlighting the strategic importance of the aviation industry [5][45] Investment Recommendations - Suggested investment focuses include: - Aviation engines: Companies like Wanzhe Co., Parker New Materials, and others [5][46] - Military trade: Companies such as Hongdu Aviation and others [5][46] - Commercial aerospace: Companies like Aerospace Power and others [5][46] - Aircraft carrier supply chain: Companies such as Guorui Technology and others [5][46] - Military AI: Companies like Guanshang Technology and others [5][46]

Core Viewpoint - China Shipbuilding Defense (中船防务) has seen a stock price increase of over 5%, currently trading at 15.58 HKD, with a trading volume of 85.91 million HKD. The company is rated "Buy" by Shenwan Hongyuan, benefiting from the global shipbuilding cycle and its own capacity release [1]. Company Summary - The projected net profit for China Shipbuilding Defense for the years 2025, 2026, and 2027 is expected to be 1.1 billion, 1.7 billion, and 2.8 billion CNY respectively, with corresponding price-to-earnings (PE) ratios of 18, 11, and 7 [1]. - The current market capitalization to order backlog ratio is 0.42, significantly lower than the 10-year average of 0.53, indicating that the company is at a historical low valuation [1]. - The company is expected to benefit from accelerated delivery of high-value orders, strong demand for replacing old ships, and anticipated resolution of competition within the industry, providing ample room for performance elasticity and valuation recovery [1]. Industry Summary - Galaxy Securities highlights the potential in military trade and new quality fields, with positive expectations for equipment procurement during the "14th Five-Year Plan" period, suggesting that order traction may begin in Q4 2025 [1]. - The focus on the 100th anniversary of the military in 2027 is expected to drive demand for new main battle equipment and new quality combat capabilities, sustaining high industry prosperity [1].

Core Viewpoint - The defense and military industry sector is experiencing significant activity, with a notable rise in the defense military ETF (512810) and strong performance from key stocks, indicating a potential upward trend in the sector [1][3]. Group 1: Market Activity - On September 26, the defense military sector saw a rapid increase, with the ETF (512810) rising over 1% and trading volume exceeding 57 million yuan [1]. - Key stocks such as Xiangdian Co. reached a daily limit increase, while other companies in the AVIC system, like AVIC Aviation Power, rose over 5% [1]. Group 2: Company Developments - On September 18, AVIC Shenyang Aircraft Corporation completed a 4 billion yuan private placement to expand its military aircraft manufacturing facility, which will significantly enhance the production efficiency of fifth-generation fighter jets [3]. - The J-20 fighter jet was showcased for the first time at the Changchun Aviation Expo on September 16, highlighting China's advancements in aviation technology [3]. Group 3: Industry Outlook - According to AVIC Securities' military group, the defense and military industry is expected to undergo structural rotation, with a positive outlook for the fundamentals as the "14th Five-Year Plan" concludes and the "15th Five-Year Plan" begins [3]. - The sector is characterized by clear and orderly rotation among major themes such as low-altitude economy, commercial aerospace, deep-sea technology, large aircraft, and military trade, indicating resilience and vitality [3]. - The ETF (512810) passively tracks the CSI Military Index, with its top ten weighted stocks including China Shipbuilding, Guangqi Technology, AVIC Shenyang, and others [3].

Core Viewpoint - The aerospace and defense sector is experiencing positive momentum, driven by recent developments in China's space missions and anticipated growth in military procurement and new strategic areas. Group 1: Market Performance - As of September 26, 2025, the CN5082 aerospace industry index increased by 0.41%, with notable gains in constituent stocks such as Aerospace Technology (688239) up 5.17%, AVIC Chengfei (302132) up 3.04%, and Aero Engine Corporation (600893) up 2.69% [1] - The Aerospace ETF (159227) rose by 0.18%, with the latest price reported at 1.13 yuan [1] Group 2: Industry Insights - China Galaxy Securities highlights the optimistic outlook for the "14th Five-Year Plan," focusing on military trade and new strategic areas, with expected procurement orders likely to start in Q4 2025 [2] - The military industry is expected to see a surge in demand for new main battle equipment and enhanced combat capabilities as the 100th anniversary of the military in 2027 approaches [2] - The military trade sector is entering a "Deepseek" phase, with a rapid increase in global market share, driving both quantity and price growth in equipment demand [2] Group 3: ETF and Index Composition - The Aerospace ETF (159227) tracks the CN5082 index, which has a high military content of 97.96%, focusing on aerospace and defense sub-sectors [2] - The constituent stocks cover a comprehensive range of the industry, including fighter jets, transport aircraft, helicopters, aero engines, missiles, satellites, and radar, aligning with the "integrated aerospace" strategic direction [2]

Summary of Key Points from Conference Call Records Industry Overview - Global military expenditure continues to expand, with Asia's share significantly increasing to 24% in 2023, driven mainly by military spending growth in China, Japan, South Korea, and the Middle East [1][2] - The global military trade market is valued at approximately 1 trillion RMB, with the US holding about 50% market share (around 500 billion RMB) and China only 5% (around 50 billion RMB), indicating substantial growth potential for China in high-value equipment sectors [1][3] Company Insights: Guorui Technology - Guorui Technology benefits from military trade and the India-Pakistan conflict, showing strong stock performance, particularly in 2025, with radar business revenue exceeding 50% and gross profit margin reaching 84% [1][5] - The company underwent significant asset restructuring between 2019 and 2020, enhancing its competitiveness and establishing itself as the sole platform for military trade under the China Electronics Technology Group [1][6] - In 2025, Guorui Technology anticipates a substantial increase in related sales, projected at 2.2 billion RMB, a tenfold increase from 2024, primarily due to expected growth in military radar orders [9][10] Company Insights: Aerospace Nanhu - Aerospace Nanhu, backed by the China Aerospace Science and Industry Corporation, focuses on air defense early warning radar and has shown significant stock performance improvements, with a 130% increase in 2025, driven by a recovery from previous underperformance [12][13][15] - The company faced challenges in 2024 due to delayed orders and international shipping uncertainties, resulting in a revenue of only 220 million RMB and a loss of 80 million RMB. However, it rebounded in Q1 2025 with a revenue of 360 million RMB, a 12-fold increase year-on-year [15][22] - Future growth potential is substantial, with domestic revenue expected to reach 3 billion RMB and export business potentially reaching 2 billion RMB, totaling 5 billion RMB in revenue [16][22] Market Dynamics - The India-Pakistan conflict has provided China with international promotional opportunities, enhancing the competitive advantage of Chinese military products, particularly in high-value equipment like advanced fighter jets [4][5] - Guorui Technology's radar business has seen a gross profit margin increase from 26.6% in 2020 to 40% in 2023, despite a slight decline in 2024, indicating strong demand and profitability in military radar [7] Strategic Developments - Guorui Technology is positioned as a core player in military trade, having taken over military radar business from the China Electronics Technology Group, which has committed to not engaging in military radar business anymore [8] - Aerospace Nanhu has diversified its radar product offerings, with three new radar products entering mass production, each expected to contribute 1 billion RMB annually [14] Conclusion - The military trade industry, particularly in radar technology, presents significant growth opportunities for companies like Guorui Technology and Aerospace Nanhu, driven by geopolitical tensions and increasing military expenditures in Asia [23]