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].

Summary of the Conference Call on Aviation Power Company and Industry Overview - The conference call focuses on **Aviation Power**, a company involved in the military aviation sector, particularly in engine manufacturing and maintenance. The discussion highlights the **military trade** industry and its growth potential, especially in the context of military aircraft deliveries and engine aftermarket services. Key Points and Arguments 1. **Market Position and Valuation**: Aviation Power holds a position equivalent to aircraft manufacturers in military trade, possessing pricing power and negotiation capabilities. The company is currently undervalued and is considered a potential investment opportunity [2][3]. 2. **Growth in Military Aircraft Deliveries**: The increase in military aircraft deliveries is expected to drive demand for engine replacements and maintenance. This trend is anticipated to lead to a concentrated release of maintenance and refurbishment needs [2][6]. 3. **Aftermarket Business Potential**: The aftermarket for aviation engines is characterized by high-value consumables with short maintenance intervals. The total market size for the domestic aviation engine aftermarket is projected to reach between **400 billion to 600 billion** by the end of 2024 [2][8][10]. 4. **Positive Impact on Aircraft Manufacturers**: The engine maintenance business significantly benefits aircraft manufacturers, as they hold pricing power in the maintenance segment. The profit margins from maintenance services are higher than those from new aircraft sales, which is expected to enhance the profitability of engine manufacturers [2][11]. 5. **New Aircraft Models**: The new **J-35 series** of fighter jets from AVIC Shenyang Aircraft Corporation, including variants designed for export, is expected to provide strong growth momentum. The certainty of production ramp-up for these models is high, with significant export potential [2][5][15]. 6. **Investment Thesis for Aviation Power**: The investment rationale for Aviation Power includes its independent status in military trade, increasing share of aftermarket business, and potential breakthroughs in domestic engine production capabilities [3][7]. 7. **Future Market Dynamics**: The next 20 years are expected to see a significant increase in aviation engine-related transactions and revenue, driven by the high-value consumable nature of engines and the growing demand for maintenance services [8][9]. 8. **Challenges and Opportunities for Domestic Engine Companies**: Domestic engine manufacturer **Daheng Power** faces challenges such as rising R&D and financial costs, but its gross margin remains stable. If margins improve, it could lead to significant stock price catalysts [12]. 9. **Importance of Control Systems**: Control systems are critical components in aviation engines, with domestic systems showing strong pricing power. The maintenance share of control systems is projected to grow from **8% in 2021 to 16% in 2024**, indicating rapid growth in this segment [13]. 10. **Beneficial Segments in the Aviation Engine Market**: Other segments benefiting from the aviation engine market include blades, coatings, and fasteners, with specific companies identified for their strong market positions in these areas [14]. Additional Insights - The J-35 fighter jet is positioned to enhance China's military trade competitiveness, breaking the trend of export models being less advanced than domestic ones. This positions AVIC Shenyang for significant growth in orders and revenue [15][20]. - The disparity in orders between the U.S. F-22 and F-35 is attributed to factors such as development costs, pricing strategies, and production capabilities, which may inform future strategies for Chinese military aircraft [17][19].

Investment Rating - The report maintains a "Positive" investment rating for the defense and military industry in China [5] Core Viewpoints - The military trade market in China is continuously expanding, with significant developments such as Indonesia's procurement of the J-10 fighter jet, indicating a rapid growth in the military trade market scale [11] - The "Qianfan Constellation" satellite network has resumed operations after a 7-month hiatus, with the recent launch of 18 satellites, suggesting an acceleration in low-orbit satellite deployment [12] - The current market conditions show stabilization in military sector stock prices, with a focus on domestic demand and the upcoming "14th Five-Year Plan" which is expected to clarify new equipment construction plans [16][17] Summary by Sections Investment Suggestions and Targets - The report highlights several investment targets within the military electronics sector, including: - Aerospace Electric (002025, Buy) - Zhonghang Optics (002179, Buy) - Aerospace Electronics (600879, Not Rated) - In the new quality and domain sector, notable mentions include: - Haige Communication (002465, Buy) - New Light Optoelectronics (688011, Increase Holding) - For the engine chain, key targets include: - West Superconducting (688122, Buy) - Huqin Technology (688281, Increase Holding) - In military trade and main equipment, companies like AVIC Shenyang Aircraft (600760, Not Rated) are highlighted [17]

Core Insights - The defense and military industry index experienced a decline of -4.70% over the past week, ranking 23rd out of 31 in the Shenwan primary industry [7][41] - The current PE-TTM for the defense and military industry is 83.33, which is at the 76.67 percentile compared to the past decade, indicating a relatively high valuation level [12][15] - The report highlights significant individual stock performances, with North China Long Dragon leading with an increase of 8.71% over the past week, while Guorui Technology saw a decline of -14.00% [17][41] Industry and Stock Market Review - The defense and military industry index has shown a decline of -1.92% over the past month, ranking 11th out of 31 [9][41] - Over the past year, the industry index has increased by 16.91%, ranking 19th out of 31 [3][41] - The trading volume for the defense and military industry reached 310.8 billion yuan this week, a year-on-year decrease of -8.63% but a week-on-week increase of +128.08% [31][34] Important Company Announcements - The report includes various significant announcements from companies in the defense sector, such as strategic cooperation agreements and stock repurchase plans [38] Industry News - Indonesia confirmed its plan to purchase Chinese-made J-10 fighter jets, with a defense budget of at least 9 billion USD approved [40][41] - Successful launches of low-orbit satellite internet groups and the sixth batch of the Qianfan constellation were reported, indicating advancements in commercial aerospace [40][42] Investment Recommendations - The report suggests focusing on key investment themes such as military trade, commercial aerospace, unmanned equipment, military AI, and low-altitude economy [43]

Group 1 - The aerospace ETF Tianhong (159241) has shown a significant rebound, with a premium frequently observed and a turnover rate of 8.62%, resulting in a transaction volume of 38.8378 million yuan [1] - As of October 16, the Tianhong aerospace ETF has experienced a scale growth of 12.1386 million yuan over the past month, indicating substantial growth [1] - The ETF tracks the Guozheng Aerospace Index, which covers the aerospace industry chain, with a combined weight of over 73% in aviation and aerospace equipment, making it the highest "aerospace content" military index in the market [1] Group 2 - On October 15, Indonesia's Defense Minister confirmed the procurement of Chinese-made J-10 fighter jets, marking the first clear indication of such a purchase from Indonesia [2] - Experts suggest that if Indonesia finalizes the procurement of J-10 fighter jets, it would benefit both China by expanding the international market for the J-10 and Indonesia by enhancing its defense capabilities [2] - China Galaxy Securities highlights the potential for military trade and new quality fields, suggesting that the military sector may continue to outperform the market amid trade tensions, with positive earnings expectations for upstream components in Q3 [2]

Core Viewpoint - The three major indices opened lower on October 17, with the Shanghai Composite Index down by 0.11%, the Shenzhen Component down by 0.2%, and the ChiNext Index down by 0.36% [1] Sector Performance - The sectors that saw the highest gains included gold concepts, innovative pharmaceuticals, and construction [1] - Conversely, sectors that experienced the largest declines included cultivated diamond concepts, Hainan free trade concepts, military trade concepts, warehousing and logistics, building materials, and semiconductors [1]

Core Viewpoint - The three major indices have turned negative, with the ChiNext index dropping by 0.84%, indicating a downward trend in the market [1] Industry Summary - The military trade and photolithography machine sectors are among the hardest hit, showing significant declines [1]

Group 1 - The Aerospace ETF Tianhong (159241) closed up 1.25% on October 13, 2025, with a turnover of 14.74% and a transaction volume of 71.1352 million yuan, indicating active market trading [2] - The ETF saw a significant increase in shares, with a growth of 21 million shares in the past month, ranking first among comparable funds [2] - The net inflow of funds into the Aerospace ETF Tianhong was 2.4119 million yuan, with a total of 22.3651 million yuan raised over the last 15 trading days [2] Group 2 - The Aerospace ETF Tianhong tracks the National Aerospace Index, with a strong military attribute, where the first-tier military industry accounts for 97.86%, making it the highest military content index in the market [2] - The weight of aerospace equipment in the ETF is as high as 66.8%, significantly exceeding that of the CSI Military and CSI Defense indices [2] - Bangladesh plans to invest 2.2 billion USD to procure 20 Chinese J-10CE multi-role fighter jets by 2027, which will enhance its air combat capabilities [2] Group 3 - According to Dongfang Securities, Bangladesh's plan to purchase J-10CE fighter jets exemplifies the acceleration of China's high-end equipment exports and reflects an upgrade in military trade from "single product cost-effectiveness" to "systematic solution capabilities" [3] - In the context of increasing global geopolitical conflicts and modernization of national defense, China's equipment has established a comprehensive international competitive advantage due to improved technical performance, cost-effectiveness, and enhanced system compatibility [3] - The future outlook suggests that as high-end equipment exports accelerate, China's influence in the international market is expected to expand, with military trade likely to see both volume and price increases [3]