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].

Group 1 - In the first half of 2025, the company achieved operating revenue of 439 million yuan, a year-on-year increase of 61.27%, and a net profit attributable to shareholders of 31.77 million yuan, a year-on-year increase of 182.76% [1] - The significant year-on-year recovery in performance is primarily driven by military trade, with 97.27% of the revenue coming from related sales, mainly associated with AVIC International [1] - In Q2, the company reported operating revenue of 203 million yuan, a year-on-year decrease of 3.70% and a quarter-on-quarter decrease of 13.92%, while the net profit attributable to shareholders was 14.93 million yuan, a year-on-year increase of 230.98% [1] Group 2 - The overall gross profit margin for the first half of 2025 was 26.55%, a decrease of 0.89 percentage points year-on-year [2] - Management expenses amounted to 55.91 million yuan, a year-on-year increase of 16.95%, primarily due to increased production scale and investments in information technology [2] - Research and development expenses were 43.41 million yuan, a significant year-on-year decrease of 46.66%, influenced by the capitalization of certain projects [2] Group 3 - As of the first half of 2025, the company's inventory reached a historical high of 3.628 billion yuan, a substantial increase of 38.48% compared to the end of the previous year [3] - The company plans to repurchase shares for employee stock ownership plans, with a budget of 100 million to 200 million yuan, indicating confidence in future development [3] - Profit forecasts for 2025, 2026, and 2027 are net profits of 290 million, 378 million, and 441 million yuan, respectively, with corresponding PE ratios of 138, 106, and 91 times [3]

Investment Rating - The report maintains an "Outperform" rating for the defense and military industry [4]. Core Insights - The core viewpoint emphasizes that domestic trade and military trade continue to drive demand in the industry [10][48]. Summary by Sections Industry Overview - The "New Era of China's National Security" white paper was released on May 12, outlining China's strategic focus on national security and its interaction with global stability [48]. - Recent defense sales agreements were made with Saudi Arabia, Qatar, and the UAE, totaling approximately $4.3 billion, indicating strong international demand for military equipment [49][50][51]. Market Performance - The military industry index (801740) decreased by 1.18% from May 12 to May 16, underperforming compared to the Shanghai and Shenzhen 300 index, which increased by 1.12% [19]. - The military index has increased by 0.68% since 2025, while the Shanghai and Shenzhen 300 index has decreased by 1.16%, showing relative strength in the long term [21]. Investment Opportunities - The report identifies three main investment lines: domestic trade, foreign trade, and self-sufficiency [54]. - Domestic Trade: Companies such as Tianqin Equipment, Gaode Infrared, and others are highlighted [54]. - Foreign Trade: Companies like Guangdong Hongda and Aerospace Rainbow are recommended [55]. - Self-Sufficiency: Companies involved in commercial engines and nuclear fusion are noted [56]. Financial Insights - As of May 16, the military industry index has a TTM price-to-earnings ratio of 65.05, indicating a high valuation but potential for recovery in demand by 2025 [53][38]. - Passive fund inflows into military ETFs have increased, suggesting a positive outlook for the sector [32].

Investment Rating - The industry rating is "Outperform the Market" [4][71]. Core Viewpoints - The military industry is experiencing a comprehensive rise, with the Shenwan Military Industry Index (801740) increasing by 0.28% from April 7 to April 11, while the CSI 300 Index decreased by 2.87%, resulting in an excess return of 3.16 percentage points [2][43]. - The military sector demonstrates strong anti-volatility capabilities due to rigid domestic demand, self-control, and resistance characteristics, especially in the context of escalating international trade tensions [3][43]. - The military industry is expected to see significant demand recovery in 2025, driven by the acceleration of the "14th Five-Year Plan" and the "Centenary of the Army" goals, making it a key area for investment [3][44]. Summary by Sections Market Performance - The Shenwan Military Industry Index ranked third among 31 first-level industries this week, showing strong performance [8][14]. - From the beginning of 2025, the Shenwan Military Industry Index has decreased by 1.64%, while the CSI 300 Index has decreased by 4.69%, indicating a relative outperformance of 3.05 percentage points [16]. Fund Flows and Valuation - There has been a significant increase in passive fund sizes and shares, with a net inflow of 2.788 billion yuan into military ETFs, marking the largest net inflow since the beginning of 2025 [27][44]. - As of April 11, the current TTM price-to-earnings ratio for the Shenwan Military Industry Index is 61.38, with a percentile rank of 78.04%, indicating a high configuration value at this time [44][44]. Key Recommendations - The report strongly recommends focusing on two main lines: "Domestic Trade" and "Self-Control" [44]. - Suggested stocks for "Domestic Trade" include Tianqin Equipment, LIGONG Navigation, and Optical Electronics, while for "Self-Control," recommended stocks include Hangyu Technology and Xiling Power [44].