Investment Rating - The report maintains a positive outlook on the defense and military industry, suggesting an increase in focus on military investments [4][5]. Core Insights - The military trade supply and demand are strongly resonating, creating a new industry landscape, with expectations for continuous progress [5]. - The military industry is entering an upward cycle, driven by domestic demand from military construction, particularly in the transition to "mechanization + informationization" and the upcoming "intelligent + unmanned" equipment [5]. - The global geopolitical changes are expanding military trade demand, with China's military products gaining recognition, leading to a strong resonance between supply and demand in military trade [5]. - The growth cycle in the military sector is expected to enhance industry valuations, with a recognition of "technological equity" in military advancements [5]. - Recommendations include increasing attention to military investments, focusing on next-generation equipment and precision-guided weapons, which are expected to see initial growth by 2025 [5]. Market Review - Last week, the Shenwan Defense and Military Index rose by 2.26%, while the CSI Military Leaders Index increased by 3.68%, outperforming the Shanghai Composite Index, which rose by 0.69% [6][4]. - The top five performing stocks in the defense and military sector were Beihua Co. (23.37%), Yingliu Co. (20.37%), Feilihua (15.98%), AVIC Shenyang Aircraft (12.78%), and Aerospace Power (11.37%) [6][13]. - The bottom five performing stocks included Changchun Yidong (-9.36%), Rongfa Nuclear Power (-6.6%), Rainbow Co. (-6.14%), Guorui Technology (-5.02%), and Galaxy Electronics (-4.66%) [6][13]. Valuation Changes - The current PE-TTM for the Shenwan Military Sector is 83.84, placing it in the upper range historically, with a valuation percentile of 71.57% since January 2014 [14]. - Valuations are slightly differentiated among sub-sectors, with aerospace and aviation equipment at a relatively high valuation since 2020 [14][19]. Key Valuation Targets - The report lists key valuation targets in the military sector, including companies like AVIC Shenyang Aircraft, AVIC Chengfei, and others, with projected net profits and PE ratios for the coming years [21].

Group 1 - The military industry is entering a significant upward cycle, driven by domestic demand from military construction, particularly during the transition to the next generation of military equipment after a century of military development [1] - The global military trade is experiencing a supply-demand resonance due to increasing geopolitical changes, with China's military products gaining recognition for their performance and supply capabilities, leading to a robust future for China's military trade [1] - The growth cycle in the military industry is expected to enhance industry valuations, as the reshaping of global military trade and domestic construction cycles open up significant opportunities for the sector [1] Group 2 - The military ETF (512660) is the largest in its category, covering the entire military industry chain and providing a crucial tool for capitalizing on industry allocation opportunities [2] - The index tracked by the ETF reflects the overall performance of representative listed companies in the defense and military industry, with a high concentration in various subfields [2]

Investment Rating - The report rates the defense and military industry as "Overweight" indicating that the industry is expected to outperform the overall market [2][11]. Core Insights - The report highlights that orders are being transmitted in an orderly manner, signaling an impending performance inflection point for the industry [3]. - It selects 48 key companies across the military industrial chain, with a total market capitalization of 1,320.52 billion, accounting for approximately 48.4% of the total market capitalization of the Shenwan Defense and Military Industry Index [3]. - The expected total performance for these 48 companies in Q2 2025 is approximately 6.768 billion (down 11.2% year-on-year), and for H1 2025, it is expected to be around 11.336 billion (down 17.7% year-on-year) [3]. - The report notes performance differentiation across various segments due to customer structure and revenue recognition timing [3]. - The military industry is entering a significant upward cycle driven by domestic demand, particularly due to military modernization efforts [3]. - The report anticipates a strong resonance between supply and demand in military trade, driven by global geopolitical changes and increased recognition of Chinese military products [3]. - The growth cycle in the military sector is expected to enhance industry valuations, with a focus on technological equity and recognition of military advancements [3]. - The report suggests increasing attention to the military sector, particularly in areas such as next-generation equipment and precision-guided weapons, which are expected to enter a growth phase in 2025 [3]. Summary by Sections Performance Expectations - The report provides performance forecasts for key companies, indicating significant variances in growth rates across different segments [4][5]. - For example, Torch Electronics and Hongyuan Electronics are expected to see growth rates of 61% and 49% respectively in H1 2025, while companies like Zhihua Technology and Aerospace Electric are projected to decline by 69% and 78% respectively [3][4]. Market Dynamics - The report emphasizes that the core driver of domestic demand in the military sector is military construction, with a transition towards a new cycle characterized by "intelligent and unmanned" capabilities [3]. - It also notes that the military trade landscape is evolving, with increased global demand and recognition of Chinese military capabilities following recent geopolitical events [3]. Investment Opportunities - The report identifies key investment targets within the military sector, including high-end combat capabilities and new quality combat combinations [3]. - Specific companies highlighted for potential investment include AVIC Shenyang Aircraft, AVIC Chengdu Aircraft, and others involved in advanced materials and electronic components [3].

Core Viewpoint - The aerospace ETF Tianhong (159241) has shown strong market performance with significant inflows and a focus on the military and aerospace sectors, indicating a positive outlook for the industry. Group 1: Market Performance - As of July 8, 2025, the aerospace ETF Tianhong (159241) closed up 0.54% with a turnover rate of 18.37%, leading its category, and had a total transaction volume of 605.219 million yuan, reflecting active market trading [3] - The ETF has seen a net subscription of 2.7 million shares today, with its latest scale reaching 329 million yuan and total shares at 298 million, both hitting a one-month high as of July 7, 2025 [3] Group 2: Fund Inflows and Events - The aerospace ETF Tianhong (159241) has experienced continuous net inflows over the past eight days, totaling 155 million yuan [4] - The first National Defense Science and Technology Industry Cultural and Creative Industry Expo will be held from September 29 to October 4 in Wuhan, showcasing significant military technology innovations [4] - The "Liqian No. 2" rocket is set for its maiden flight in September 2025, with a payload capacity of 12 tons to low Earth orbit, indicating advancements in commercial space capabilities [4] Group 3: Industry Outlook - According to Shenwan Hongyuan Securities, the military industry is expected to experience a dual boost in fundamentals and valuations, with military trade reshaping the global landscape and opening up significant growth opportunities [4] - Zhongyou Securities anticipates a turning point in military orders as the "Centenary of the Army Building" goals progress, highlighting new market directions driven by technological advancements [5] Group 4: ETF Characteristics - The aerospace ETF Tianhong (159241) closely tracks the National Aerospace and Aviation Industry Index, focusing on key sectors such as aircraft and satellite industries, aligning with emerging themes like low-altitude economy and commercial space [5] - The index has a "military content" of 96.24%, surpassing other military indices, indicating a strong focus on defense [6] - The index also leads in "drone content," featuring companies deeply involved in drone technology, making it the highest in the market [7] - The index covers over 73% of aerospace and aviation equipment, marking it as the highest in "aerospace content" among military indices [8] - The index's technology attributes are stronger, with a one-year performance return of 31.68%, outperforming traditional military indices [9] - Revenue growth for the National Aerospace and Aviation Industry Index is projected at 42.73% for 2025, exceeding traditional military indices [10]