Core Viewpoint - The article highlights the significant growth and investment opportunities in China's military industry, driven by recent geopolitical tensions and upcoming military events, particularly the September 3 parade showcasing new domestic military equipment [4][5][11]. Summary by Sections Military Industry Performance - A-share military-related sectors, including military equipment and drone concepts, experienced a short-term surge, with companies like Zhongtian Rocket and Chengfei Integration hitting the daily limit [4]. - The China Securities Military Index has risen over 20% year-to-date as of August 18, 2025, outperforming many other sectors [4]. Fund Performance - Nearly all 120 defense and military-themed mutual funds have achieved positive returns this year, with 66 funds yielding over 20% and some exceeding 40% [4][5]. - Among funds with over 20 billion yuan in assets, the average return is 25.12%, with the top performers being Bosera Fund's Bosera Military Theme Stock A, Huaxia Fund's Huaxia Military Security Mixed A, and GF Fund's GF Small and Medium Cap Selected Mixed A [5][7]. Fund Manager Insights - Fund manager Zeng Peng of Bosera Military Theme Stock A reported a year-to-date return of 35.84%, significantly outperforming the benchmark [7]. - The fund maintained a high allocation in missile industry chains and sectors like military AI, drones, and information security, anticipating continued strong performance in the third quarter due to geopolitical catalysts [7][11]. Fund Rankings by Size - For funds with 5-20 billion yuan, the top performer is the China Europe High-end Equipment Stock Initiation C, managed by Li Shuai, with a return of 41.04% [9][10]. - In the 1-5 billion yuan category, the China Europe High-end Equipment Stock Initiation A leads with a return of 41.47% [13][14]. - The top fund in the 1 million to 10 million yuan category is the Huafu Guotai Min'an Flexible Allocation Mixed A, achieving a return of 42.72% [16][17]. Future Outlook - The military industry is expected to see a performance boost due to anticipated quarterly reports showing earnings turning points for many military companies and the upcoming military parade [11][18]. - The 14th Five-Year Plan emphasizes modernization in defense and military capabilities, indicating a strategic shift for China's military industry towards leading rather than following [18].

Group 1 - The aerospace ETF Tianhong (159241) has seen a decline of over 1.4% as of July 30, with a notable increase in trading volume and a premium trading rate of 0.11% [1] - The ETF has experienced a net subscription of over 25 million shares, accumulating over 11 million yuan in net inflow over the past two days [1] - As of July 29, the latest circulating scale of the aerospace ETF Tianhong (159241) is 429 million yuan, with a share growth rate of 87.76% year-to-date, ranking first among similar products [1] Group 2 - The military electronics sector is witnessing a recovery in orders, with several listed companies expected to report improved performance in their semi-annual reports this year [2] - Active funds have increased their allocation to the military sector for the first time in ten quarters during Q2, indicating a shift in investment strategy [2] - The military sector's current valuation (PEttm) is approximately 61.7 times, slightly above the average level of 59 times, suggesting potential for further growth [2]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 20.61 RMB [7][8]. Core Views - The company is expected to recover from the current downturn as the military industry gradually returns to normalcy, driven by the end of the "14th Five-Year Plan" [4][12]. - The company has faced significant revenue declines due to a slowdown in demand from downstream customers, with a projected revenue of 2.154 billion RMB in 2024, down 34.09% year-on-year [1][6]. - Despite the challenges, the company is actively expanding into new fields and clients, particularly in military and civilian wireless communication sectors, which are anticipated to see a recovery in demand [2][4]. Revenue and Profitability - The company's revenue for 2024 is projected at 2.154 billion RMB, with a net loss of 249 million RMB, reflecting a year-on-year decline of 156.58% [1][6]. - The gross margin for 2024 is expected to be 31.06%, down 10.79 percentage points year-on-year, while the net margin is projected at -11.55%, down 25.01 percentage points [3][4]. - The company aims to achieve a net profit of 253 million RMB in 2025, with further growth expected in subsequent years [4][12]. Financial Forecasts - The company’s revenue is expected to recover to 2.373 billion RMB in 2025, followed by 3.007 billion RMB in 2026 and 3.675 billion RMB in 2027, indicating a growth trajectory [6][12]. - The adjusted net profit forecasts for 2025, 2026, and 2027 are 253 million RMB, 322 million RMB, and 399 million RMB, respectively [4][12]. - The report anticipates a gradual improvement in gross margins, with expectations of 40.09% in 2025 [12]. Market Position and Strategy - The company continues to strengthen its position in military and civilian wireless communication, with several successful bids for military communication projects [2][4]. - The company is also focusing on technological advancements and new business areas, including 5G applications and smart systems [2][4].

Summary of the Conference Call Industry Overview - The military industry is showing a downward trend, but the decline is narrowing, indicating signs of bottoming out. The revenue realization in the components segment is catalyzing the industry, with expectations for improved conditions in Q2 [2][4][10]. - The Longjiang Military Group categorizes over a hundred companies into main tracks (military aircraft engines, missiles) and new directions (new equipment, military trade, military-to-civilian transitions). The upstream components are recovering first, with improvements in cash flow and inventory for main manufacturers [2][5][6]. Key Insights - Q2 is expected to see a focus on emerging segments such as rocket forces, navy, army, and information support troops, with significant development potential following management system optimizations [2][8]. - The military industry is anticipated to accelerate recovery in 2025, driven by mobilization orders and systemic improvements, with missiles becoming a preferred investment choice [2][10]. - Military trade is benefiting from optimized national military trade management and global political changes, becoming a crucial aspect of the defense technology industry's international expansion [2][12][13]. Company-Specific Highlights AVIC Shenyang Aircraft Corporation (沈飞) - Selected as the "gold stock" for May due to low holdings, minimal competition, low valuation, and potential. The lack of disclosed 2025 operational targets enhances its safety margin and presents a contrarian investment opportunity [2][3][15][16]. - The company is currently valued at a static P/E ratio of around 30 times, which is at the lower end of its historical valuation range. Expectations for increased production tasks in 2025 are based on improved cash flow and contract signing [17][20]. - Future growth is supported by new aircraft models entering production phases, with a projected ROE close to 20% and significant asset scarcity [18][21]. Tunan Co., Ltd. (图南股份) - Tunan has shown improvement in Q1 2025 after a significant decline in Q4 2024. The company is expected to achieve approximately 330 million yuan in revenue in 2025, with a compound annual growth rate of 35% to 40% over the next two years [2][29]. - The company specializes in high-temperature alloy materials, with a strong focus on casting and deformation alloys, and is gradually extending its business into downstream products [23][26]. - Tunan's profitability is expected to improve significantly, with projections indicating a doubling of revenue and profit over the next three years [28][29][30]. Additional Important Points - The military industry is experiencing a structural shift with a focus on unmanned systems and advanced technologies, which will likely reshape operational dynamics and market opportunities [21][22]. - The management of military companies is increasingly focused on optimizing production and expanding capacity to meet future demands, particularly in the context of national defense strategies [20][14]. - The competitive landscape in the military sector remains relatively stable due to strong regulatory frameworks, which may provide a clearer path for companies to capitalize on emerging opportunities [11][12].