Investment Rating - The investment rating for the company is "Accumulate" (maintained) [2] Core Views - The company is experiencing revenue pressure due to a contraction in demand, with a proactive tightening of engineering business operations. The revenue for 1H2025 was 3.22 billion yuan, a year-on-year decrease of 7.23%, and the net profit attributable to shareholders was 47 million yuan, down 49.98% [7][9] - The overall gross margin improved to 24.68%, an increase of 1.23 percentage points, attributed to the company's focus on high-end markets and premium projects, as well as a 2.18% decrease in raw material costs [7][9] - The company has announced price increases for certain waterproofing products, which is seen as a response to raw material pressures and a move to combat low-price competition in the industry [9] Financial Performance Summary - Revenue forecast for 2025 is 6.48 billion yuan, with a projected decline of 5.17% year-on-year, followed by a recovery in 2026 and 2027 with growth rates of 10.34% and 10.39% respectively [6][10] - The net profit attributable to shareholders is expected to be 93 million yuan in 2025, with significant growth projected in the following years, reaching 264 million yuan by 2027 [6][10] - Earnings per share (EPS) is forecasted to be 0.08 yuan in 2025, increasing to 0.24 yuan by 2027, with corresponding price-to-earnings (PE) ratios of 63.18x, 32.18x, and 22.35x for the next three years [6][10] Market Performance - The company's stock has shown a performance of -4% over the last 12 months, compared to a 10% increase in the market benchmark [4]

Core Viewpoint - The report highlights the performance and investment strategy of the Penghua Aerospace and Defense Index Fund (LOF) for the second quarter of 2025, emphasizing its passive index tracking approach and the significant outperformance of the aerospace and defense sector compared to broader market indices [1][13][14]. Fund Overview - The fund aims to closely track the underlying index with a target of keeping the average tracking deviation within 0.35% daily and 4% annually [2][3]. - As of the end of the reporting period, the total fund shares amounted to approximately 2.79 billion [1]. Investment Strategy - The fund employs a passive index investment strategy, constructing an investment portfolio based on the benchmark weights of the index constituents [2][3]. - Adjustments to the investment portfolio are made in response to changes in the index constituents or their weights, as well as market conditions affecting liquidity [3][4]. Market Performance - The Aerospace and Defense Index increased by 10.50% during the quarter, significantly outperforming the Shanghai Composite Index (3.26%) and the CSI 300 Index (1.25%) [13][14]. - The report notes a reversal in industry challenges and the impact of military trade developments, which have led to a reassessment of the value of Chinese defense assets [14][15]. Financial Performance - For the reporting period, the net value growth rate for Class A shares was 10.31%, while Class C shares recorded a growth rate of 10.28%, both exceeding the benchmark growth rate of 10.02% [15][16]. - The fund's investment portfolio was primarily allocated to stocks, constituting 88.23% of total assets, with a significant focus on the manufacturing sector [16]. Management Report - The fund manager, Mr. Chen Long, has extensive experience in the securities industry and has been managing the fund since March 2019 [9][10]. - The management emphasizes compliance with regulations and fair trading practices, ensuring that all investment portfolios are treated equitably [12].