Investment Rating - The industry is rated positively, with expectations of overall returns exceeding the CSI 300 index by more than 5% in the next six months [41]. Core Insights - China's defense budget has maintained a growth rate of around 7%, with defense spending accounting for less than 1.5% of GDP, which is below the average level of major military powers. There is significant room for growth in defense spending, which is expected to outpace GDP growth in the long term. The year 2025 marks the end of the "14th Five-Year Plan," and the industry is anticipated to emerge from a two-year period of stagnation, entering a phase of comprehensive recovery. As orders normalize and are gradually released, the military industry may enter a "Davis Double-Trigger" phase of performance improvement and valuation enhancement. It is recommended to focus on leading companies in advanced fighter jets, low-altitude economy, domestic large aircraft, satellite internet, and deep-sea technology, which have favorable competitive landscapes and high technological barriers [4][10]. Summary by Sections Industry Perspective - The report highlights that China's defense spending has significant growth potential, with expectations for long-term increases above GDP growth rates. The military sector is poised for recovery and improvement in performance and valuations [4][10]. Market Performance - In the past week, the CSI 300 index rose by 0.40%, while the aerospace and defense index increased by 0.18%. For the month, the CSI 300 index saw a rise of 2.74%, and the aerospace and defense index increased by 8.34% [11]. Industry News - The European Union has approved a joint venture between the UK, Italy, and Japan to develop a sixth-generation fighter jet, with plans to deliver by the end of 2035. The joint venture will serve as the main contractor and system integrator for the "Global Combat Air Programme" [3][16]. - The U.S. Defense Secretary has pressured NATO allies to increase defense spending from 2% to 5% of GDP, emphasizing the need for this change before the upcoming NATO summit [19]. - The UK has announced plans to build 12 new "SSN-AUKUS" attack submarines and invest £15 billion (approximately 146.1 billion RMB) in upgrading its nuclear facilities, aiming to enhance its military capabilities [21]. Company Tracking - Several companies are making significant moves, such as: - Shangda Co., which has been approved to establish a high-temperature and corrosion-resistant alloy materials technology center [24]. - Guorui Technology, which plans to reduce its shareholding by 3% [26]. - Northern Navigation, with plans for share reductions by its executives [27].

Investment Rating - The industry is rated positively, with expectations of overall returns exceeding the CSI 300 index by more than 5% in the next six months [37] Core Insights - China's defense budget has maintained a growth rate of around 7%, with defense spending accounting for less than 1.5% of GDP, which is below the average of major military powers. There is significant room for growth in defense spending, which is expected to outpace GDP growth in the long term. The year 2025 marks the end of the "14th Five-Year Plan," and the industry is anticipated to emerge from a two-year period of stagnation, entering a phase of comprehensive recovery. As orders normalize and are gradually released, the military industry sector may experience a "Davis Double Play" phase of performance improvement and valuation enhancement. It is recommended to focus on leading companies in advanced fighter jets, low-altitude economy, domestic large aircraft, satellite internet, and deep-sea technology, which have favorable competitive landscapes and high technological barriers [4][9] Summary by Sections Industry Insights - The defense budget growth rate is around 7%, with spending below 1.5% of GDP, indicating potential for significant growth. The military sector is expected to recover in 2025, with a focus on advanced technologies and leading companies [4][9] Market Performance - The aerospace and defense index increased by 7.95% this week, while the CSI 300 index rose by 2.00%. For the month, the aerospace and defense index saw an 18.24% increase compared to a 7.15% rise in the CSI 300 index [10] Industry News - India and Pakistan have agreed to a comprehensive ceasefire, which may impact regional defense dynamics [15] - The "China-Singapore Cooperation-2025" naval joint exercise has commenced, highlighting ongoing military collaborations [17] - NATO is conducting large-scale military exercises near the Russian border, involving approximately 16,000 troops from 12 countries [18] - The U.S. is providing decommissioned F-16s to Ukraine for parts, emphasizing ongoing military support amid the conflict [19] - Europe has initiated a project for future main battle tank technology, involving 26 military enterprises and research institutions [20] Company Tracking - Long光华芯 has received government subsidies totaling approximately 10.4 million RMB [23] - 派克新材 plans to reduce shareholding by up to 3% due to personal needs [24] - 亚光科技 signed a pre-production agreement worth 10.05 million RMB with a special institutional client [25] - 联创光电 has repurchased 113,400 shares, representing 0.03% of its total share capital [26] - 烽火电子 completed a share buyback of 1,344,300 shares, amounting to approximately 9.6 million RMB [27]