Core Viewpoint - The report from CITIC Securities indicates that China's military industry is evolving from a reliance on domestic demand to a new development model driven by three engines: domestic demand, foreign trade expansion, and civilian applications supporting military needs [1] Group 1: Domestic Military Demand - The first curve of domestic military demand focuses on "preparation for combat" and equipment modernization, driven by stable growth in defense budgets and the upgrading of equipment during the 14th Five-Year Plan [1] - Key growth directions include strong deterrence through high-precision and systematic unmanned low-cost technologies [1] Group 2: Military Trade Expansion - The second curve represents military trade expansion, where China's military trade share continues to rise due to cost-effectiveness, systematic combat capabilities, and geopolitical cooperation under the Belt and Road Initiative [1] - This expansion allows China to become a significant global supplier, achieving both strategic influence and economic benefits [1] Group 3: Civilian Applications of Military Technology - The third curve involves the civilian application of military technology, leading to the emergence of trillion-level new industries such as commercial aerospace, low-altitude economy, future energy, deep-sea technology, and large aircraft [1] - This trend promotes the development of new processes, materials, and devices, creating a virtuous cycle of "military technology benefiting civilian applications, which in turn supports military development" [1]

Investment Rating - The report maintains an "Increase" rating for the industry [6]. Core Viewpoints - The development of AI in specialized industries is expected to accelerate in China by 2025, with significant applications in military and satellite internet sectors [3][4][10]. - The U.S. military is heavily investing in AI technologies across six key areas, including intelligence collection, logistics support, cyber operations, command and control, semi-autonomous and fully autonomous vehicles, and autonomous weapon systems [10]. - The 2024 battlefield applications of AI technologies, particularly in drone warfare, have led to rapid advancements in military technology, showcasing capabilities such as autonomous target recognition and swarm tactics [2][11]. Summary by Sections AI in Military Applications - The U.S. military is utilizing AI for various applications, including video analysis for target identification and decision-making systems that enhance operational efficiency [10]. - The report highlights the emergence of automated weapon systems and the transformation of traditional warfare due to AI advancements [2][11]. AI in Satellite Internet - China's satellite internet construction is set to accelerate, with significant launches planned for 2025, including over 1.5 billion satellites for diverse service integration [4][14]. - AI's potential in satellite communication includes applications in interference management, network traffic prediction, and energy management, which are expected to drive industry growth [4][14]. Investment Opportunities - The report identifies key companies in the specialized AI sector, such as Putian Technology, Pinggao Group, and others, as potential investment opportunities [5][15].