Investment Rating - The report maintains a "Positive" investment rating for the defense and military industry [2]. Core Insights - The September 3rd military parade showcased the capabilities of the military system, new domain combat power, and strategic deterrence strength, indicating a clear investment theme in the military industry [4][6]. - The report highlights the robust demand for the J-35 model from AVIC, which is comparable to the US F-35, reflecting strong domestic and international demand [68]. - The aerospace and semiconductor sectors are experiencing a recovery, with companies like Philihua benefiting from this trend [128]. Summary by Sections Military Parade Insights - The military parade demonstrated the new structure and capabilities of the People's Liberation Army, showcasing a modernized military force under the leadership of the Central Military Commission [13]. - The event highlighted the advancements in air power, with 125 aircraft from the Chinese aviation industry participating, marking a significant leap in aerial capabilities [19][14]. AVIC Developments - AVIC has achieved a compound annual growth rate (CAGR) of 25% in revenue and 26% in profit over the past 20 years, with a focus on sustainable growth and innovation [41]. - The company is expanding its product offerings in the defense sector, moving from connectors to comprehensive interconnection solutions, enhancing its value proposition [48][50]. Philihua's Market Position - Philihua's subsidiary, Zhongyi New Materials, is advancing in the production of ultra-low loss quartz electronic fabrics, with plans to significantly increase production capacity by 2030 [137]. - The company is also investing in precision processing projects for TFT-LCD and semiconductor photomasks, aiming for self-sufficiency in high-end electronic materials [142]. J-35 and F-35 Comparison - The J-35 model is positioned against the F-35, with the latter having a total order volume of 3,497 units, significantly surpassing the F-22's lifetime production [70][126]. - The F-35's lower cost and versatile applications have opened up a broader market, with a domestic demand of 2,456 units and export demand of 1,041 units [116][112].