Market Overview - On August 19, the Shanghai Composite Index decreased by 0.02%, the CSI 300 fell by 0.38%, the STAR 50 dropped by 1.12%, the CSI 1000 rose by 0.07%, the ChiNext Index declined by 0.17%, and the Hang Seng Index decreased by 0.21% [4] - The best-performing sectors on August 19 were comprehensive (+3.48%), communication (+1.87%), food and beverage (+1.04%), retail (+0.89%), and home appliances (+0.87%). The worst-performing sectors were non-bank financials (-1.64%), defense and military industry (-1.55%), oil and petrochemicals (-0.58%), pharmaceutical biology (-0.54%), and coal (-0.52%) [4] - The total trading volume for the A-share market on August 19 was 26,407 billion yuan, with a net inflow of 18.573 billion Hong Kong dollars from southbound funds [4] Important Recommendations - The report highlights China Marine Defense (600764) as a leading player in underwater acoustic defense, benefiting from underwater operations and deep-sea technology [5] - The recommendation logic includes the following points: 1. The company is expected to benefit from the demand for various sonar types due to naval ship outfitting and ocean observation network needs [5] 2. The future trend of underwater three-dimensional offense and defense, with unmanned underwater vehicles likely to open new growth avenues for the company [5] 3. Anticipated asset integration within the group [5] - Key driving factors include accelerated naval construction and ocean observation network development, advancements in underwater combat equipment, and potential group asset integration [5] - The revenue forecast for the company from 2025 to 2027 is projected at 3,850 million yuan, 4,632 million yuan, and 5,528 million yuan, with growth rates of 21%, 20%, and 19% respectively. The net profit attributable to the parent company is expected to be 362 million yuan, 507 million yuan, and 653 million yuan, with growth rates of 59%, 40%, and 29% respectively [5] - The earnings per share are forecasted to be 0.51 yuan, 0.71 yuan, and 0.92 yuan, with price-to-earnings ratios of 72, 51, and 40 times [5] - Catalysts for growth include unexpected large procurement orders for naval ships, favorable deep-sea technology policies, and potential asset integration within the group [5]

Industry Overview - The sonar industry is a crucial component of modern marine technology, military navigation, and underwater detection, serving as a key tool for ocean exploration, security, and resource development [1] - Sonar technology enables underwater target detection, depth measurement, and communication navigation, with applications in military defense, marine scientific research, resource development, underwater engineering, and precision fishing [1] - The Chinese sonar industry is experiencing unprecedented development opportunities driven by national strategies and technological integration, with government support for research and application [1][2] Market Dynamics - The global sonar market is characterized by a "one strong, many strong" pattern, with the United States holding a 40% market share, followed by China at 16%, making it the second-largest sonar market globally [2] - The growth of China's sonar market is attributed to the booming marine economy, with increasing demand in deep-sea exploration, offshore wind power, and fishing [2] Industry Structure - China's sonar industry encompasses a complete supply chain covering upstream raw materials, midstream manufacturing and integration, and downstream applications [3] - The upstream includes suppliers of electronic components, sensors, and special materials, while midstream companies focus on system design, research, and production [3] Regional Distribution - In 2024, China's sonar industry shows significant regional clustering, with North China accounting for 52% of the market share, benefiting from research resources and policy support in Beijing and Tianjin [5] - East China holds a 35.29% share, leveraging the manufacturing base in Shanghai and Nanjing [5] Competitive Landscape - The industry has seen the emergence of several internationally competitive leading companies, with notable players including China Shipbuilding Industry Corporation and Guangzhou Zhonghaida Satellite Navigation Technology Co., Ltd. [6][9] - China Shipbuilding Industry Corporation, established in 2008 with a registered capital of 2,280,203.5 million RMB, is a major player in marine defense equipment [11] Technological Advancements - The sonar industry is advancing towards intelligent development, integrating artificial intelligence and big data to enhance sonar signal processing and underwater target recognition [1][18] - The market is expected to maintain rapid growth, driven by increasing demand for military and civilian applications, including resource exploration and environmental monitoring [21] Future Outlook - The Chinese sonar market is projected to reach 17 billion RMB by 2024, reflecting continuous growth driven by defense needs and technological advancements [17] - The industry is expected to embrace low-frequency, high-power, and large-array sonar technologies for improved detection capabilities [21]

Revenue Situation - In 2024, China Shipbuilding Industry Corporation (CSIC) reported the highest revenue in the sonar industry, reaching 55.4 billion yuan. CSIC is a leading ship design and manufacturing enterprise in China, delivering 62 internationally advanced vessels, solidifying its global market position [1] - China Haifang ranked second with a revenue of 3.173 billion yuan [1] Net Profit Situation - CSIC also led in net profit for 2024, achieving 1.33 billion yuan. In contrast, China Haida reported a net loss of 40 million yuan, primarily due to macroeconomic downturns and reduced infrastructure investment impacting its traditional surveying equipment business [4] R&D Capability Analysis R&D Investment - CSIC had the highest R&D investment in 2024, amounting to 2.16 billion yuan, followed by China Haifang with 350 million yuan. The lowest R&D investment was from Zhongke Haixun at 30 million yuan [5] R&D Intensity - R&D intensity, defined as the ratio of R&D investment to revenue, showed that Hailanxin had the highest intensity at 22.51%. Zhongke Haixun followed with an intensity of 12.02%. CSIC had the lowest R&D intensity [8] R&D Personnel - CSIC employed the most R&D personnel, totaling 5,533, but this only accounted for approximately 20% of its total workforce. Zhongke Haixun had the highest proportion of R&D personnel relative to its total workforce at 60.5% [11]

Group 1 - The sonar industry in China has over 690 active companies, with Guangdong province having the highest number at approximately 110 companies, followed by Jiangsu, Shandong, and Zhejiang [1] - Jiangsu province leads in effective patent applications in the sonar industry, with a total of 1,186 applications, indicating its strategic positioning and technological innovation in this field [3] - China Shipbuilding Industry Corporation holds the highest number of effective patent applications among companies, totaling 25, followed by Zhongke Tanhai (Shenzhen) Marine Technology Co., Ltd. with 21 applications [5] Group 2 - Zhejiang province has the highest number of sonar bidding projects, totaling 657, followed by Guangdong, Jiangsu, and Anhui with 492, 420, and 334 projects respectively [7] - Jiangsu province also has the most winning bids in the sonar sector, with 385 projects, followed by Shandong, Zhejiang, and Guangdong with 358, 283, and 195 projects respectively [9]

Summary of Deep Sea Technology Conference Call Industry Overview - Deep sea economy has been elevated to a national strategic level, comparable to commercial aerospace and low-altitude economy, indicating high-level attention and potential for sustained policy and financial support [1][5] - The deep sea industry is characterized by sustainability, explosiveness, and military-civilian integration, with policy planning targeting 2027, 2035, and beyond [3][10] Key Insights and Arguments - The demand for specialized deep sea technology is urgent, with rapid industry progress and ample funding and policy support [1][5] - Recent government reports and meetings have catalyzed market interest, leading to significant stock movements in related companies [2] - The deep sea industry chain is divided into upstream materials and equipment, midstream platforms and facilities, and downstream applications, with a focus on defense systems [3][12] - Key materials include titanium alloys, which outperform traditional materials and are recommended for companies like Western Materials and Jintian Titanium [3][20] - Sonar technology is crucial for underwater reconnaissance, communication, and navigation, with recommended companies including China Marine Defense and Zhongke Hai Xun [3][21] Potential Investment Opportunities - Companies with visible orders and performance changes in sonar technology and titanium alloys are highlighted as investment opportunities, including China Marine Defense, Extreme Shares, and Western Materials [1][5] - The deep sea industry is expected to transition from experimental phases (2023-2025) to industrialization, with significant growth anticipated [3][10] - The development of underwater data centers is emerging, with advantages in energy efficiency and a pilot project already launched in Hainan [17] Policy and Market Dynamics - Recent policies from various regions, including Guangdong and Shanghai, emphasize deep sea development, indicating a collaborative push from central and local governments [11] - The strategic focus on underwater resource development is driven by national security, resource exploration, and the need to enhance competitive capabilities [9] Long-term Outlook - The deep sea industry is expected to experience explosive growth, with a shift from military applications to civilian uses as technologies mature [10][24] - The integration of advanced technologies such as electromagnetic launch systems and comprehensive electric propulsion systems will transform naval capabilities [22][23] Additional Considerations - The relationship between deep sea technology and traditional blue economy is noted, with deep sea focusing on more challenging technological breakthroughs [8] - The potential for offshore wind energy development in deep waters is significant, with a large portion of global resources yet to be utilized [14] This summary encapsulates the key points from the conference call regarding the deep sea technology industry, highlighting its strategic importance, investment opportunities, and the impact of policy developments.

Core Insights - The sonar industry in China is characterized by a complete industrial chain, with upstream companies focusing on high-precision sensor development, midstream companies engaged in system design and manufacturing, and downstream applications spanning military and civilian sectors [1][6]. Industry Overview - Sonar, which stands for Sound Navigation and Ranging, utilizes sound waves for underwater detection, positioning, tracking, and communication [1]. - Key upstream players include Senba Sensor, Suoao Sensor, and others specializing in sensor and material manufacturing [1]. - Midstream companies like Zhongke Haixun and China Shipbuilding Industry Corporation have significant advantages in military sonar R&D [1]. - Downstream applications include anti-submarine warfare, underwater engineering, and marine resource exploration [1]. Investment Trends - Investment activities among leading sonar companies are limited due to the industry's capital and technology intensity, with a focus on internal R&D and resource integration [3]. - Notable investment events include: - China Defense's acquisition of a 49% stake in China Shipbuilding Yongzhi [5]. - Hailanxin's acquisition of 100% of Oute Ocean for 340 million yuan [5]. - Zhonghaida's purchase of a 26.13% stake in Lingji Technology for 91.46 million yuan [5]. Policy Evolution - The evolution of sonar policies in China reflects a shift from imitation to innovation, emphasizing military-civilian integration and standardization [6]. - Early policies focused on funding and talent development, while recent initiatives like "Made in China 2025" and the "14th Five-Year Plan" support sonar technology R&D and integration with AI and big data [6]. Regional Policy Support - Coastal provinces are actively promoting sonar industry development through various policies, such as: - Shanghai's implementation of a deep-sea technology industry fund [9]. - Guangdong's regulations to enhance marine economic development [9]. - Hainan's tax incentives for deep-sea equipment localization projects [9]. - Inland cities show less emphasis on sonar technology due to geographical disadvantages [9]. Summary of Provincial Policies - Shanghai's policy aims to enhance marine economic development and support sonar applications [11]. - Guangdong's regulations focus on fostering marine electronic information industries [11]. - Hainan's initiatives include building major functional platforms for deep-sea technology [11].

Core Insights - The sonar technology is crucial for underwater detection and measurement, utilizing sound wave propagation characteristics to identify underwater targets and environmental information [1] - The global sonar market is closely linked to military spending, with significant increases in defense budgets from major countries like the US and China, indicating a growing demand for advanced sonar technologies [2] Industry Overview - The sonar market is experiencing growth due to increased military investments and the rising importance of naval capabilities in modern warfare [2] - Major companies in the sonar industry include ZK Marine (300810), China Haida (300177), China Shipbuilding Industry Corporation (601989), China Marine Defense (600764), and Hailanxin (300065) [1][5] Market Share - Thales Group leads the global military sonar system market with over 30% market share, followed by Lockheed Martin [3] Company Strategies - Companies in the sonar industry are focusing on AI sonar technology applications and exploring a dual-driven model of military and civilian use to enhance their technological capabilities and market competitiveness [12] - Specific company plans include: - Regular Agriculture aims to deepen its core business in signal processing platforms and underwater detection systems [13] - China Shipbuilding Industry Corporation plans to enhance its underwater monitoring and navigation equipment in marine engineering [13] - China Heavy Industry is set to increase its production capacity for underwater electronic defense products significantly by 2025 [13] - Collaboration with EdgeTech for underwater survey solutions, focusing on advanced sonar products and technology [13]

Group 1: Deep Sea Technology and Situational Awareness - The report highlights the increasing focus on "Deep Sea Technology" due to the upcoming military parade on September 3, which will showcase new combat forces including unmanned systems and underwater equipment [2][8] - The core of "Deep Sea Technology" revolves around resource security, national defense construction, and blue economy, with situational awareness being a key component [2][9] - The challenges in situational awareness construction lie in underwater signal processing, which is deemed critical for effective underwater operations [9][10] Group 2: Huaren Microelectronics (华润微) - Huaren Microelectronics operates a fully integrated supply chain model, focusing on power semiconductors and smart sensors, with a recovery expected in the power semiconductor market [11][12] - The company has a significant market share in IGBT products, particularly in industrial and automotive applications, with plans to expand into new customer segments [11][12] - The report projects a steady increase in net profit for Huaren Microelectronics from 9.59 billion to 16.50 billion CNY from 2025 to 2027, with a corresponding PE ratio decline [13] Group 3: Zhongyuan Expressway (中原高速) - Zhongyuan Expressway focuses on the construction and operation of toll roads, with a projected revenue of 6.969 billion CNY in 2024, where toll income constitutes approximately 63.98% [15][16] - The company has a young asset structure with an average remaining toll collection period of 17.04 years, indicating potential for value reassessment [16][18] - The report anticipates net profits to grow from 10.02 billion to 11.50 billion CNY from 2025 to 2027, with a favorable PE ratio [18] Group 4: Dekang Agriculture (德康农牧) - Dekang Agriculture is transitioning from a traditional agricultural production company to a platform and technology-driven enterprise, aiming to create a "value symbiosis" ecosystem [5][22] - The company has demonstrated significant profitability advantages, with a projected average income of 770,000 CNY per modern pig farm in 2024, and a return on equity (ROE) of 48% [29][30] - The report forecasts Dekang's net profit to reach 36 billion CNY by 2027, with a PE ratio of 7.69, reflecting its strong growth potential in the agricultural sector [30]

Investment Rating - The industry investment rating is "Positive" (maintained) [5][12] Core Viewpoints - The recent military parade on September 3 has increased market attention on the "Deep Sea Technology" strategy, which emphasizes resource security, national defense construction, and blue economy, with situational awareness being a key focus [5] - The government work report has elevated "Deep Sea Technology" to a strategic level, highlighting the need for a comprehensive underwater perception system to address security challenges posed by foreign reconnaissance devices in China's waters [5] - The construction of situational awareness capabilities is deemed essential for development, with sonar equipment being the core component due to the complexities of underwater signal processing [5] Summary by Relevant Sections - **Investment Highlights**: The focus is on the construction of situational awareness capabilities, particularly in underwater signal processing, which faces significant challenges due to environmental noise and target stealth [5] - **Sector Performance**: Key companies to watch include China Marine Defense, Jizhi Co., and Zhongke Haixun, each with unique capabilities in underwater information acquisition, intelligent underwater technology, and sonar systems [5] - **Company Profiles**: - **China Marine Defense**: Engages in underwater information systems and has acquired assets from various military units [5] - **Jizhi Co.**: Collaborated with Zhijiang Laboratory to develop intelligent underwater sound technology, entering a revenue-generating phase [5] - **Zhongke Haixun**: Provides signal processing platforms and has core technologies in sonar systems, capable of offering comprehensive solutions [5]

Investment Rating - The industry investment rating is "Positive" [2] Core Viewpoints - The report emphasizes the importance of developing deep-sea technology as a new engine for economic growth, with the deep-sea technology-related industries expected to exceed 3.25 trillion yuan by 2025, accounting for over 25% of the marine economy [5][14] - The report highlights the strategic shift of China from a "maritime power" to a "maritime strong power," with deep-sea technology becoming a key focus of national strategy [12][14] - The report identifies four major directions for deep-sea technology: marine resource development, marine technology, marine environmental protection, and marine rights protection [19][57] Summary by Sections What is Deep-Sea Technology? - Deep-sea technology refers to advanced technologies and related disciplines used for exploring, developing, and utilizing deep-sea resources and studying the deep-sea environment [4] Why Develop Deep-Sea Technology? - It is crucial for economic structural transformation and national security, with deep-sea technology expected to play a significant role in safeguarding national interests and resource rights [5] Directions of Deep-Sea Technology - Key areas include marine resource development (renewable energy, deep-sea mining, fisheries, oil and gas), marine technology (carriers, sensors, special materials), environmental protection (green ships, island engineering), and rights protection (polar engineering, integrated information networks) [6][19] Investment Recommendations - Focus on sectors with production material or new infrastructure attributes, specifically deep-sea equipment, deep-sea information technology, deep-sea exploration, and deep-sea special materials [7][59] - Recommended companies include: - Deep-sea equipment: Yaxing Anchor Chain, Zhenhua Heavy Industries, China Shipbuilding, China Power, China Shipbuilding Defense [7][59] - Deep-sea information technology: Zhongtian Technology, Oriental Cable [9][59] - Deep-sea exploration: China Marine Defense, Weiguang Co., Ltd. [9][59] - Deep-sea materials: BaoTi Co., Ltd., Western Materials, Western Superconducting [9][59]