Investment Rating - The industry investment rating is "Buy" (maintained) [1] Core Viewpoints - The defense budget is steadily increasing, providing a fundamental guarantee for the prosperity of the military industry. The defense budget has maintained a single-digit growth for nine consecutive years since 2016, indicating a stable growth trend [2] - The global situation is tense, and major power competition is intensifying, which necessitates an appropriate increase in military spending to accelerate equipment upgrades and ensure national economic security [2] - China's military spending is about one-fourth of the United States, with a defense budget of 1.67 trillion yuan (approximately 229.41 billion USD) for 2024, which is about 25.89% of the US military budget [3] - The proportion of military spending to GDP in China is below the world average, with China's defense spending remaining under 1.5% of GDP, while the UK is expected to increase its military spending to 2.5% of GDP by 2027 [3] - The government work report emphasizes the need to enhance training and preparation, accelerate the development of new combat capabilities, and focus on major defense projects and network information system construction [4] Summary by Sections Investment Logic - The military budget provides a basic guarantee for the military industry's prosperity, with steady growth in defense spending since 2016 [2] - The current global tensions and major power competition necessitate an increase in military spending to support equipment upgrades and national economic security [2] Global Military Spending Trends - Other countries may enter a high-growth military spending cycle, with significant increases expected in Europe as they respond to security needs [3] - The EU plans to mobilize nearly 800 billion euros for defense spending, indicating a readiness to significantly increase military expenditures [3] Defense Budget Allocation - The defense budget is increasingly tilted towards equipment spending, with the proportion of equipment costs rising from 33.2% to 41.1% between 2010 and 2017 [4] - New combat capabilities and technological innovation are highlighted as key areas for future military spending [4] Investment Recommendations and Valuation - Focus on two structural opportunities: consumable ammunition (missiles, long-range rocket artillery, and aerial bombs) and platform-type equipment, particularly new aircraft and their associated aerospace power industry [5] - Emphasize the importance of new technologies and the potential for military technology to transition into civilian applications, particularly in satellite internet and low-altitude economies [5] - Military trade is expected to open up new demand opportunities, with equipment exports providing significant profit potential for related companies [5]