Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Views - The defense industry is expected to benefit from increasing geopolitical uncertainties, leading to a potential acceleration in military orders [4] - The current valuation of the military industry remains relatively high, with a PE-TTM of 67.34 times, which is at the 65.65% percentile since early 2015, down from 70.35 times two weeks ago [22][12] - The military sector has shown resilience, with a 3.84% decline in the military index over the past two weeks, outperforming the Shanghai and Shenzhen 300 index, which fell by 4.81% [12][11] Summary by Sections 1. Market Review - The military index decreased by 3.84% from November 10 to November 21, while the Shanghai and Shenzhen 300 index decreased by 4.81%, resulting in an excess return of 0.97 percentage points [12] - Among the sub-sectors, ground equipment performed relatively well, with a slight increase of 0.02%, while aerospace equipment saw a decline of 7.30% [13] 2. Industry News Dynamics - Internationally, significant developments include the establishment of a new unmanned systems force by the Russian armed forces and the successful launch of a reusable heavy-lift rocket by Blue Origin [25][26] - Domestically, notable advancements include the successful launch of low-orbit satellites and the delivery of China's first manned airship [29][30] 3. Beneficiary Targets - Key companies to watch include: - Aviation: Huayin Technology, Jiachih Technology, Aero Engine Corporation of China, Western Superconducting Technologies - Overseas gas turbine supply chain: Wanzhe Co., Yingliu Co., Aerospace Technology, Triangle Defense - Commercial aerospace: Zhenlei Technology, Alliance Electronics, Guobo Electronics, Shaanxi Huada, Haige Communication [7]

Core Points - The 2025 Dubai Airshow opened on November 17, showcasing over 200 aircraft and featuring more than 1,500 aerospace and defense companies from over 40 countries, with an expected attendance of 148,000 visitors during the five-day event [1] - China Commercial Aircraft Corporation (COMAC) made its debut at the airshow, presenting the C919 aircraft and the C909 business jet, along with various domestic large cargo drones and advanced aircraft engines [1][2] - The theme of the airshow is "The Future is Here," focusing on advancements in sustainable development, artificial intelligence, space exploration, and smart transportation within the aerospace industry [1] Company Highlights - The C919 aircraft, operated by China Southern Airlines, was showcased alongside the C909 business jet, marking a significant step for Chinese civil aviation and manufacturing on the international stage [1] - A Kuwaiti aerospace engineer praised the high construction quality of the C919, indicating its potential competitiveness in terms of economic efficiency, reliability, and service support as COMAC continues to optimize its aircraft and improve international airworthiness standards [1] - China Aviation Engine Group participated for the first time, presenting a comprehensive range of products including the Taihang engine and AES100 engine, highlighting the most extensive and diverse display of Chinese-made aircraft engines abroad [2]

Core Viewpoint - The company clarified that the United Aircraft T1400 is not equipped with the AES100 engine, despite having signed sales and leasing contracts for the AES100 engine with United Aircraft Group and others [1] Group 1: Company Information - The company's wholly-owned subsidiary, China Aviation Engine Southern Industry Co., Ltd., has entered into sales and leasing contracts for the AES100 engine [1] - The company's engine products are expected to enter the market alongside flight platforms as the national low-altitude environment gradually opens up [1] Group 2: Industry Outlook - The development of the company's engine products is anticipated to promote the growth of the low-altitude economy and the general aviation industry [1]

Group 1 - The 2025 Dubai Airshow features a strong presence of Chinese aerospace products, showcasing various models and technologies for the first time internationally [1][3][5] - The Wing Loong-X drone made its debut in an outdoor static display, marking its first appearance at an overseas airshow [1] - The J-10CE fighter jet, equipped with "PL" series air-to-air missiles, attracted significant attention at the China Aviation Technology booth [3] Group 2 - China Aviation Engine Corporation (AECC) participated for the first time, presenting 19 types of power products across five exhibition areas, highlighting the most comprehensive display of Chinese-made aircraft engines abroad [7] - The L-15 advanced trainer aircraft performed a flight demonstration, showcasing its capabilities after being adopted by the UAE Air Force [7] - The C919 aircraft made its first appearance in the Middle East, alongside the C909, marking a significant milestone for Chinese aviation in the region [8][10] Group 3 - The Russian Su-57E fighter jet also made its debut in the Middle East, performing various maneuvers and showcasing its advanced capabilities [10] - The airshow attracted over 1,500 global aerospace companies and institutions, featuring more than 200 commercial and military aircraft, as well as unmanned aerial vehicles [11] - Notable unmanned combat aircraft concepts were presented, including the YFQ-42A by General Atomics and a collaborative drone by Korea Aerospace Industries [11]

Group 1 - The core viewpoint emphasizes the importance of combining market mechanisms with government planning to enhance resource allocation and address market failures, showcasing the advantages of the socialist system [1] - The five-year plan serves three main functions: it constrains public resource allocation, guides social resource distribution, and stabilizes social expectations, providing clear policy signals for market entities [1] - The AES100 engine, a significant project under the "14th Five-Year Plan," represents China's first independently developed civil turbine engine meeting international airworthiness standards, highlighting advancements in the aerospace sector [3] Group 2 - The planning system allows China to balance short-term market rationality with long-term strategic foresight, facilitating the establishment of a comprehensive industrial system since the early years of the new China [3][4] - The integration of micro and macro perspectives through market mechanisms and planning is crucial for developing a favorable industrial ecosystem, as seen in industries like photovoltaics, drones, 5G, and new energy vehicles [4] - The "14th Five-Year Plan" addresses the issue of insufficient effective demand by emphasizing the expansion of domestic demand as a strategic foundation, indicating a proactive approach to economic growth [5]

Core Viewpoint - The report indicates that changes in customer demand have impacted delivery, leading to a significant decline in revenue and net profit for the company in the first half of 2025, but a notable increase in contract liabilities suggests a gradual recovery in demand [2][4]. Financial Performance - In the first half of 2025, the company reported revenue of 141.0 billion yuan, a year-over-year decrease of 24.0%, and a net profit of 0.9 billion yuan, down 84.6% year-over-year [2]. - The second quarter of 2025 saw revenue of 79.3 billion yuan, a decline of 35.4% year-over-year, with a net profit of 0.8 billion yuan, down 80.8% year-over-year [2]. - The gross margin for the second quarter increased by 0.79 percentage points to 11.9%, while the net margin decreased by 2.40 percentage points to 1.5% [2]. - The company’s contract liabilities reached 62.5 billion yuan by the end of Q2 2025, reflecting a 39.4% increase from the beginning of the year, indicating potential future demand recovery [2][4]. Cost Structure - The company’s operating expense ratio for the first half of 2025 was 9.1%, an increase of 2.01 percentage points year-over-year [2]. - Breakdown of expenses includes: - Sales expense ratio at 0.9%, down 0.67 percentage points year-over-year - Management expense ratio at 4.9%, up 1.16 percentage points year-over-year - R&D expense ratio at 1.5%, up 0.51 percentage points year-over-year due to increased R&D tasks - Financial expense ratio at 1.8%, up 1.01 percentage points year-over-year, with financial expenses of 2.6 billion yuan, a 71.1% increase year-over-year [2]. Subsidiary Performance - The subsidiary LiYang Power showed positive development, with revenue from aviation engines and related products at 128.9 billion yuan, down 24.9% year-over-year [3]. - The South Company capitalized on opportunities in the general aviation engine market, obtaining production licenses for the AES100 engine and signing contracts for six units [3]. - The company is deeply involved in the development of domestic commercial engines, positioning itself to benefit from the growth of domestic large aircraft [3]. Profit Forecast and Rating - The company is the only domestic leader capable of developing a full range of aviation engines and maintains a positive overall development outlook [4]. - Adjusted net profit forecasts for 2025-2027 are 6.17 billion yuan, 9.02 billion yuan, and 12.25 billion yuan, respectively, with corresponding P/E ratios of 173.74, 118.90, and 87.52 [4].

Investment Rating - The report maintains an "Accumulate" rating for the company with a target price of RMB 43.55 [7][5]. Core Views - The company's performance in H1 2025 has been under pressure, with revenue of RMB 14.098 billion, down 23.99% year-on-year, and a net profit of RMB 91.78 million, down 84.57% year-on-year. The decline is attributed to delayed domestic military product demand and lower gross margins due to the immature assembly of new engine models [1][2]. - Despite short-term challenges, the company is viewed positively for its long-term strategic position as the only listed platform for military aviation engines in China, indicating significant growth potential [1][5]. Summary by Sections Financial Performance - In H1 2025, the company reported revenue of RMB 14.098 billion, a decrease of 23.99% year-on-year, and a net profit of RMB 91.78 million, down 84.57% year-on-year. The Q2 revenue was RMB 7.934 billion, reflecting a year-on-year decline of 35.37% but a quarter-on-quarter increase of 28.69% [1]. - The gross margin for aviation engines and related products was 10.03%, down 0.35 percentage points year-on-year, while the overall gross margin was 10.96%, a decrease of 0.31 percentage points [2]. Expense Analysis - The company's expense ratio increased to 9.13%, up 2.02 percentage points year-on-year. R&D expenses rose to RMB 214 million, a 14.54% increase year-on-year, while financial expenses surged by 71.12% to RMB 256 million due to increased interest costs [3]. Subsidiary Performance - Most subsidiaries experienced revenue declines, with the company focusing on developing small and medium-sized civil aviation engines. The AES100 engine received production certification, marking a significant milestone in its market entry [4]. Profit Forecast and Valuation - The revenue forecasts for 2025-2027 are RMB 50.471 billion, RMB 58.067 billion, and RMB 66.823 billion, respectively. The report suggests a PS valuation method, assigning a PS multiple of 2.3 for 2025, leading to a target price of RMB 43.55 [5][11].

Investment Rating - The investment rating for the company is "Buy" and is maintained [9]. Core Views - The company reported a revenue of 14.098 billion in H1 2025, a year-on-year decrease of 23.99%, with a net profit attributable to shareholders of 0.092 billion, down 84.57% year-on-year [2][6]. - The second quarter of 2025 saw a revenue of 7.934 billion, a year-on-year decrease of 35.37%, but a quarter-on-quarter increase of 28.69% [2][6]. - The company anticipates a revenue of 33.565 billion in the second half of 2025, representing a year-on-year increase of 14.4%, with a projected net profit of 0.5 billion, up 88.7% year-on-year [6]. Financial Performance Summary - In H1 2025, domestic business revenue was 12.89 billion (down 24.9% year-on-year), while foreign trade subcontracting revenue was 0.87 billion (down 13.5% year-on-year) [6]. - The company’s gross profit margin for H1 2025 was 10.96%, a decrease of 0.31 percentage points year-on-year, while the net profit margin was 1.07%, down 2.48 percentage points year-on-year [6]. - As of the end of H1 2025, the company had a contract liability balance of 6.254 billion, an increase of 39.42% compared to the beginning of the period [6]. Business Development Insights - The company is focusing on a development strategy that includes both military and civilian aircraft engines, with an increase in the proportion of new aircraft models in mass production [6]. - The company successfully developed a civil small and medium-sized aircraft engine brand, with the AES100 engine receiving production certification from the Civil Aviation Administration [6].

Group 1 - The core viewpoint of the articles highlights China's ongoing efforts to localize its aviation supply chain, particularly in the context of the successful development of the C919 aircraft, which has garnered significant attention for the country [1] - The Longjiang 1000A engine, crucial for the C919, is reportedly making good progress in its development, representing a significant step towards China's self-reliance in aerospace technology [1] - The approval of SINOPEC AEH I, China's first domestically produced aviation hydraulic oil, marks a milestone in the country's aviation sector, making China the third nation globally capable of producing aviation-grade phosphate ester hydraulic oil [2] Group 2 - The AES100 engine has received a production license and sales contracts, being the first domestically developed 1000 kW class advanced civil turboshaft engine that adheres to international airworthiness standards, indicating a major advancement in China's aviation capabilities [2] - A new lightning protection technology system has been introduced by Hefei Aerospace Electric Physics Technology Co., which aims to enhance the safety of commercial aircraft in complex weather conditions, potentially improving the reputation of Chinese-made aircraft and facilitating overseas airworthiness certification [3]

Group 1 - The core strategy of the company is to implement a collaborative development approach for military and civilian aircraft, as well as domestic and international markets, focusing on the low-altitude economy and general aviation engine market [1] - The company has achieved significant results in the first half of 2025, particularly in the development of the AES100 engine, which meets international airworthiness standards and has overcome over 200 core technologies [3] - The AES100 engine has received a production license from the Civil Aviation Administration of China in April 2025, marking its transition to industrial mass production [3] Group 2 - Following the success of the AES100, the company has developed the AEP100 turboprop engine, which has a power output of 900 kW and is designed for various aircraft types, showcasing strong performance and market potential [4] - The AEP100 engine has been recognized in the market, with its initial delivery for the W5000 unmanned cargo aircraft in June 2025, indicating a significant step towards commercialization [4] - The company is actively engaging with domestic general aviation platforms to analyze application scenarios and customer needs for the AEP100 engine, aiming to promote the localization of aviation power systems [4] Group 3 - The company plans to strategically allocate resources to proactively explore both domestic and international markets, aiming for continued success in the general aviation power brand [5]