Market Overview - Major stock indices in the Asia-Pacific region showed mixed results, with the Shanghai Composite Index surpassing 4100 points, while Hong Kong's main indices were in the red [1] - The South Korean Composite Index broke through 4900 points for the first time, with Hyundai and Kia Motors both rising over 12% [1] - A-shares experienced a contraction in trading volume, with the Shanghai Composite Index up 0.29% and the Shenzhen Component Index up 0.09%, while the ChiNext Index fell by 0.7% [1][2] Trading Volume and Stock Performance - The total trading volume in the Shanghai and Shenzhen markets was 2.73 trillion yuan, a decrease of 324.3 billion yuan from the previous trading day [1] - Over 3500 stocks in the market rose, with 103 stocks hitting the daily limit [1] Sector Performance - The electric grid equipment sector showed strong performance throughout the day, with stocks like China West Electric, Dalian Electric Porcelain, and Guangdian Electric all hitting the daily limit [3] - The AVIC index opened high and saw all constituent stocks in the green, with AVIC Aircraft, AVIC Power, AVIC Control, and AVIC Technology all hitting the daily limit, while Hongdu Aviation rose nearly 9% [4][5] Hong Kong Market - The three major indices in Hong Kong collectively declined, with the Hang Seng Index and Hang Seng Technology Index both dropping over 1%, and the Hang Seng China Enterprises Index down over 0.8% [6] - Most tech stocks in Hong Kong fell, with Bilibili down over 7%, Alibaba and Alibaba Health down over 3%, and other companies like Kuaishou and JD Health down over 2% [6] Commodity Performance - Gold and silver prices reached new highs, with spot gold nearing $4700 and silver up over 3.6%, marking a year-to-date increase of over 30% [7] - The cryptocurrency market continued to decline, with Bitcoin dropping nearly 3% and over 250,000 individuals facing liquidation, totaling approximately $871 million [7]

Investment Rating - The report rates the military industry as "Overweight" [12] Core Insights - The military industry is expected to have a long-term positive trend, supported by the 20th National Congress of the Communist Party of China, which emphasizes achieving the centenary goal of building a strong military and advancing the modernization of national defense and the military [7][8] - The military sector has recently experienced a decline, with the defense and military index dropping by 5.66%, underperforming the market by 5.21 percentage points [12][13] - Major aerospace state-owned enterprises have set goals for the 14th Five-Year Plan, focusing on advancing aerospace defense industries and internationalization [8][9] Summary by Sections Industry Performance - The military sector index fell by 5.66% from January 12 to January 17, 2026, while the Shanghai Composite Index decreased by 0.45% and the ChiNext Index increased by 1.0% [12][13] - The China Securities National Security Index performed the best among military indices, with a decline of 1.77% [15] Major News in the Military Industry - Internationally, Russia has conducted large-scale strikes on Ukrainian military and energy facilities using precision-guided weapons and drones [21][22] - Domestically, the aerospace industry is focusing on key tasks for the 14th Five-Year Plan, including advancements in manned lunar missions and deep space exploration [8][9] Investment Recommendations - Recommended companies include: 1. Assembly: AVIC Shenyang Aircraft Corporation, AVIC Xi'an Aircraft Industry Group, Aero Engine Corporation of China 2. Components: AVIC Optoelectronics, Zhimin Technology, Shaanxi Huada, Ruichuang Micro-Nano, Unisoc 3. Subsystems: Aerospace Electronics, Guorui Technology, Guobang Electronics, AVIC Avionics, Northern Navigation, Aerospace Nanhu 4. Materials and Processing: Jiachih Technology, AVIC High-Tech, Western Materials, Aviation Materials, Hangya Technology, Guangwei Composite, Filihua, Huayin Technology, Bolite [9][10]

Investment Rating - The report maintains a "Positive" investment rating for the aerospace and defense sector [9]. Core Insights - The report indicates that during the 14th Five-Year Plan period, the production pace of domestic commercial aircraft and the self-sufficiency of commercial aviation engines are expected to accelerate, becoming significant growth drivers for the military aviation sector. This is anticipated to lead to a revaluation of related stocks in the aviation sector [3]. - Over the next 20 years, the global commercial aviation market is projected to reach approximately 48.5 trillion yuan, averaging about 2.4 trillion yuan annually. The Chinese market is expected to accumulate around 10 trillion yuan, averaging over 500 billion yuan per year [6]. - By 2029, China's civil aviation fleet is expected to require more than 400 new commercial aircraft annually, with a cumulative need for nearly 2,000 aircraft during the 14th Five-Year Plan period [6][18]. Summary by Sections Domestic Commercial Aircraft - The domestic commercial aircraft market is expected to break the oligopoly of Airbus and Boeing, which currently hold over 90% of the global market share. The C919 aircraft has various models, including the basic, extended, and plateau versions, with plans for an extended version to enhance market coverage [6][25][33]. - The structure of the C919 aircraft is primarily produced by domestic manufacturers, achieving basic localization. The body structure accounts for approximately 30%-35% of the total value, while the engine and onboard systems account for 20%-25% and 25%-30%, respectively [38][39]. Domestic Commercial Aviation Engines - The domestic commercial aviation engine market is projected to exceed 2.9 trillion yuan over the next 20 years, with an expected demand for over 900 engines annually by 2029. Currently, the market is dominated by foreign manufacturers, with no domestic engines in operation as of 2024 [7][46][49]. - The report highlights that the domestic engine manufacturer, AVIC Engine, is making strides towards self-sufficiency, with products like the CJ1000 and CJ2000 engines showing technological maturity [7][46]. Commercial Aviation Industry Chain - The commercial aviation industry chain consists of three main segments: aircraft body, onboard systems, and engines. Key players include AVIC Xi'an Aircraft Industry Group, AVIC Heavy Machinery, and others, which are positioned to benefit from the growth of the domestic aircraft market [8][9]. - The report emphasizes the importance of achieving self-sufficiency in the aviation engine sector, as it is currently a critical bottleneck for domestic aircraft production [7][46].

Core Insights - The report highlights the promising outlook for the commercial aerospace sector and increased attention on large aircraft and military trade [2][3] - The construction of a space power is accelerating, with a focus on breakthroughs in reusable rocket technology and the development of new industries such as commercial aerospace and low-altitude economy [5][13] - Airbus has set a record for civil aircraft orders, with a total of 8,754 aircraft in backlog by the end of 2025, indicating strong market demand [5][13] - Military trade is expected to improve, with significant defense export growth reported in the UK, reaching over £20 billion in 2025 [5][14] Investment Strategy - The report recommends focusing on companies that align with the "S-curve" evolution, emphasizing supply chain reform and automation trends, with specific recommendations for companies like Aero Engine Corporation and AVIC [5][15] - It also suggests targeting companies involved in military trade, large aircraft, and low-altitude economy, highlighting firms such as Guorui Technology and China Power [5][15] - New emerging industries such as commercial aerospace, AI, and quantum computing are also identified as key areas for investment, with recommendations for companies like Ruichuang Micro-Nano and Ziguang Guowei [5][15] Company Valuation and Financial Analysis - The report provides detailed financial metrics for key companies in the defense and aerospace sector, including expected earnings per share (EPS) and price-to-earnings (PE) ratios for 2025 and 2026 [6] - For instance, Aero Engine Corporation is projected to have an EPS of 0.22 CNY in 2025, with a PE ratio of 184.41x, indicating strong growth potential [6] - Other companies like AVIC Heavy Machinery and Guorui Technology are also highlighted for their expected profitability and market positioning [6][25][27]

Group 1 - The company, AVIC Xi'an Aircraft Industry Group (000768), specializes in the manufacturing of large and medium-sized transport aircraft, bombers, and special-purpose aircraft [1] - The company highlighted that its product types and structures differ from those of other enterprises in the same industry, leading to variations in gross profit margins [1]

Core Viewpoint - The aviation equipment sector experienced a decline of 0.31% on January 15, with Fenghuo Electronics leading the drop, while the Shanghai Composite Index fell by 0.33% and the Shenzhen Component Index rose by 0.41% [1] Group 1: Stock Performance - Hongdu Aviation (600316) closed at 41.64, up by 9.29% with a trading volume of 552,200 shares and a transaction value of 2.285 billion [1] - Hangxin Technology (300424) closed at 19.96, up by 4.72% with a trading volume of 337,200 shares and a transaction value of 661 million [1] - Feilihua (300395) closed at 97.45, up by 3.78% with a trading volume of 388,300 shares and a transaction value of 3.778 billion [1] - ST Lihang (603261) closed at 27.80, up by 3.04% with a trading volume of 12,100 shares and a transaction value of 33.1054 million [1] - AVIC Xi'an Aircraft Industry (000768) closed at 28.80, up by 2.75% with a trading volume of 738,400 shares and a transaction value of 2.12 billion [1] - AVIC Shenyang Aircraft (600760) closed at 61.18, up by 2.34% with a trading volume of 393,000 shares and a transaction value of 2.428 billion [1] Group 2: Capital Flow - The aviation equipment sector saw a net outflow of 1.183 billion from institutional investors, while retail investors had a net inflow of 980 million [2] - The top stock with the highest net inflow from institutional investors was Feilihua (300395) with a net inflow of 4.24 billion, representing 11.23% of its trading volume [3] - Zhonghang Shenyang (600760) had a net outflow of 1.65 billion from retail investors, accounting for 6.81% of its trading volume [3]

Core Viewpoint - The company is actively expanding its commercial aerospace business by leveraging its existing technology and expertise in aerospace components and materials [2] Group 1: Commercial Aerospace Development - The company has applied its commercial aerospace-related technologies to various products, including rocket fairings, satellite composite structure panels, large onboard composite antennas, optical instrument sunshields, and solar sails [2] - A dedicated team has been established to promote the expansion of the commercial aerospace business, with plans to increase R&D investment focusing on lightweight and high-reliability applications of composite materials [2] - The company aims to enhance its integrated service capabilities to seize opportunities in the growing commercial aerospace industry [2] Group 2: Aerospace Equipment Sector - In the aerospace equipment field, the company is leveraging its foundation in large aircraft and rocket component manufacturing to focus on the research and production of related structural components [2] - The company plans to keep pace with industry trends by exploring opportunities for supporting space transportation equipment and deepening collaboration across the industry chain [2]

Group 1 - The company, AVIC Xi'an Aircraft Industry Group, stated that it currently has no cooperative business with AVIC Satellite and AVIC Weitong, and is not a supplier to them [2]

Core Viewpoint - The company, AVIC Xi'an Aircraft Industry Group, is actively expanding its composite materials technology for commercial aerospace applications, showcasing its capabilities in manufacturing large-scale components for rockets and satellites [1] Group 1: Technology and Applications - The company's composite materials technology has been applied to various products, including rocket fairings, satellite composite structure panels, large on-board composite antennas, optical instrument sunshields, and solar sails [1] - The company possesses the largest manufacturing capability for aircraft and components in China, being one of the few entities capable of producing large liquid rocket and aerospace vehicle components [1] - In satellite reflector manufacturing, the company can achieve both "large size" and "high precision" simultaneously [1] Group 2: Business Development - A dedicated team has been established to expand the company's commercial aerospace business, actively engaging with industry chain enterprises [1] - The company plans to focus on technological iteration and capacity enhancement while deepening cooperation to expand application scenarios [1]

Group 1 - The company, AVIC Xi'an Aircraft Industry (000768.SZ), stated on its interactive platform that it is not a supplier for Blue Arrow Aerospace as of now [1]