Zhitong Finance has learned that Xinda Securities has released a research report stating that the military industry situation in 2024 will be predicted to include: 1) Low growth first and high growth later, difficulties reversed, the military industry white horses and core track leaders are expected to be the first to see the double recovery of performance and valuation: looking forward to 2024, it is expected that with the landing of medium-range adjustments, the volume of new models, and the application of new technology industrialization, the core tracks such as aviation and aerospace (missiles) are expected to see an improvement in order and acceleration of performance. 2) The new domains and new qualities have many highlights: It is expected that 2024 will be a key year for the increase in C919 domestic aircraft, the acceleration of satellite Internet layout, the intensive launch of commercial rockets, the industrialization of 3D printing, electronic countermeasures, and the accelerated development of underwater attack and defense.

Main viewpoints of Xinda Securities:

The great changes in the world today are accelerating. A new round of technological and military revolutions is changing rapidly, driving long-term growth in the military industry.

1) The intensification of major power games and the rapid changes in the external environment: 2023 Israel-Palestine conflict broke out, Russia-Ukraine conflict continued, and the United States raided Syria, accelerating the evolution of new geopolitical patterns.

2) Countries around the world may enter a high military expenditure growth cycle: the total defense budget for the 2024 fiscal year in the United States is $842 billion (+3.2%), and the defense budget for the 2024 fiscal year in Japan is 7.7 trillion yen, both of which are the highest in history.

3) The resonance of the "equipment cycle + personnel cycle" opens up new growth: the military industry is mainly influenced by the equipment cycle and personnel cycle. From the beginning of 2023 to December 7, the military industry sector fell by 9%, ranking 21/29, with a relatively large decline, but it is expected that the military industry will usher in new prosperity and new opportunities in 2024-2025, opening up new growth.

Predicting the military industry situation in 2024:

1) Low growth first and high growth later, difficulties reversed, the military industry white horses and core track leaders are expected to be the first to see the double recovery of performance and valuation: looking forward to 2024, it is expected that with the landing of medium-range adjustments, the volume of new models, and the application of new technology industrialization, the core tracks such as aviation and aerospace (missiles) are expected to see an improvement in order and acceleration of performance.

2) The new domains and new qualities have many highlights: It is expected that 2024 will be a key year for the increase in C919 domestic aircraft, the acceleration of satellite Internet layout, the intensive launch of commercial rockets, the industrialization of 3D printing, electronic countermeasures, and the accelerated development of underwater attack and defense.

Focus on the three major investment themes:

1) Aviation engines: New equipment volume installation + old equipment renewal. At the current point in time, the entire industry chain has a higher cost-effectiveness ratio from upstream high-temperature alloys, titanium alloys, stealth new materials to midstream forging and casting to aero-engine manufacturers.

2) Focus on the "20 series" military aircraft installation, and focus on the C919 domestic aircraft increase: China's military aircraft have entered the "20" era comprehensively, but it still lags behind the United States significantly and may continue to upgrade in the future. The domestically produced large aircraft represented by the C919 may enter the mass production and delivery phase and is expected to leverage trillion-dollar new markets.

3) Missiles + long-range artillery: the "magic weapon" of modern warfare. The US Department of Defense plans to purchase missiles and ammunition worth $30.6 billion in 2024 fiscal year. With the launch of the military's actual combat training, missiles may usher in strong equipment demand.

Focus on the three main new domain and new quality tracks:

1) Satellites: Satellite Internet + Beidou III + remote sensing are expected to make progress simultaneously. With the construction of low-orbit satellite Internet, the application of "North III" industrialization, and the commercial operation of remote sensing satellites, China's satellite industry may usher in a period of rapid development.

2) 3D printing: from aviation and aerospace to 3C consumer electronics, commercial aerospace and other applications have broad prospects. Subversive technology has entered a new stage of industrialization, downstream market expansion + penetration rate continued to improve, the market space may continue to open.

3) Drones: the new force of future warfare, an important force in the intelligent combat system. In the Russia-Ukraine conflict, drones have taken center stage in modern warfare and are expected to become one of the main directions for the development of various countries' air force equipment in the future.

Stock selection ideas and expected benefiting targets: Grasp the "core track leaders + new domains and new qualities" and find strong Alpha varieties from the three dimensions of "prosperity, certainty, and market space". It is recommended to focus on:

1) The core leaders of the aviation and aero-engine industry chain: AVIC Heavy Machinery (600765.SH), etc. 2) Missile industry chain: Aerospace Electric (002025.SZ), etc. 3) Testing and inspection: Suzhou Testing (300416.SZ), etc. 4) Satellite industry: Astronautics Macroview (688066.SH), etc. 5) 3D printing: Bright Laser Technologies (688333.SH), etc. 6) Drones: Zhongwu Drone (688297.SH), etc.

リスクについての注意事項:

国防支出の規模が予想に満たない；新兵器装備の配備速度が予想に達しない。