According to the Zhitong Finance APP, AVIC Securities released a research report stating that several aerospace defense equipment were exhibited for the first time at the Zhuhai Airshow recently, and the disclosure of major space projects and commercial satellite internet constellations from multiple countries is continuously consolidating the certainty of high prosperity development in the aerospace industry over the next few years under the "great aerospace power" global strategy. At the current moment, market risk appetite remains at a high level, and in the short term, the market's optimistic expectations for demand recovery in the aerospace industry may be stronger than the "downtrend" reflected in the third-quarter report fundamentals. The sector's performance will be highly sensitive to certain industry events. In the medium to long term, the future release of industry demand leading to fundamental improvement and valuation recovery brought about by the establishment of new market expectations will guide the aerospace sector's performance into a relatively long-term upward stage.

Event: As of October 31, 2024, the third-quarter reports of listed companies in the aerospace industry have been fully disclosed. According to the overall statistics and analysis of the third-quarter reports of listed companies, there are still demand-side disturbances in multiple sub-sectors including aerospace defense, satellite manufacturing, satellite communications, and satellite remote sensing, with further declines in the year-on-year growth rates of corporate revenue or net income, and short-term demand still under pressure.

The main points of Futu Securities are as follows:

(1) Aerospace Defense: Short-term performance fluctuations still exist, but there are no worries about medium to long-term demand.

① In the first three quarters of 2024, phase fluctuations in demand for the aerospace defense industry still exist, and short-term demand may still be difficult to reflect on the profit and loss statement.

② The aerospace defense sector will become one of the sub-fields of the military industry with a significant comparative advantage in both marginal improvement and potential growth continuity throughout the 14th Five-Year Plan period and into 2025. As a "necessary" equipment for national defense security that combines both information and consumable attributes, the medium to long-term demand for the aerospace defense industry is certain. With the military industry approaching the end of the 14th Five-Year Plan and nearing the 2027 goal of building a strong military, the fluctuations on the demand side of the aerospace defense industry are only temporary. Driven by the restoration of underlying demand growth and the "high prosperity" of the industry, the aerospace defense industry is expected to exhibit higher underlying growth elasticity.

(2) Commercial Aerospace: Under the aerospace power, the industry's development is accelerating and gaining momentum.

In the first three quarters of 2024, the revenue of the satellite industry and its sub-sectors continues to show the inertia slowdown trend of the first half of 2024. In Q1-Q3 2024, the overall growth rate of the satellite industry slowed down, with the year-on-year growth rates of satellite manufacturing, satellite communications, and satellite remote sensing all continuing to decline, while the year-on-year growth rate of satellite navigation continued to improve compared to last year. The details by segment are as follows:

① Satellite Manufacturing: The fluctuations in the profit statement of the satellite manufacturing industry in the first three quarters of 2024 are mainly due to factors such as delays in downstream demand planning adjustments and the upgrading of certain products. However, the year-on-year growth in inventory, along with contract liabilities and advance receipts maintained at a high level, is still expected to gradually materialize into the profit statement. Combined with the plan for a rapid increase in China's aerospace launch frequency in 2024, the industry's revenue and net income scale may be restored in the fourth quarter.

② Satellite Communications: The industry's revenue growth rate in the first three quarters of 2024 remains in single-digit fluctuations. The application market space for the satellite communication industry has yet to see significant changes and faces intensified competition in the global traditional satellite communication application market. However, the continuous expansion of traditional satellite communication equipment and services in the consumer market, ongoing advances in high-orbit satellite internet applications in fields such as civil aviation and maritime, and the continued progress in the construction of the satellite internet industry space infrastructure will all drive the satellite communication industry to gradually accelerate its development in the medium to long term.

③ Satellite Navigation: In the first three quarters of 2024, revenue and net income attributable to the parent company continued to grow. It is believed that the performance growth of companies related to satellite navigation is primarily due to the rising penetration rate of China’s ‘North Three’ satellite navigation terminal market and the ongoing opening of overseas markets. Although contract liabilities and advance receipts have decreased in the first three quarters, the inventory growth rate has remained stable, suggesting that the development of the dual-use satellite navigation industry will remain on the ‘fast track.’

④ Satellite Remote Sensing: In the first three quarters of 2024, the overall year-on-year revenue growth rate of satellite remote sensing companies has recovered to over 10%. Although the net income growth rate has declined, considering that Q4 is the period with the largest share of net income for remote sensing companies throughout the year, and the companies' inventories continue to grow while the construction of spatial infrastructure like remote sensing satellites is continuously improved, it is expected that downstream demand will remain sufficient and the industry growth rate will undergo a recovery.

Fields and individual stocks recommended for attention:

Short-term focus: Aerospace Universe (688523.SH), Geovis Technology Co., Ltd (688568.SH), National Science and Technology Tiancheng (301571.SZ).

Aerospace Defense: Guizhou Space Appliance (002025.SZ), Chengdu Spaceon Electronics (002935.SZ), North Navigation Control Technology (600435.SH), North Industries Group Red Arrow (000519.SZ), Chengdu Huawai (688709.SH), Hubei Feilihua Quartz Glass (300395.SZ), National Technology Tiancheng (301571.SZ);

Commercial Aerospace: Beijing Aerospace Shenzhou Intelligent Equipment Technology (300455.SZ), Guobo Electronics (688375.SH), China Satellite Communications (601698.SH), Aerospace Universe (688523.SH), Jushri Technologies, Inc (300762.SH), Zhenxin Technology (300101.SZ), Guangzhou Haige Communications Group Incorporated (002465.SZ), Geovis Technology Co., Ltd (688568.SH).

Risk reminder: ① Macroeconomic fluctuations may impact the consumer business, and military procurement may fall short of expectations; ② There may be uncertainties in the R&D and finalization progress of certain aerospace equipment, which would impact the growth rate of the entire industry chain; ③ Fluctuations in raw material prices lead to increased costs; ④ With the reform of the military pricing mechanism and the increase in orders, some military products may see a decline in price, negatively affecting the performance of related enterprises; ⑤ The industry is highly prosperous, but if there is a significant increase in a short period, there may be mismatches between performance and valuation for some time.