1. Review of military electronics market:

　　In September, the AVIC Securities Military Electronics Index (-2.59%) and the Military (Shenwan) Index (-1.45%) underperformed the industry by 1.15 percentage points.

　　Since September, the Shanghai Composite Index (-0.30%), Shenzhen Component Index (-2.96%), GEM Index (-4.69%); the top three gainers and losers: Huali Chuangtong (+101.57%), Guoguang Electric (+12.19%), Mengsheng Electronics (+9.21%); the bottom three in terms of gains and losses: Huafeng Technology (-13.40%), Xindong Lianke (-13.17%), and Xtest Testing (-12.08%).

　　2. Main points of this month:

　　Analysis of the mid-term report of military electronics: Performance growth has rebounded month-on-month, and industry profitability has declined. As of the end of August, when the semi-annual report was disclosed, core military electronics companies had a total revenue of 81.034 billion yuan in 2023H1 (+21.10% year-on-year), and a total net profit attributable to the parent company of 12.069 billion yuan. Yuan (+5.15% year-on-year), maintaining positive growth overall. Compared with 2022H1, revenue growth has picked up, and net profit growth has declined more significantly. We believe that on the one hand, this year’s military orders and demand rhythms have been adjusted; on the other hand, It is the decline in profitability caused by price pressure on mature products. From a single-quarter comparison, the total revenue in 2023Q2 was 48.988 billion yuan (+30.54% year-on-year, +52.87% month-on-month), and the total net profit attributable to the parent company was 7.622 billion yuan (+13.42% year-on-year, +71.39% month-on-month), which is gradually recovering. Compared with the military industry as a whole, the net profit growth rate is still better than the overall level of the military industry (+7.07%). For specific analysis, please refer to the text.

　　Military electronics "military technology and civilian use" began to develop

　　With the launch of Huawei Mate60pro-5G mobile phone in September, the number of listed companies in satellite, communications, intelligence and other subdivisions in the military industry sector has increased sharply. Huali Chuangtong (+101.57%), Sichuan Jiuzhou (+23.70%) and Aopu Optoelectronics (+15.12%), the top three stocks in the military industry sector with monthly gains in September, all have certain capabilities in the integrated development of military and civilian products. Other leading stocks such as Hangyu Micro, Shenyu, China Satcom, etc. also have the characteristics of applying high reliability and high-level product technology in the military field to the civilian field.

　　Standing at the present moment, we believe that some substantial changes have taken place in "military technology for civilian use" and "military-to-civilian transformation". The foundation is in place and we are waiting for the "flowers to bloom".

　　① After experiencing the rapid development of military industry in the first two years of the "14th Five-Year Plan", military industry enterprises have made leaps and bounds in terms of technological maturity, production capacity construction, cost control, etc., laying the foundation for "military-to-civilian transformation".

　　② Under the current international situation, the independent and controllable attributes of military industry are highlighted. At present, when the United States imposes sanctions on my country’s science and technology, military technology and civilian use have given important technical support. We believe that military industry is the “vanguard” in building the security of my country’s high-tech industrial chain, and also Will be the beneficiary in advance.

　　③ "Military technology and civilian use" are based on the new rather than the old. The high reliability and high technology of military products in the expansion of civilian use are basically the expansion and application of new things and new fields. From the current fields that can be seen, such as