CITIC SEC: State Grid Constellations begins deployment, optimistic about fundamentals of low-orbit satellite market.

CITIC SEC released a research report stating that on the evening of December 16, 2024, the Long March 5B successfully launched the first batch of network satellites for China National Grid. Other important events within a month include the first launch of the Hainan Commerce-1 satellite and the maiden flight of the Long March 8A. With the Hainan Commerce and new rockets coming into use, the deployment speed of the two major constellations is expected to accelerate. 2025 is set to be the year of explosive growth for low-orbit satellites. After the completion of satellite development and verification, as well as the enhancement of production and launch capabilities by the two major constellations domestically, the number of launches is also expected to experience explosive growth in 2025. The sector market will gradually shift from event-driven to fundamentally-driven, and there is positive outlook for investment opportunities in related materials and components. CITIC SEC's main points are as follows: 1. The Long March 5B successfully launched the first batch of network satellites for China National Grid. According to the Hainan Daily official WeChat account, at 18:00 Beijing time on December 16, 2024, China successfully launched the Satellite Internet Low Earth Orbit 01 satellite using the Long March 5B carrier rocket/Long March 2 upper stage at the Wenchang space launch site. The satellite entered its orbit successfully, and the launch mission was a complete success. 2. Following the first launch of the Hainan Commerce-1 satellite and the maiden flight of the Long March 8A. According to the Hainan Release official WeChat account, on December 15, 2024, the Long March 8A carrier rocket was successfully transported from the technical area to launch site No. 1 at the Hainan Commercial Space Launch Center, where it is set to launch soon. This launch will be the first for launch site No. 1. According to the Hainan News official WeChat account, on December 9, the Long March 8A carrier rocket, developed by China Aerospace Hi-Tech Holding Group, successfully shipped out for the Wenchang space launch site, where it will serve as the future mainstay rocket for China's medium and low Earth orbits. It is scheduled to carry out its maiden flight mission in January 2025. The successful launch of the Hainan Commerce-1 satellite and the maiden flight of the Long March 8A will significantly enhance China's low-orbit satellite launch capabilities, laying a solid foundation for the accelerated deployment of future low-orbit networks. 3. Accelerated deployment of the two major constellations, 2025 as the year of explosive growth for low-orbit satellites. According to Xinhuanet, the combined plan for the state-led China National Grid constellation and the Qianfan constellation is approximately 28,000 low-orbit satellites. The Qianfan constellation has already completed the launch of 54 satellites. According to the plan, the Qianfan constellation will complete the deployment of an initial 648 satellites by 2025, forming a preliminary global satellite Internet system. The first batch of network satellites for the China National Grid was launched 4 months after the Qianfan constellation. With the launch of the Long March 8A rocket before the end of the year and the operation of the Hainan satellite super factory in June 2025, the deployment speed of the China National Grid constellation will also accelerate. Referring to the launch of SpaceX's Starlink satellites, which increased from 120 in 2019 to 833 in 2020, after the domestic two major constellations complete satellite development and verification, as well as enhance production and launch capabilities, the number of launches is also expected to experience explosive growth in 2025. 4. Positive outlook for investment opportunities in materials and components for satellite manufacturing and satellite launch processes. The satellite manufacturing and launch processes are in the mid to upper stream, supporting the satellite Internet industry chain, characterized by technology intensity, capital intensity, and high integration. This segment has high entry barriers and directly benefits from the rapid growth in the number of low-orbit satellite launches. Investment focus is on payload (RF chips, ceramic tube casings) and power systems (Germanium substrates, GaAs CECEP Solar Energy batteries) in satellite manufacturing; and on engine manufacturing (metal materials, C/C composite materials) and proprietary supporting fuels (special combustion gases) in satellite launch processes. Investment strategy: 2025 is set to be the year of explosive growth for low-orbit satellites, and the sector market will gradually shift from event-driven to fundamentally-driven. There is a positive outlook for investment opportunities in related materials and components. Risk factors: China Spacesat Internet construction progress is slower than expected; Commercial Addsino Co., Ltd. performance is lower than expected; Commercial rocket launch success rate is lower than expected; increased competition risk; technology iteration risk; risk of declining prices for related products.