China Securities Co., Ltd.: Satellites and the internet industry continue to be a catalyst as state-owned and private enterprises work together to drive rapid industry development.

China Securities Co., Ltd. released a research report stating that the market space for satellite internet in both military and civilian sectors is vast, and the industrial construction urgently needs to be accelerated. In the future, state-owned enterprises and private enterprises will work together to promote the rapid development of the industry. Currently, China's satellite internet industry is entering a period of rapid development, overlapping with the continuous development of traditional satellite applications such as navigation and remote sensing, which constitute the core growth force for satellite manufacturing in the upstream of the industry chain. China Securities Co., Ltd.'s main views are as follows: Since 2024, catalysts in the commercial aerospace field have emerged On the policy side, the government work report in 2024 proposed actively creating new growth engines such as commercial aerospace. Commercial aerospace, as a strategic emerging industry, has received high attention and support from the government. In terms of rocket launches, the construction of the first launch pad at the Hainan International Commercial Aerospace Launch Center has been officially completed, marking a key progress in the formation of launch capabilities at China's first commercial aerospace launch site; the construction of China's fifth aerospace launch site in Xiangshan, Ningbo, is progressing in an orderly manner. On the enterprise side, central state-owned enterprises are accelerating the layout of commercial aerospace, and the satellite manufacturing and rocket launch ends are accelerating to fill the gaps. Aerospace Hi-Tech Holding Group has established commercial satellite and commercial rocket companies in September of this year. With the determination of commercial entities in China, the industry as a whole is expected to accelerate its development. At the same time, with the transformation of the supply chain from the traditional military-industrial supply chain system to the commercial and private markets, costs and efficiency are expected to increase significantly. In terms of products, at the just-concluded 15th Zhuhai Air Show, heavy-duty manned rockets such as the Chang'e-6 lander, the Queqiao-2 satellite, and the heavy-duty launch vehicle were exhibited, demonstrating major progress and breakthroughs in aerospace projects and reusable rocket technology. Satellite manufacturing capacity is transitioning from traditional craftsmanship logic to mass production logic. The tight timeline and heavy tasks of maintaining orbits, as well as the obvious first-mover advantage of SpaceX's Starlink project, are driving the acceleration of the mass production logic in China's satellite internet industry. The low-cost manufacturing and high production capacity of satellites are the two major prerequisites for building massive mega-constellations, in which China still lags behind SpaceX. The completion of the "Satellite Superfactory" in Wenchang, Hainan, is expected to solve the bottleneck in satellite internet manufacturing capacity in China. However, key points that urgently need to be addressed in mass production logic include low-cost manufacturing and reliability, which require further technological and time verification. Cost control on the satellite manufacturing end, as the upstream of the industry chain expands revenue, profit margins may decline or become a future trend The low-cost manufacturing and high production capacity of satellites are the two major prerequisites for building massive mega-constellations, in which China still lags behind SpaceX. Upstream satellite manufacturers trade volume for value, with revenue growth and slight declines in profit margins potentially becoming a future trend. In the trend of mass production, satellite testing is indispensable, with low marginal costs and greater profit elasticity In recent years, with the increasing demand for communication, navigation, weather observation, and other purposes, the global number of satellites has rapidly increased, driving market demand for satellite manufacturers testing. Especially with the rapid development of small satellites and satellite constellations, such as SpaceX's Starlink project, moving from customizing single satellites to mass-producing satellites is an industry trend that requires frequent and accurate testing, bringing huge market opportunities to testing companies. As satellite constellation construction accelerates, the downstream of the industry chain is gradually expanding its supporting space For satellite internet applications, traditional fields such as aviation and marine are expected to lead the way. The maturity of China's high-orbit satellite internet infrastructure is higher than that of the low-orbit satellite internet industry and is expected to be further improved. In the value chain of satellite internet, downstream applications play a crucial role, and the market space for ground receiving terminals and supporting facilities will gradually expand as applications mature. With control by Star Network Group, the establishment of China Space Information Group will coordinate data services in the satellite field. In addition, synergies with traditional operators and equipment providers, such as China Mobile Limited, China Telecom Corporation, and Huawei, will accelerate the progress of the satellite internet industry chain, providing new impetus for downstream applications, cost reduction, and commercialization. Benefiting from the acceleration of satellite constellation construction, China's aerospace launch volume is expected to reach new highs According to Aerospace Hi-Tech Holding Group's activity blue book, China's aerospace in 2024 is highly anticipated, with an expected record-breaking number of around 100 launch missions throughout the year. In terms of commercial aerospace, the first flights of new carrier rockets such as Long March-6B, Long March-12, Tianlong-3, and Graviton-1 will be implemented. The first commercial aerospace launch site will carry out its first launch missions, and multiple satellite constellations will accelerate their network construction. The completion of the Hainan launch pad will lead to increased launch efficiency. Private commercial aerospace has entered a critical period of second-generation product development The conflict between research and development cycles and long-term capital company. The aerospace industry is characterized by "long cycle, high investment, and disruptive innovation." The commercialization cycle of products is long, and research and development investment is high, which poses a huge test to companies' survival. Historically, many commercial aerospace launch companies in the United States competed, but only SpaceX emerged successfully and became profitable, capturing nearly half of the global launch market share. China's commercial rocket companies are closely related to China's constellation construction progress. The technical routes are homogenized, mainly focusing on large thrust, liquid, and reusable fields, resulting in a winner-takes-all market situation. State-owned enterprises and private enterprises work together to promote the rapid development of the industry China's satellite internet industry started late and is accelerating its industrial layout in the face of scarce and non-renewable orbital resources. 1) The country actively integrates advantageous resources, and in 2021, China Spacesat Network Group Co., Ltd. (Star Network Group) was registered in Xiongan, aiming to build a larger low-orbit satellite mobile communication and space internet system.uniteFrom the perspective of market competition, private enterprises have become important participants in the commercial aerospace industry. Commercial aerospace participants in our country are mainly divided into private enterprises, enterprises affiliated with the Chinese Academy of Sciences, and aerospace-related enterprises. Aerospace Hi-Tech Holding Group, Aerospace Science and Technology Corporation, and other aerospace central enterprises lead the diversified satellite internet industry landscape in which private enterprises actively participate. Risk warnings: 1. Defense budget growth lower than expected: In recent years, the defense budget has maintained relatively stable growth, with a positive military industry policy. However, there is a possibility of reduced defense budget expenditure due to changes in national policies and strategies. 2. Market demand fluctuations: Military products are special in terms of national security, and the state has strict control over military procurement. Military procurement is highly planned, and if the procurement plan for equipment is not as expected, the performance of relevant companies in the industry chain will be affected. 3. Progress in related reforms falls short of expectations: The state's judgment on future situations and guiding ideology determines the industry's development prospects. National macroeconomic policies and industrial development policies have a significant impact on the strategic direction, industry selection, and investment and acquisition directions of military enterprises. 4. Pressure from raw material costs: The raw materials for weapon and equipment structural components and components are easily influenced by international situations, macroeconomics, and other factors. If raw material prices rise significantly, it will squeeze enterprise profits. 5. Increased competition risk: In recent years, the country has encouraged private enterprises to participate in the military supply chain. New entrants may squeeze the market share of existing enterprises in the industry, affecting their performance unfavorably. 6. Risk of product price decline: Under the guidance of low-cost procurement by the military, there may be a decrease in product prices, leading to performance falling below expectations.