Zhonghang Securities' 2025 Low Altitude Economic Outlook: The industry is still in the early stages of explosive growth, and "hidden champions" with core technologies may become the focus of investment in NEW FOCUS AUTO.

Aviation Securities issued a research report looking forward to the development of low-altitude economy in 2025. Thanks to the support of national top-level strategies, the low-altitude economic industry has ushered in a golden opportunity for development, and has made certain progress in many aspects. However, the industry is still in the early stages of explosive growth. In the short term, influenced by market styles and the rotation of other sectors, the market trends are unlikely to be immediate. A long and slow bull market is more in line with the overall development stage of the industry. From an investment perspective, stocks in the low-altitude economy that performed well in 2024 are often companies that are visible to the naked eye and have a high relevance to the low-altitude economy. Aviation Securities believes that in 2025, it may be worthwhile to focus on niche areas such as solid-state batteries, electric motor control, drone countermeasures, and other "invisible champions" with core technologies that are expected to achieve excess returns. On January 28, 2025, the 2-ton electric vertical take-off and landing aircraft (eVTOL) V2000CG from Peak Aviation appeared in the CCTV Spring Festival Gala and flew over the "Two Rivers and Four Banks" in Chongqing; EHang Intelligent's EH216-S unmanned passenger-carrying aircraft completed the "Seven Aircraft Formation" in Wuhan and the "Two Aircraft Dance" next to the Canton Tower before the countdown to midnight, once again sparking enthusiastic discussions among the public about the low-altitude economy industry. In 2024, whether in the primary market or the secondary market, the low-altitude economy has become a new and major theme in the capital market due to its wide market space and development prospects. With efforts from governments, industries, and capital, significant resources have been invested to promote industry development. With the collaborative efforts from various parties, the low-altitude economic industry as an emerging economic form continues to improve in its environment and key development areas are gradually becoming clear and progressing in an orderly manner, with some scenarios making pilot landings. 1. Outlook of Low-Altitude Economy in 2025 1) Top-level Design: Central and local policies are joining forces, and regulations are continuously improving. On December 27, 2024, the National Development and Reform Commission officially established the Low-Altitude Economic Development Department, which is responsible for formulating and organizing the implementation of the low-altitude economic development strategy and medium to long-term development plans, proposing policy suggestions, and coordinating major issues. This is the first time that China has set up a dedicated agency to coordinate the development of the low-altitude economy. The establishment of the Low-Altitude Economic Department will serve as the leading unit in the future to accelerate the formulation and improvement of laws and regulations related to the low-altitude economy, providing legal protection for the healthy development of the industry. It will also establish a sound low-altitude flight safety supervision system, improve emergency response capabilities, and ensure the safe operation of the low-altitude economy. This will help standardize the low-altitude economy industry, enhance the level of industry standardization, and provide solid guarantees for the sustained and healthy development of the low-altitude economy. Overall, China's legislation related to the low-altitude economic industry is still in the relatively early stages. This is mainly reflected in the legal provisions in areas such as airspace control intersecting with aircraft flight, data security, personal privacy, which still need to be improved. The low-altitude economy industry involves legal regulations from different fields, requiring not only traditional legal protection for intellectual property and infringement but also addressing emerging legal issues such as privacy protection, data security, airspace management, and flight safety. Aviation Securities predicts that in 2025, local governments will continue to actively explore local policies and regulations to support the healthy and sustainable development of the low-altitude economic industry. On the policy front of the low-altitude economy, China has basically formed a multi-level policy system from the central government to local governments. Central policies have pointed out directions in terms of industry and technology. Local policies are more specific, combining their regional resource endowments and characteristics to formulate and release a series of support policies, showing distinct regional characteristics. 2) Commercial Operation: Airworthiness, airspace opening, and scene application are progressing orderly. Airworthiness certification is an important prerequisite for the commercialization of low-altitude aircraft. As we enter 2025, China's airworthiness certification work has shown a trend towards standardization and acceleration under the joint action of policy promotion, technological development, and market demand. With the establishment of the Low-Altitude Economic Department, 2025 is expected to make greater breakthroughs in airworthiness certification through unified leadership and joint formulation of standardized approvals. However, while achieving a series of results, it is also necessary to realize that the airworthiness certification processes for different types of eVTOL still follow a "case-by-case" basis and a unified set of airworthiness regulations and normative documents has yet to be established. Low-altitude airspace is a key element of the low-altitude economy. In the process of formulating the low-altitude economic industry, various local governments have provided strong support to accelerate the reform of low-altitude airspace management, aiming to achieve classified layout of low-altitude airspace and flight activity supervision. Some provinces and cities have made certain progress. Due to the lack of overall planning and classification guidelines for low-altitude airspace management, regional development strategies remain fragmented. Subsequent industries need to accelerate the formulation of low-altitude economic development plans and implementation plans, clarify roadmaps, compile digital airspace maps, and promote efficient allocation of low-altitude resources. Scenarios and markets are fundamental to the low-altitude economy. In the general aviation field, the scale of scene applications mainly focuses on flight training and agricultural, forestry, and production operations; in the field of new energy aircraft represented by eVTOL, passenger transport is the focus direction and core scene for development, as many companies are still in the research and airworthiness certification phase, with companies like EHang Intelligent, Peak Aviation, etc. conducting demonstrations in passenger transport scenarios. 3) Technological Breakthroughs: Battery motor technology, low-altitude navigation systems, etc. China has a complete industrial chain for the low-altitude economy, but for emerging application markets, some links in the aircraft industry chain and low-altitude new infrastructure still need to combine aviation technology, satellite internet, IoT, cloud computing, artificial intelligence, new energy, new materials, and other multi-disciplinary comprehensive technology breakthroughs. Considering the timing of industrial development, Aviation Securities focuses on key technologies such as aircraft battery and motor systems, and the technological progress of low-altitude navigation systems. In the field of aviation batteries, the energy density of lithium batteries for new energy vehicles is 200Wh/kg, while eVTOL for urban air traffic needs to reach at least 400Wh/kg. The current mature eVTOL battery has an energy density of only 285Wh/kg, far below the specific energy of aviation fuel, and can barely meet the needs of short-distance flights for small all-electric aircraft. There is still much room for improvement in aviation battery technology indicators, and currently, the collaboration between major aircraft manufacturers and new energy battery companies is essential to achieve progress.In the field of electric motors, the motor is the core driving component of the electric propulsion system. Compared to other motor applications, electric aircraft may face extreme environments such as low air pressure and large temperature differences in the air. Additionally, due to limitations in battery energy density, aircraft weight restrictions, and other conditions, the performance requirements of aviation-grade motors are higher than in other industries, requiring high power density, high efficiency, lightweight, low noise, and high reliability. Permanent magnet motors and superconducting motors are considered to be key technological pathways. The low-altitude navigation system is a prerequisite for the low-altitude economy to take off, be managed, and release the vitality of the industry. Currently, urban air traffic management information systems, airspace management support systems, flight service station systems, urban three-dimensional transportation networks, etc., are scattered in different fields such as aviation and communication, making integration difficult. At the same time, China lacks effective network information infrastructure to support low-altitude perception, detection, and communication. Existing perception and detection infrastructure and low-altitude communication systems are inefficient, slow, small in scale, and poorly managed, impacting the high-quality development of the low-altitude economy. The current information infrastructure construction is not sufficient to meet the future large-scale use of low-altitude scenarios. Moreover, there are no unified standards for the demand of various types of infrastructure, and the synchronous advancement of information infrastructure is one of the important nodes for the large-scale promotion of the low-altitude economic industry. Capital Market: Market heat is expected to continue, with more attention on low-altitude new infrastructure and core components. Thanks to the support of the national top-level strategy, the low-altitude economic industry has ushered in a golden opportunity for development, and has made some progress in many aspects. However, the industry is still in its early stage, and in the key industry chain investment links, AVIC Securities recommends focusing on power systems, materials, and physical/information infrastructure-related links. At the primary market level, equity financing in the low-altitude economic field is expected to remain active in 2025. According to IT Juzi data, from January 1st to January 23rd alone, there have been over ten investment and financing events in the low-altitude economic field, with companies like Hangjing Innovation and Baijing Airlines completing financing. It is expected that equity financing in the low-altitude economy will remain active in 2025, with continued government-backed funding. At the secondary market level, AVIC Securities believes that the low-altitude economic industry is not a short-term hot concept but a key development direction supported by the national top-level strategic planning. It has strong sustainability and is worth long-term investment and patient investment. However, due to market trends, rotation of hot sectors, etc., the market trend may not be immediate. A long-term bullish market is more in line with the overall development stage of the industry. From an investment perspective, stocks in the low-altitude economic sector with good performance in 2024 are often companies that are visibly related to the low-altitude economy, AVIC Securities believes that in 2025, one should focus on more specific areas such as solid-state batteries, motor control, counter-drone technology, etc., with core technologies, as hidden champions may achieve excess returns. In addition, in the short term, the upcoming two sessions next month, low-altitude economy, commercial space, and other strategic emerging industries are expected to become hot topics at the two sessions, and continue to drive the introduction of support policies and the acceleration of industry progress. Focus Enterprises in the Low-Altitude Industry Chain AVIC Securities divides the key focus areas of the low-altitude economic industry into three categories: low-altitude airspace management systems, core components of low-altitude aircraft, and the manufacturing of low-altitude aircraft. Source: AVIC Securities Research Institute