Why must we attach importance to the layout of the aero-engine industry? 1) High strategic value: the core technology and market are firmly in the hands of oligarchs in the United States, Britain and other countries, and the embargo is imposed on China's military aero-engines, China's technological breakthrough and self-iteration is imminent; 2) High economy: The value of aero-engines accounts for about 20-30% of the total value of the aircraft, and the relative value created by its unit weight is 1400 times that of the ship. A mature engine model product can usually last for 30 to 50 years with very high economy. 3) High difficulty & heavy accumulation: the development cycle of aero-engine is as long as several decades. For example, the development cycle of F135 engine for F35 fighter is as long as 22 years, which requires a large amount of investment and continuous implementation of advanced technology pre-research and verification plan. U.S. aero-engine research and development funds account for 0.08 percent and 0.06 percent of GDP, respectively.

How to see the space of China's aviation development market? 1) Military manned machine: In the next 10 years, the total demand for military aircraft engines in China will be about 27800 units, and the trillion-dollar market can be expected, of which the total demand for new military aircraft is about 11781 units, the demand for domestic replacement engines is about 3390 units, and the demand for engines driven by maintenance and replacement is about 12606 units.

2) Military UAV: By 2025, China's military medium and large UAV engine market size of about 30 to 4.5 billion yuan. 3) Commercial: It is expected that China will need a total of 9284 aircraft in the next 20 years, China Commercial Flight will add 5162 Taiwan commercial engine demand, the market space is nearly 300 billion, the domestic engine industry is expected to benefit significantly.

engine value chain how to evaluate? The value chain of aero-engine consists of three parts: research and development design (value accounting for 10%), complete machine manufacturing (accounting for 40%) and maintenance operation (accounting for 50%). Among them, the cost of raw materials in the manufacturing stage (accounting for 20%) and the cost of spare parts and aviation materials in the operation and maintenance stage (accounting for 25.5) account for a relatively high proportion of the total life cycle cost of aero-engine. Titanium alloys, high-temperature alloy products suppliers and control system suppliers are expected to continue to benefit.

investment advice: aviation engine track "long slope thick snow", is entering the industrial development of the "early dividend".

China's aero-engine industry started late and its development foundation is relatively weak. With the launch of the "two machines" major project in 2015, China's aero-engine industry has officially entered the development dividend period. Since 2021, with the demand for war preparation has increased significantly, the scale of domestic military aviation engines has been released, and the engine manufacturing end has entered a period of vigorous development. In the future, with the mass production model batch into the factory renovation period, the engine maintenance operation business will usher in a blowout, the engine industry chain is expected to continue to benefit. At the upstream material end, the amount of high-temperature alloy accounts for more than 40% to 60% of the total weight of the engine, and the overlay localization rate is expected to increase. It is recommended to pay attention to Fushun Special Steel (600399.SH), Western Superconductivity (688122.SH), etc. High-end titanium alloys account for 25-40% of the total weight of the engine, it is recommended to pay attention to Baotitanium shares (600456), Western Superconductivity (688122), Western Materials (002149) and so on. The field of engine stealth materials is recommended to pay attention to Huaqin Technology (688281.SH) and so on.

mid-stream manufacturing end, it is recommended to pay attention to mid-stream forging suppliers avic heavy machinery (600765.SH), aerospace technology (688239.SH), Parker new materials (605123.SH), mid-stream casting suppliers aviation materials shares (688563.SH), steel research goner (300034.SZ), tunan shares (300855.SZ), etc.; Focus on aviation engine control system supplier S000.

downstream machine manufacturing and operation and maintenance end, the final assembly link entry barriers are extremely high, both at home and abroad into an oligopoly situation, after the market scale is more considerable, it is recommended to focus on aviation power (600893.SH).

risk tips: equipment demand is not expected to meet the risk.