Analysis of the Impact of Rising Civilian Business Proportion on AVIC Optoelectronic (002179.SZ)'s Valuation System

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The proportion of civilian business of AVIC Optoelectronic has increased from the historical structure where military products accounted for about 70% to the current 50%-60% civilian business proportion, which is triggering a profound restructuring of its valuation system. The company is transforming from a “pure military enterprise” to a dual-driven model of “military industry + high-end manufacturing”, and this transformation will bring about a fundamental adjustment of valuation methods. The current P/E valuation of 27.5 times is at a historical mid-to-low level. The rise in the proportion of civilian business is both a driving factor for valuation restructuring and a necessary cost to open up growth space.

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Indicator	Value	Remarks
Total Market Value	Approx. RMB 788.6 billion	[0]
Current Stock Price	USD 37.23	[0]
P/E (TTM)	27.50x	At historical mid-to-low level [0]
P/B	2.98x	[0]
ROE	10.85%	[0]
Net Profit Margin	11.49%	[0]

According to public market information [1][2], the business structure of AVIC Optoelectronic has undergone significant changes:

• Proportion of military business: Approximately 70%
• Proportion of civilian business: Approximately 30%

• Proportion of military business: Approximately 40%
• Proportion of civilian business: Approximately 60%

This structural transformation reflects the in-depth advancement of the company’s “military-civilian integration” strategy, and also marks the company’s transformation from a single military enterprise to a comprehensive high-end manufacturing enterprise.

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The rise in the proportion of civilian business is reshaping the market’s valuation logic framework:

Military enterprises usually enjoy a “certainty premium”, and their valuation characteristics include [3]:

• High technological barriers
  : Over 60% market share in the aviation sector, over 40% in the aerospace sector, with extremely high entry barriers
• Planned economy attributes
  : Strong order stability, high predictability of cash flow
• Valuation methods
  : Mostly use PS (Price-to-Sales) valuation or PE valuation with industry premium
• Valuation center
  : P/E of pure military electronics enterprises is usually in the range of 50-80x

After the proportion of civilian business exceeds the 50% threshold, the market begins to adopt a more general valuation framework:

• Increased marketization
  : Civilian business faces more fierce market competition with greater price flexibility
• Cyclical characteristics emerge
  : Businesses such as new energy vehicles and AI liquid cooling have obvious industry cyclical attributes
• Valuation methods
  : Return to a manufacturing valuation system dominated by PE/PB, supplemented by PS and DCF
• Focus of attention
  : Shift from “order certainty” to “market share” and “growth”

The rise in the proportion of civilian business has a two-way impact on the valuation center:

Factor	Mechanism of Impact	Degree of Impact
Erosion of military industry premium	Increasing proportion of civilian business reduces the company’s overall “military attribute”	Medium-term pressure
Gross profit margin pressure	Fiercer competition in civilian business, price wars in new energy vehicle connectors	Short-term pressure
Increased performance volatility	Cyclical characteristics of civilian business increase profit volatility	Medium-term pressure
Increased market competition	Increasing number of new entrants, reshaping of industry pattern	Sustained pressure

According to market analysis [1][2], AVIC Optoelectronic’s net profit attributable to parent companies in the first three quarters of 2025 decreased by 30.89% year-on-year, and the net profit in Q3 alone decreased by 64.5% year-on-year, mainly dragged down by both the settlement rhythm of military orders and price wars in civilian business.

Factor	Mechanism of Impact	Degree of Impact
Expanded growth space	Trillion-level market space for new energy vehicles, continuous increase in penetration rate	Long-term support
Commercial aerospace sector	Policy support + intensive launches of private rockets, supporting value per satellite is RMB 1-2 million	High elasticity
Emerging scale effects	Unit cost decreases after capacity expansion	Medium-term support
Business diversification	Reduces dependence on single military orders, enhances risk resistance capability	Long-term support

Based on comparable company analysis and industry development rules, the valuation system restructuring of AVIC Optoelectronic can be divided into four stages:

Stage	Characteristics	Valuation Center (P/E)
Stage 1	Pure military industry valuation	Approx. 55x
Stage 2	Military-civilian integration transition period	Approx. 40x
Stage 3	Dual-driven valuation restructuring	Approx. 32x
Stage 4	Establishment of new valuation system	Approx. 35x

Currently, the company is in the transition process from Stage 3 to Stage 4, and the market is re-pricing the company’s growth logic.

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Company Type	Representative Companies	Median P/E	Median P/B	Valuation Characteristics
Military electronics	AVIC Shenfei, Aero Engine Corporation of China	50-80x	5-8x	High barriers, high premium, order certainty
Connector leaders	Luxshare Precision, RECODA	25-40x	4-6x	Manufacturing attributes, growth-driven
New energy vehicles	BYD, CATL	30-50x	5-8x	High growth, favorable track, policy support
Data centers	Zhongji Innolight, Inspur Information	25-40x	3-5x	AI-driven, cyclical fluctuations

The current P/E valuation of 27.5x is at a mid-to-low level among comparable companies [0]:

• Relative to military electronics
  : A discount of approximately 40%-50%, reflecting the market’s cautious pricing of civilian business
• Relative to connector leaders
  : Near the upper limit of the reasonable range
• Relative to new energy vehicles
  : A discount of approximately 10%-20%

From the perspective of valuation repair, the company’s current valuation has fully reflected the negative impact of civilian business. If the commercial aerospace and new energy vehicle businesses continue to exceed expectations, the valuation has upward elasticity.

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AVIC Optoelectronic has a strong technological moat in the military connector field, being the only enterprise with a high-density circular military standard production line. Its products are supporting major national projects such as the J-20, C919, and space station [1]. This technological barrier is also competitive in civilian business: inter-board connectors reduce weight by over 50% to meet the lightweight needs of commercial rockets.

The new energy vehicle business is expected to grow by over 50% in 2025, and the AI liquid cooling business doubled in the first half of 2025 [1]. The penetration rate of 800V high-voltage platforms drives the value per vehicle from hundreds of yuan to RMB 1,000-2,000. The company’s liquid cooling business has a revenue target of over RMB 2 billion.

Business coverage has expanded from a single military industry to multiple high-prosperity tracks such as new energy vehicles, commercial aerospace, data centers, and 5G communications, reducing the cyclical risk of a single industry.

Competition in the fields of new energy vehicle high-voltage connectors and data center liquid cooling is fierce, with downward pressure on prices and gross profit margins. According to market analysis [2], civilian business is facing pressure from price wars, squeezing profit margins.

Q3 2025 financial report shows that the company’s actual EPS is USD 0.14, which is lower than the expected USD 0.56 (-74.84%); actual revenue is USD 4.65 billion, lower than the expected USD 6.27 billion (-25.81%) [0]. Performance volatility has increased significantly.

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1. Valuation restructuring window period
   : Currently in a critical period of valuation system reshaping, the market is re-pricing the company’s growth logic and risk characteristics.
2. Focus on valuation switching nodes
   : Concentrated delivery of military orders (closing of the 14th Five-Year Plan + warm-up of the 15th Five-Year Plan, defense orders in 2025 increased by 40% year-on-year), volume growth of commercial aerospace orders, and growth rate of new energy vehicle business will become catalysts for valuation repair.
3. Long-term growth logic remains unchanged
   : The company’s core competitive barriers (technology, customer relationships, industry status) have not been weakened by the increase in the proportion of civilian business; instead, business diversification has enhanced its risk resistance capability.

Risk Type	Specific Description
Short-term performance pressure	Net profit in the first three quarters of 2025 decreased by 30.89% year-on-year, and Q3 single-quarter profit decreased by 64.5% year-on-year
Increased competition in civilian business	Price wars in new energy vehicle connectors may continue
Capacity ramp-up risk	Capacity release of commercial aerospace and liquid cooling businesses takes time
Capital market volatility	Main capital net outflow of RMB 9.9945 million on December 30

• Military business
  : Growth rate of military revenue, gross profit margin of military products, changes in contract liabilities
• Commercial aerospace
  : Quarterly commercial aerospace order value, launch frequency of private rockets
• Civilian business
  : Growth rate of new energy vehicle business, achievement rate of liquid cooling revenue target
• Valuation repair
  : Year-on-year growth rate of net profit, main capital flow direction

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The figure above shows the comprehensive impact of the increase in the proportion of AVIC Optoelectronic’s civilian business on its valuation system:

1. Business structure change
   : The proportion of civilian business has increased from approximately 30% to 60%, and the proportion of military business has decreased accordingly
2. Valuation center comparison
   : Significant valuation differences exist under different business structures, with pure military industry valuation reaching over 50x
3. Valuation driving factors
   : Positive drivers and negative pressures coexist, and core technological barriers remain the core support
4. Valuation restructuring path
   : Gradually transition from a pure military industry PE of 55x to a new valuation system PE of 35x

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AVIC Optoelectronic’s civilian business proportion has increased to over 50%, which is triggering a fundamental restructuring of its valuation system. This transformation brings the following core impacts:

1. Change in valuation methods
   : Transition from the military industry valuation paradigm (PS + certainty premium) to the general manufacturing valuation paradigm (dominated by PE/PB)
2. Reshaping of valuation center
   : In the short term, there may be pressure on the valuation center to move downward, but in the long term, the opening up of growth space will provide new support for valuation
3. Switch in investment logic
   : The market’s focus has shifted from “order certainty” to “growth” and “market share”, and the investment framework needs to be adjusted accordingly
4. Current valuation is reasonable
   : The P/E ratio of 27.5x is at a historical mid-to-low level, which has fully reflected the negative impact of civilian business. If the performance inflection point is confirmed, the valuation has upward repair space

The company is standing at a critical node of valuation restructuring. Its core technological barriers remain unchanged, and its business diversification strategy lays a foundation for long-term growth. It is recommended to pay attention to performance inflection point signals and the progress of military order delivery.

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[0] Jinling API Market Data - Real-time Quotes and Financial Analysis of AVIC Optoelectronic (002179.SZ)

[1] Eastmoney - “Please Pay Attention to AVIC Optoelectronic” (https://caifuhao.eastmoney.com/news/20251230184502065274840)

[2] Eastmoney - “Major Impact of Accelerated Commercial Aerospace Satellites on AVIC Optoelectronic” (https://caifuhao.eastmoney.com/news/20251231172509762397320)

[3] Caifuhao - In-Depth Research Report PDF of AVIC Optoelectronic (http://pdf.dfcfw.com/pdf/H3_AP201712071063896974_01.pdf)