Given that the escalating global geopolitical risk, such as threats from North Korea and Middle East, many countries are now increasing their defence budget and are spending huge sums in advanced military products procurement. Invbots has analysed some of the key US defense giants’ fundamentals, constructed financial models to project earnings, and developed corresponding investment strategies in regard to US defense sector. You may also view our presentation here: https://youtu.be/rN5Ba5YJe5Q InvBots.com (Invest Bots Limited), is a fast growing fin-tech with clear vision, game-changing strategies and extensive experience, network in global financial industry.

1. ARE YOU READY FOR WAR HORN?
Sharing on US Defense Sector Investment Strategy
Senior Business Analyst Nelson Cheung
Senior Business Analyst Stephanie Poon

3. 0
2
4
6
8
10
12
14
16
1984 1988 1990 1993 1998 1999 2002 2004 2005 2006 2009 2012 2013 2014 2015 2016 2017
Times
North Korea Missile Tests
Source: Wikipedia
GUESS: How many missiles has been fired by North Korea in 2017?

5. Key Takeaways
1. US FY2018 defense budget rise
• External: rigid demand from international sales
• Internal: strong consensus between Trump and Congress
2. Key focus for US procurement and export
• Aircraft Missiles Radar
3. Our core holdings in our portfolio top picks
• Lockheed Martin (LMT.US): US$314.4 (13.3% upside)
• Raytheon (RTN.US) US$199.0 (23.2% upside)
4. Portfolio performance
• ROIC: 7.09%
• ROC: 5.32%
DCF Value

6. Global Geopolitical Risk
0
100
200
300
400
500
600
Jan-85
Jul-85
Jan-86
Jul-86
Jan-87
Jul-87
Jan-88
Jul-88
Jan-89
Jul-89
Jan-90
Jul-90
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
GPR Benchmark Index
US bombs
Libya
US Invasion
of Panama
Kuwait
Invasion
Gulf War
Iraq Disarmament
Crisis 1998
11/9
Iraq invasion
Madrid
bombings
London
bombings
Iran/Nuclear
Tensions
Arab Spring:
Syrian &
Lybian War
Syrian Civil
War Escalation
Russia annexes
Crimea
ISIS
Escalation
Paris
Attack
Source: Caldara, Dario and Matteo Iacoviello, “Measuring Geopolitical Risk," working paper, Board of Governors of the Federal Reserve Board, August 2017

7. And More…
7/2016
• Turkish military coup
7/2017
• North Korea tests ICBM
8/2017
• Freedom of navigation of USS Dewey in South China Sea

8. Countries’ Defense Budget
US
53%
China
16%
UK
5%
India
4%
Saudi Arabia
4%
Russian Federation
4%
France
4%
Japan
4%
Germany
3%
South Korea
3%
Top 10 countries with largest defense budget
-25%
-15%
-5%
5%
15%
25%
35%
45%
US China UK India Saudi Arabia Russian
Federation
France Japan Germany South Korea
Growth rate of countries' defense budget 2016
Source: Wikipedia

9. Weapon Export Market
74%
58%
Major Buyers
United States Russia China Germany France
South Korea (9%)
Japan
Taiwan
Saudi Arabia
India (40%)
China
Algeria
Pakistan (41%)
Bengal
Myanmar
18 African countries
UK
Qatar
Morocco (18%)
China (14%)
1. Alliance (e.g. NATO, US-Japan Treaty), 2. Quality of defense systems are major export considerations
1 2 3 4 5
Source: Sipri

10. Japan Defense Budget 2017Product Company Units Cost (USD bn)
P-3C Lockheed Martin 3 21.1
F-35A Lockheed Martin 6 806.1
F-35A Lockheed Martin n.a. 283.0
F-2 Lockheed Martin 16 48.5
WorldView-4 Lockheed Martin 1 99.8
SM-3 Block-IIA Raytheon n.a. 2.7
PAC-3MSE Lockheed Martin, Raytheon n.a. 967.3
SH-60K General Electrics 4 43.1
AWACS Boeing 2 201.5
KC-46A Boeing 1 273.9
CH-47JA Boeing 6 407.6
V-22 Boeing 4 358.2
RQ-4B Northrop Grumman 1 153.9
RQ-4B Northrop Grumman n.a. 17.4
AAV7 BAE Systems 11 77.9
Citation 680A Cessna 2 87.0
Total US export 3,849.0
External procurement to total budget: 8.58%
Source: Japan Ministry of Finance
30
35
40
45
50
55
60
65
600
700
800
900
1,000
1,100
1,200
1,300
1,400
2010 2011 2012 2013 2014 2015 2016 2017
USDBillions
USDBillions
Japan Budget - Total vs Defense
Total Budget (RHS) Defense Budget (LHS)

11. South Korea Defense Budget 2018
External procurement to total budget: 11.14%
Total US export: US$3.85 Bn
Product Company Units Delivery schedule
THAAD launcher Lockheed Martin 4
F-35A Lockheed Martin 40 By 2021
MH-60R Lockheed Martin n.a.
P-3C Lockheed Martin n.a. Since 2016
S-3B Viking Lockheed Martin 12
PAC-2 Lockheed Martin, Raytheon n.a.
PAC-3 Lockheed Martin, Raytheon n.a.
RQ-4 Northrop Grumman n.a.
CH-47D Boeing n.a. Since 2018
HH-47D Boeing n.a. Since 2018
P-8A Boeing n.a.
AW-159 Leonardo 8 Since 2013
Source: Financial Times
22.5
24.5
26.5
28.5
30.5
32.5
34.5
36.5
38.5
40.5
200
220
240
260
280
300
320
340
360
380
2010 2011 2012 2013 2014 2015 2016 2017 2018
USDBillions
USDBillions
Korea Budget - Total vs Defense
Total Budget (RHS) Defense Budget (LHS)

12. How About the US?
-10.53%
0.64%
-3.60%
3.55%
1.14%
8.91%
-15%
-10%
-5%
0%
5%
10%
2013 2014 2015 2016 2017 2018
Defense Spending % Change
SHARP increase in
2018 under Trump’s
Administration
12.13%
Difference between
Trump’s and Congress's
request
Source: United States Department of Defense FY 2018 Budget Request

13. Drivers of the US Defense Budget
Conventional view:
But war is a matter of contingency, so in our view:
Outbreak of war?
Greater resource
allocation in national
defense
Defense budget cut in
a warless world
Yes
No
Discretionary analysis
results in more polarized
decision making!!
Rise in military &
geopolitical risks?
Gov. raise their
spending BEFORE
wars break out:
- Procurement
- R&D
- Training
Continuous measure
More threats from ISIS
and North Korea will be
signals for military
advancement!!

14. 23%
43%
20%
13%
0%
1%
0%
FY 2018 Defense Budget Breakdown
Military Personnel
Operation and Maintenance
Procurement
RDT&E
Revolving and Management Funds
Military Construction
Family Housing
Defense Budget Procurement
Procurement spending up 10% YoY
(FY2017/18: US$190/209 Bn)

15. Defense Budget Procurement Breakdown
Source: United States Department of Defense FY 2018 Budget Request
0%
5%
10%
15%
20%
25%
30%
35%
40%
Aeronautics Missiles and fire
control
Marine / submarine Mission systems /
radar
Others (cyber /
combat)
Space systems
Growth rate of procurement as of defense budget
Our focus
Aeronautics Large weighting (24%), consistent
growth
Missiles Increasing demand from
international sales
Marine One-time contract with long
production cycle
Radar High growth due to technological
advancement
Space
systems
High growth due to base effect

16. Companies In Benefit
Stocks in iShares US Defense ETF Market Value Principal Businesses
United Technologies US$91.91 Bn Aerospace systems for military aircraft, international
space programs
Lockheed Martin US$87.2 Bn Military aircraft, missiles, space systems
General Dynamics US$59.61 Bn Military aircraft, missiles, marine systems, combat
systems, information systems
Raytheon US$51.67 Bn Radars, satellite sensors, communications, missile
defense systems, simulators
Northrop Grumman US$46.9 Bn Military aircraft, spacecraft, marine ships, radars,
information systems
Accounted for 42.3% of 40 Largest Defense Stocks
Source: Yahoo Finance

17. Product Analysis - Overview
Sector /
Performance
Aeronautics
Missiles and fire
control
Marine /
submarine
Mission systems
/ radar
Space systems
Others (cyber /
combat)

18. Product Analysis - Aeronautics
FY 17 FY 18 Budget
Number Spendning ($ in Mn) Number Spendning ($ in Mn) Prime Contractor
Attack Aircraft
F-35 Joint Strike Fighter 68 11,324 84 9,500 LMT
LRS Long Range Strike / 2,241.7 / 2,945.4 NOC
Surveillance Aircraft
RQ-4 / MQ-
4C
Global
Hawk/Triton/NATO AGS
/ 1,213.6 / 1,282.3 NOC
Military Transport Aircraft
UH-60 Black Hawk 53 1,352.3 56 1,050 LMT
KC-46A Tanker 15 3,318.5 15 2,400 BA
Source: FY 2018 Budget Request - Program Acquisition Cost By Weapon System

19. F-35 FACT SHEET
📌 Basic Information
o Manufacturer: LMT
o Role: Stealth multirole fighter
o Primary Customers: U.S. Air Force, Marine Corps, Navy
o Cost / Selling Price: USD 110-130 Mn / 150 Mn per unit
📌 12 Global Participants
o Partner: Australia, Canada, Denmark, Italy, Netherlands, Norway, Turkey,
United Kingdom, United States
o Foreign Military Sales: Japan, Israel, Korea
📌 Outstanding Commitments
o U.S.: 57 (Air Force inventory objective: 2,443)
o Japan: 42
o Israel: 50 (2 delivered)
o Italy: 90 (1 delivered)
o Denmark: 27
o Backlog volume: 173
Source: FY 2018 Budget Request - Program Acquisition Cost By Weapon System

20. Product Analysis – Missiles and Fire Control
FY 17 FY 18 Budget
Spending ($ in Mn) Spending ($ in Mn) Prime Contractor
AEGIS AEGIS Ballistic Missile Defense 1,568 1,610.60 LMT - Aegis Weapon
System
RTN - SM-3 Interceptor
THAAD Terminal High Altitude Area Defense 793.1 718.00 LMT
GMD Ground-based Midcourse Defense 1,192.7 1,370.40 BA
Patriot/PAC3 Patriot Advanced Capability 543 515.10 RTN, LMT
PAC 3/MSE
Missile
PAC-3/Missile Segment Enhancement
Missile
702 459.00 LMT
Source: FY 2018 Budget Request - Program Acquisition Cost By Weapon System

21. THAAD FACT SHEET
📌 Basic Information
o Manufacturer: LMT (main contractor), RTN, BA
o Role: Anti-ballistic missile defense system
o Primary Customer: U.S. Army (or Department of Defense)
📌 Product Features
o Targets: Short-/medium-range ballistic missiles, mass destruction weapons,
fighter aircrafts (100% mission success since 2005)
o Tackling Areas: Endo-/exo-atmosphere using kinetic energy
o Components: interceptors, launchers, a radar, a fire control unit, support equipment
o Radar coverage: Around 2,000 km
📌 Deployments
o U.S.
o South Korea
o Japan
o Taiwan
o UAE 2014 flight testing results
Source: Wikipedia

22. Patriot Advanced Capability (PAC-3) FACT SHEET
📌 Basic Information
o Manufacturer: LMT (main contractor), RTN, BA
o Role: Surface-to-air anti-ballistic missile system
o Primary Customer: U.S. Army
o Unit Production Cost: USD 1-6 Mn
📌 Product Features
o Targets: Tactical ballistic missiles, cruise missiles, fighter aircrafts
o Tackling Areas: 70 km radius at 24 km height using explosive warhead
o Components: Similar to THAAD
o Radar coverage: Around 100 km
2012 flight testing results
📌 Deployments
o U.S.
o South Korea
o Japan
o Taiwan
o Netherlands
Source: Wikipedia

23. Product Analysis - Marine
FY 17 FY 18 Budget
Number Spending ($ in Mn) Number Spending ($ in Mn) Prime Contractor
CVN 78 Gerald R. Ford Class Nuclear
Aircraft Carrier
0 2791.1 1 4638.1 HII
DDG 51 Arleigh Burke Class Destroyer 2 3498.3 2 4013.7 GD,HII
LCS Littoral Combat Ship 2 1598.9 1 1152.6 LMT,Marinette Marine
Corporation
SSN 774 Virginia Class Submarine 2 5322.3 2 5546.3 GD,HII
SSBN 826 Columbia Class Submarine 0 1864.3 0 1884.5 GD
CVN Refueling Complex Overhaul / 1991.8 / 1680.8 HII
LHA America Class Amphibious Assault
Ship
1 1648.2 0 1748.3 HII
Source: FY 2018 Budget Request - Program Acquisition Cost By Weapon System

24. Product Analysis - Space
FY 17 FY 18 Budget
Spending ($ in Mn) Spendning ($ in Mn) Prime Contractor
AEHF Advanced Extremely High Frequency 904.7 202.6 LMT
EELV Evolved Expendable Launch Vehicle 1803 1861.5 ULA, SpaceX
GPS Global Positioning System 1004.7 1104.2 GPS III: LMT
GPS OCX: RTN
GPS MGUE Inc 1: L3
Interstate Electronics
Corporation; Rockwell
Collins International; RTN
SBIRS Space Based Infrared System 581.3 1425.3 LMT
Source: FY 2018 Budget Request - Program Acquisition Cost By Weapon System

25. Reasons to invest
1. Defensive portfolio
2. Low correlation with market
3. Diversified product mix
4. Attractive valuation
5. Favorable signals from stock repurchase
Industry
Firm-specific

26. -10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
6/1/2017
6/3/2017
6/5/2017
6/7/2017
6/9/2017
6/11/2017
6/13/2017
6/15/2017
6/17/2017
6/19/2017
6/21/2017
6/23/2017
6/25/2017
6/27/2017
6/29/2017
7/1/2017
7/3/2017
7/5/2017
7/7/2017
7/9/2017
7/11/2017
7/13/2017
7/15/2017
7/17/2017
7/19/2017
7/21/2017
7/23/2017
7/25/2017
7/27/2017
7/29/2017
7/31/2017
8/2/2017
8/4/2017
8/6/2017
8/8/2017
8/10/2017
8/12/2017
8/14/2017
8/16/2017
8/18/2017
8/20/2017
8/22/2017
8/24/2017
CumulativeReturn(%)
Relative Performance By Stocks
LMT RTN NOC GD UTX HII S&P 500 iShares Defense ETF
Defensive Portfolio
Our top picks (LMT, RTN) yield
the most and we continue to
explore new position in HII!
Planning Stage
First
buy
Congress
passed Trump
administration
North Korea
launched
ICBM testing
Second
buy
North Korea announced its plan to attack Guam,
Trump responded by “Fire and Fury” speech
North Korea launched
4 short-range missiles

27. September
1. Finalization of Trump administration
2. Extension of national debt ceiling
3. U.S. balance sheet unwinding
4. Threat of another missile testing in North Korea…
Defensive Portfolio
First Buy – 29 June Second Buy – 10 July Third Buy (Proposed) - September
Order Price
(US$)
Cum. portfolio
Weighting (%)
Order Price
(US$)
Cum. portfolio
Weighting (%)
Order Price
(US$)
Cum. portfolio
Weighting (%)
LMT 279.25 19.6 n.a. 19.5 298.10 25.5
RTN 162.03 19.4 n.a. 19.4 175.30 22.9
NOC 256.72 12.8 260.90 18.1 n.a. 18.1
GD 200.21 14.0 198.80 18.0 n.a. 18.0
UTX n.a. 0.0 n.a. 0.0 n.a. 0.0
HII n.a. 0.0 n.a. 0.0 201.90 10.1
Undeployed
Capital
n.a. 34.2 n.a. 25.0 n.a. 5.4
30 June
Congress passed Trump
administration
4 July
North Korea launched
ballistic missiles
As at 29 Aug:
ROIC: 7.09%
ROC: 5.32%
Source: Yahoo Finance

28. Low Correlation with Market
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1
1.05
1.1
8/15/2014
9/15/2014
10/15/2014
11/15/2014
12/15/2014
1/15/2015
2/15/2015
3/15/2015
4/15/2015
5/15/2015
6/15/2015
7/15/2015
8/15/2015
9/15/2015
10/15/2015
11/15/2015
12/15/2015
1/15/2016
2/15/2016
3/15/2016
4/15/2016
5/15/2016
6/15/2016
7/15/2016
8/15/2016
9/15/2016
10/15/2016
11/15/2016
12/15/2016
1/15/2017
2/15/2017
3/15/2017
4/15/2017
5/15/2017
6/15/2017
7/15/2017
10-Year Beta (Daily)
UTX LMT GD RTN NOC Industry

30. 1 Basic Information
• Found in 1912
• Market Capitalization: USD87.2 Bn
• Traded as: NYSE:LMT
S&P 100 Component
S&P 500 Component
2 Key Milestones
1912-1926
Underwent M&As to form
Lockheed Aircraft Company
(seaplanes-focused) and the
Glenn L. Martin Company
was established (aircrafts-
focused)
Robert Gross became
the chairman of L.A.C.
with vision to
transform it into
aerospace giant
1934
1956
Lockheed began its
leadership with the
development of the Polaris
fleet ballistic missile, which
is followed by Poseidon and
Trident Missiles
Became the major
suppliers to NASA
1960
1970s
First Digital
Sonar
Capabilities
developed
Martin Marietta
and Lockheed
combined
1995
2000s
Became the leader
in the industry with
the famous
products such as F-
35, Patriot missiles,
GPS III etc..
Source: www.lockheedmartin.com

31. Large degree of
interdependence
with government
Key Management Executives
Joseph W. Ralston, Independent Director
Supreme Allied Commander Europe (NATO), 2000-2003
Vice chairman of the Joint Chiefs of Staff, 1996-2000
James O. Ellis, Jr., Independent Director
Commander in Chief, U.S. Naval Forces, Europe
Commander in Chief, Allied Forces, Southern Europe
Deputy Chief of Naval Operations (Air Warfare)
Commander in Chief, U.S. Atlantic Fleet
3
LARGEST single contractor for
the US government – 20% of
obligated contracts
Source: Quotes.wsj.com; Defensenews.com

32. Lockheed Martin (LMT.US)
Aeronautics
2016 Net Sales:
US$17.8 Bn
F-35 C-130 F-16
Major Customers
US Air Force, Marine
Corps, US Navy
Backlogs/YoY%
US$ 32,000Mn/11%
Missiles
2016 Net Sales:
US$6.6 Bn
PAC-3 THAAD MLRS US Army, int’l customers US$ 15,000Mn/(2%)
Rotary & Missions
2016 Net Sales:
US$13.5 Bn
Back Hawk CH-53K VH-92A
US Army, US Navy,
int‘l customers US$ 26,700Mn/(9%)
Space Systems
2016 Net Sales:
US$9.4 Bn
Trident II D5 Orion SBIRS
US Air Force, US Navy,
NASA, int’l customers US$ 18,400Mn/(1%)
Source: Annual Report 2016

33. 2017-20 CAGR (%)
Net Sales
1. Aeronautics 2.1
- Volume 0.5
- ASP 1.6
2. Missiles and Fire control 4.4
3. Rotary and Mission Systems 2.3
4. Space Systems 6.9
Total 3.5
Diversified Product Mix
Aeronautics
38%
Missiles and fire
control
14%
Rotary and
mission systems
28%
Space systems
20%
LMT Business Mix - 2016A
Aeronautics
36%
Missiles and fire
control
14%
Rotary and mission
systems
27%
Space systems
23%
LMT Business Mix - 2020F
US government
71%
International
customers
27%
US commercial
customers and others
2%
LMT Customer Mix - 2016A
US
government
73%
International
customers
24%
US commercial
customers and others
3%
LMT Customer Mix - 2020F
Source: Annual Report 2016 and Financial Model

34. Robust Earnings Growth
Source: Annual Report and Financial Model
90.0%
95.0%
100.0%
105.0%
110.0%
115.0%
120.0%
125.0%
130.0%
2015A 2016A 2017F 2018F 2019F 2020F
LMT Earnings & Margins
Net Sales Cumulative Growth (LHS) Basic EPS Cumulative Growth (LHS)
2016 A 2017 E 2018 E
Profitability
Gross Margin 11% 10% 10%
Net Margin 11% 7% 7%
Leverage
Interest
coverage
ratio
71.26 78.21 79.09
D/E ratio 0.16 0.17 0.17
Liquidity
Quick ratio 0.83 0.89 0.81
Current ratio 1.20 1.26 1.18

35. Attractive Valuation
Source: Annual Report and Financial Model
Best Case Base Case Worst Case
Equity value
DCF value (US$) 373.3 314.4 267.0
Implied PER (x) 22.12x 23.72x 25.51x
Total shareholders’ returns (2018)
Capital gain (%) 34.5% 13.25% -0.04%
Dividend yield (%) 2.90%
Share repurchase (%) 1.80%
Total return (%) 39.2% 17.95% 4.66%
10
12
14
16
18
20
22
24
26
28
100
150
200
250
300
350
11/4/13
1/4/14
3/4/14
5/4/14
7/4/14
9/4/14
11/4/14
1/4/15
3/4/15
5/4/15
7/4/15
9/4/15
11/4/15
1/4/16
3/4/16
5/4/16
7/4/16
9/4/16
11/4/16
1/4/17
3/4/17
5/4/17
7/4/17
Close and Implied PER
Close Best PER Base PER Worst PER

36. LMT performance against guidance…
Source: Annual Report
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2Q 3Q 4Q
Annual guidance revision
2013 2014 2015 2016 2017
Actual / guidance % (dil. EPS)
1Q 2Q 3Q 4Q
2013 /
Above
0.33%
Below
-0.76%
Below
-2.87%
2014
Above
6.25%
Above
3.79%
Above
0.54%
Above
0.54%
2015
Above
3.20%
Above
2.74%
Above
1.37%
Above
1.37%
2016
Above
48.87%
Above
48.24%
Above
52.77%
Above
44.57%

37. 0%
10%
20%
30%
40%
50%
60%
70%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
average price (T+4) / repurchase price (T+0)
Favorable Signals from Stock Repurchase
0
50
100
150
200
250
300
US$
LMT average price / repurchase price
average price average repurchase price
P(T+4)/
P(T+0)
Implied
2Q18 price
Max 418.60
Average 332.63
Min 286.67
Source: Annual Report
1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17

39. 1 Basic Information
• Found in 1922
• Market Capitalization: USD 51.67 Bn
• Traded as: NYSE:RTN
S&P 100 Component
S&P 500 Component
1922
Found By two
engineers, with a
focus on refrigeration
technology, then
shifted to electronics
Diversified to magnetron
business for radar system
and pioneered the
production of shipboard
radar systems
World War II
1945
Developed the first
guidance system for
missiles that could
intercept a flying
target
Began to
manufacture
guided missiles and
transistors
1948 – 1950s
1980s
Expanded to aircraft
business, which was
sold in 2007
Established
leadership in the
defense electronics
business
1990s
2 Key Milestones
Source: Wikipedia

40. 3 Key Management Executives
Robert O. Work, Director
Deputy Secretary of Defense, 2014-2017
Secretary of the US Navy , 2009-2013
James Alexander Winnefeld Jr., Independent Director
Vice Chairman of the Joint Chiefs of Staff, 2011-2015
Commander, U.S. Northern Command, 2010-2011
Commander, North American Aerospace Defense Command, 2010-2011
William H. Swanson, Chairman & CEO (ret.),2004-2014
Member of the Department of Defense’s Defense Business Board
Stephen J. Hadley, Independent Director
National Security Advisor, 2005-2009
Deputy National Security Advisor, 2001-2005
Prior member of the Department of Defense Policy Board, member of the
National Security Advisory Panel to the Director of Central Intelligence
Vernon E. Clark, Independent Director
Retired Chief of Naval Operations, U.S. Navy,2000-2005
Prior member of the Defense Policy Board and the Defense Business Board
Large degree of
interdependence
with government
Source: insiders.morningstar.com/

41. Raytheon (RTN.US)
Integrated Defense System
2016 Net Sales:
US$ 5.476 Bn
UEWR AN/TPY-2 AN/SPY-6
Major Customers:
US Navy, US Army and Air
Force, MDA
Backlogs/QoQ%
US$ 10,055Mn/1%
Intelligence, Infotmation
and Services
2016 Net Sales:
US$ 6.194 Bn ROTHR JPSS GPS-OCX
US Intelligence
Community, US Armed
Forces, FAA, DHA, NOAA,
NASA US$ 5,908Mn/-3%
Missile Systems
2016 Net Sales:
US$ 7.071 Bn
AMRAAM® PAVEWAYTM PAC-3
US Navy, US Army and Air
Force, MDA US$ 11,382Mn/4%
Space and Airborne
Systems
2016 Net Sales:
US$ 6.199 Bn NGJ VIIRS MTS
US Navy, US Army and Air
Force US$ 8,398Mn/7%
Forcepoint
2016 Net Sales:
US$ 0.566 Bn
TRITON security platform High Speed Guard product
Stonesoft next-generation
firewall
Commercials and
government US$ 425Mn/-10%
Source: Annual Report 2016

42. 2017-20 CAGR (%)
Net Sales
1. Integrated Defense Systems 4.7
2. Intelligence, Information and
Services
2.7
3. Missile Systems 9.1
4. Space and Airborne Systems 9.9
5. Forcepoint 1.5
Total 6.8
Diversified Product Mix
Integrated
Defense
Systems
22%
Intelligence,
Information
and Services
24%
Missile
Systems
28%
Space and
Airborne
Systems
24%
Forceprint
2%
RTN Business Mix - 2016A
Integrated
Defense
Systems
22%
Intelligence,
Information
and Services
23%
Missile
Systems
29%
Space and
Airborne
Systems
24%
Forceprint
2%
RTN Business Mix - 2020F
US
government
(internal use)
56%US
government
(foreign sales)
12%
International
sales
32%
RTN Customer Mix - 2016A
US
government
(internal use)
55%
US
government
(foreign sales)
13%
International
sales
32%
RTN Customer Mix - 2020F

43. Robust Earnings Growth
Source: Financial Model
90.0%
100.0%
110.0%
120.0%
130.0%
140.0%
150.0%
160.0%
2015A 2016A 2017F 2018F 2019F 2020F
RTN Earnings & Margins
Net Sales Cumulative Growth (LHS) Basic EPS Cumulative Growth (LHS)
2016 A 2017 E 2018 E
Profitability
Gross Margin 25.4% 25.2% 25.4%
Net Margin 9.0% 8.7% 9.1%
Leverage
Interest
coverage ratio
13.97 16.49 19.05
D/E ratio 0.1 0.1 0.1
Liquidity
Quick ratio 1.56 1.70 1.93
Current ratio 1.66 1.81 2.05

44. Attractive Valuation
Source: Financial Model
Best Case Base Case Worst Case
Equity value
DCF value (US$) 252 199 168
Implied PER (x) 20.48 x 21.77 x 23.05 x
Total shareholders’ returns (2018)
Capital gain (%) 56.06% 23.24% 4.04%
Dividend yield (%) 24.91% 22.41% 20.73%
Share repurchase (%) 1.87%
Total return (%) 82,84% 47.52% 26.64%
10
12
14
16
18
20
22
24
26
70
90
110
130
150
170
190
11/4/13
1/4/14
3/4/14
5/4/14
7/4/14
9/4/14
11/4/14
1/4/15
3/4/15
5/4/15
7/4/15
9/4/15
11/4/15
1/4/16
3/4/16
5/4/16
7/4/16
9/4/16
11/4/16
1/4/17
3/4/17
5/4/17
7/4/17
Close and Implied PER
Close Best PER Base PER Worst PER

45. RTN performance against guidance…
Source: Annual Report
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2Q 3Q 4Q
Annual Guidance Revision
2014 2015 2016 2017
Actual / guidance % (dil. EPS)
1Q 2Q 3Q 4Q
2013
Above
12.4%
Above
10.4%
Above
6.4%
Above
3.5%
2014
Above
1.3%
Above
1.3%
Above
1.3%
Above
1.6%
2015
Above
6.5%
Inline
0.0%
Above
2.1%
Above
2.1%
2016
Above
6.4%
Above
4.5%
Above
0.9%
Above
0.9%

46. 0%
10%
20%
30%
40%
50%
60%
70%
80%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
average price (T+4) / repurchase price (T+0)
Favorable Signals from Stock Repurchase
0
20
40
60
80
100
120
140
160
180
US$
RTN average price / repurchase price
average price Average repurchase price
1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17
Source: Annual Report
P(T+4)/
P(T+0)
Implied
2Q18 price
Max 288.09
Average 213.51
Min 181.67

47. Key Investment Risks
Events Impact Likelihood Mitigation
1. Balance sheet unwind Medium
Market liquidity will be tightened
under the latest monetary policy
in Sep 2017 which inversely
affect price of all asset classes
Large
Fed representatives have already
announced their initiatives to
scale down balance sheet of
federal government
Low systematic risk exposure
A low beta in defense portfolio
suggests a counter-cyclical
feature which indicates a buy
signal for defense stocks
2. Impeachment of US president Medium
New president will only be
responsible for determining
budget after FY2018, which may
be opposite to Trump’s policies
Low
President impeachment requires
complicated procedures which
costs more than other forces (e.g.
Congress & media) to limit
Trump administration
Improvement in US economy
Public dissatisfaction to Trump
may be reduced by improving
economic figures in US such as
non-agricultural unemployment
rate and inflation rate

48. Exit Strategy
Reducing
Geopolitical
Risks
Defense
Budget Cut
Target Investment Period: 1-3 Years
EXIT
Unattractive
Valuation
Stop
Repurchase
Stock
Change of
Trump’s
Policy

49. Disclaimer
The materials has been prepared solely for information purposes, and does not
constitute an invitation or offer to acquire, purchase or subscribe for any product,
services or securities of any company, whether listed on any exchange or not.
The information expressed in this document may not be accurate. No representation
is made as to whether the securities or other index or any composite securities
thereof shall rise or fall accordingly. Readers shall also note that the information
expressed in this document is not an advice of any kind on any securities or any
index and independent advice should be sought, where appropriate. The
information provided in this material or in any communication containing a link to
this material is not intended for distribution to, or use by, any person or entity in any
jurisdiction or country where such distribution or use would be contrary to law or
regulation or which would subject Invbots.com to any registration requirement
within such jurisdiction or country. Neither the information, nor any opinion
contained in this material constitutes a solicitation or offer by Invbots.com to buy or
sell any securities, futures, options or other financial instruments or provide any
investment advice or service.

50. Q&A?