Key points of investment:

With continued high R&D investment and excellent employee incentive systems in the semiconductor field, the company has achieved an industry-leading position in the field of traditional packaging lead pin surface treatment chemicals. Wafer process cleaning solutions, etching solutions and other businesses are also developing at an accelerated pace. Moreover, chemicals such as CMP abrasives, photoresists, and advanced packaging materials planned for new bases in Hefei and Shanghai Chemical Industry Zones are expected to further open up room for growth.

A leading semiconductor chemical company in China

The company is headquartered in Songjiang, Shanghai, and specializes in traditional semiconductor packaging chemicals, wafer process chemicals and advanced packaging chemicals and some supporting equipment. Currently, the company currently has a production capacity of 19,000 tons of electronic chemicals, and is actively promoting the construction of a total of 70,000 tons of electronic chemicals at the Hefei base phase I and phase II, and 305,000 tons of electronic chemicals production capacity at the Shanghai Chemical Industry Zone base. In addition, the subsidiary Coplar operates a fluorocarbon coating business, and the company is actively divesting the paint sector to focus on the semiconductor business.

Chemical business for wafer processing accelerates development

The company's traditional packaging chemicals business is relatively stable. The copper interconnect electroplating chemical business is leading and continues to grow. The wafer process cleaning solution and etching liquid business is expected to accelerate with the release of production capacity. As one of the most used electronic chemicals in wafer processing, CMP grinding liquid also has a lot of room for growth. Furthermore, advanced packaging materials also have opportunities for rapid growth. At present, the company's related products have all been verified by downstream wafer manufacturers, and the overall market share is still low, so there is plenty of room for penetration and improvement.

The prospects for import substitution in the photoresist business are improving

Photoresist is the “crown” of electronic chemicals and is one of the areas most restricted by foreign investment in the semiconductor materials sector in China. The global semiconductor photoresist market is basically monopolized by Japanese companies. Xinyang continues to invest in research and development and has an ASML 1900 lithography machine to develop 28nm high-end photoresists. Currently, I-line and KrF photoresists have been certified and small-batch continuous orders have been obtained, and ARF photoresists are still in the client certification stage.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue to be 14/19/2.7 billion yuan respectively in 2023-2025, with a corresponding growth rate of 20%/30%/41% respectively, and Guimu's net profit of 1.5/27/49 billion yuan respectively. The corresponding growth rate will be 172%/83%/83%, EPS of 0.46/0.85/1.55 yuan respectively, and a 3-year CAGR of 109%. In view of the rapid growth of the company's wafer processing chemicals business and positive prospects for the photoresist business, we gave the company 55 times more PE in 24 years, with a target price of 46.75 yuan for the first time, and gave it an “increase in holdings” rating.

Risk warning: The development of the wafer chemicals market fell short of expectations, the development of the photoresist business was slower than expected, and the construction of production capacity at the new base fell short of expectations