Key points of investment

Demand has picked up and superimposed products have broken through the new energy sector, and annual performance is expected to grow. The company has formed two major product segments around the two major process links of electronic electroplating and lithography, and has formed two major product segments: electroplating solutions, supporting reagents, photoresists, and supporting reagents. Downstream customers are mainly concentrated in the field of integrated circuit packaging and new electronic component manufacturing, covering domestic integrated circuit sealing and testing leading manufacturers such as Changdian Technology, Tongfu Microelectronics, Huatian Technology, and Riyuexin, as well as internationally renowned electronic component manufacturers such as Guoju Electronics and Huaxinke.

23Q3 achieved revenue of 94 million yuan, a year-on-year increase of 32.64% and a month-on-month increase of 14.01%, mainly due to 1) the domestic semiconductor industry continued to pick up and downstream demand increased since 23Q2; 2) The company's electroplating solution and supporting reagent products successfully entered the field of new energy sources such as photovoltaics and lithium batteries, and gradually began to be released in the third quarter. 23Q3 achieved revenue of 7.014,500 yuan in new energy fields such as photovoltaics and lithium batteries (the sector achieved revenue of 9.3574 million yuan in the first three quarters). In 23Q3, the company's net profit attributable to mother was RMB 7.417,900, after deducting net profit from non-return to mother of RMB 7.033,600, turning a year-on-year loss into a profit.

Looking ahead to the full-year results of 2023, the company expects to achieve revenue of 350 to 380 million yuan, an increase of 8.10% to 17.37%; net profit of 3300 to 37 million yuan, an increase of 41.72% to 58.90%; net profit after deducting non-return to mother of 24 to 28 million yuan, an increase of 66.63% to 94.40% year on year. The company's performance is expected to achieve year-on-year growth in 2023, mainly because the domestic semiconductor industry has entered a recovery stage and demand from downstream manufacturers is picking up. At the same time, the company has made breakthroughs in electroplating chemicals in the field of new energy, and cooperation with leading downstream companies has progressed steadily, effectively driving the growth of the company's revenue scale.

Electroplating solution and supporting reagents: Electroplating products for traditional packaging have been replaced by domestic electroplating products. The amount of electroplating products for advanced packaging is that the company started with electroplating products with traditional semiconductor packaging and gradually mastered a full range of electronic chemicals for pin surface treatment, including electroplating solutions and supporting reagents (burr removal liquid, oil remover, oxidizer, neutralizer, depilation agent, etc.), which have replaced foreign products at Changdian Technology, Tongfu Microelectronics, Huatian Technology, and Riyuexin. Manufacturer of electroplating solutions and supporting reagents in the field of integrated circuit packaging and electroplating The domestic market share is over 20%.

In the field of traditional packaging, the company's electroplating solution products can be applied to lead frame products with various pitches and different pin numbers. In addition to covering commonly used packaging forms such as DIP, TO, SOT, and SOP, they are also suitable for leadless packaging used in various high-end chips such as DFN and QFN. The company's products have the advantages of environmental protection, stability and high efficiency, can meet the functional requirements of the coating under high current density conditions of integrated circuit electroplating, and effectively solve problems such as tin whisker growth and coating oxidation and discoloration caused by high-temperature reflow soldering under pure tin electroplating systems. The product performance has reached or partially surpassed international competitors, and has replaced international competitors in mainstream packaging and testing manufacturers.

Based on the technology accumulation of traditional encapsulated electroplating liquid products, the company's electroplating products are gradually expanding into advanced packaging and wafer manufacturing fields monopolized by foreign manufacturers. 1) Advanced packaging: The company's advanced packaging electroplating products are mainly used to manufacture bumps in the advanced packaging Bumping process, which can achieve electrical connections between chips, wafers and carrier boards; among them, electroplated copper base liquid (high-purity copper sulfate) for advanced packaging has been officially supplied by Huatian Technology; electroplated silver additives for advanced packaging have been certified by Changdian Technology and are yet to be certified by end customers; copper plating additives for advanced packaging are in the development and certification stage. 2) Wafer manufacturing: Additives for the Damascus copper plating process for wafer manufacturing have completed minor laboratory tests and are currently in the pilot phase, and are expected to be mass-produced in 2024.

In addition, the company also provides anode metal materials such as tin balls and nickel cake to support the electroplating process, and auxiliary materials such as anode bags and adhesive strips for unplating to meet the overall needs of customers; among them, tin balls are the main source of revenue for electroplating supporting materials and can be used to supplement the tin ions consumed in the electroplating solution.

Photoresists and supporting reagents: Using supporting reagents as an entry point, it is one of the electronic chemicals with the highest technical barriers to replacing photoresists made in China in a large space. At present, domestic photoresists are still mainly concentrated in products such as PCB photoresists and TFT-LCD photoresists. High-end products such as OLED display panels and photoresists for integrated circuits still need to be imported in large quantities, and domestic photoresists are in the transition stage from the middle to the middle and high end. According to data from the China Electronic Materials Industry Association, the current localization rate of g/i line photoresists in China is about 20%, the overall localization rate of KrF photoresists is less than 2%, and the overall localization rate of ArF photoresists is less than 1%; there is broad scope for domestic replacement.

Using photoresist supporting reagents for advanced packaging as an entry point, the company successfully achieved large-scale supply of products such as adhesion promoters, developers, removers, etchants, etc. to downstream packaging manufacturers. In terms of photoresists, 1) g/i line negative photoresists for advanced packaging have been certified by Changdian Technology and Huatian Technology and have achieved mass supply; Tongfu Microelectronics has achieved small-batch supply and continues to obtain orders; the company expects this product to achieve revenue of 15 to 20.5 million yuan in 2023. 2) Positive photoresists for OLED array manufacturing have passed BOE two-layer certification and are being supplied in small batches. BOE, Vicino and Huaxing Optoelectronics are carrying out full-film application certification; the company said that after passing the full film certification, the product will have the ability to completely replace foreign competitors, and is expected to reach mass production application conditions in 2024. 3) I-line positive photoresists for wafer manufacturing have been supplied in small quantities by Huahong Hongli.

Investment advice: We expect that in 2023-2025, the company's revenue will be 370 million yuan, 460/562 million yuan, 14.4%/24.2%/22.1% year on year, net profit due to mother will be 0.34/0.50/0.66 million yuan, respectively, 46.1%/46.9%/31.9% year on year; PE will be 147.6/100.4/76.2, respectively. The company's advanced packaging electroplating solution and photoresist products have been supplied in batches, and many new products are in the certification stage; compared with other domestic companies' products, the company's products have both scarcity and first-mover advantages. In the future, as downstream terminals gradually recover and the penetration rate of advanced packaging increases to stimulate demand, the company's products are expected to be rapidly released. Covered for the first time, a “gain” rating was given.

Risk warning: the risk that demand in the downstream terminal market falls short of expectations, the risk that new technology, new processes, and new products will not be industrialized as scheduled, the risk that market competition will intensify, the risk that production capacity expansion will fall short of expectations, systemic risks, etc.