Key points of investment:
Driven by a sharp increase in AI computing power, copper-clad plate fillers are becoming high-end. The growth of AI servers directly drives the increase in demand for high-performance PCBs for GPUs; high computing power requires that the core material copper-clad plate has characteristics such as high frequency, high speed, and low loss. These requirements are achieved by using copper clad plate filler silicon powder. The filling ratio of silicon powder in copper-clad plates is about 15%. Ordinary copper-clad plates use square silicon powder, high-frequency and high-speed copper-clad plates and IC carrier boards to fill in high-performance spherical silicon powder with higher added value. Global AI server shipments are expected to increase from 580,000 units in 2023 to 1.57 million units in 2027, driving the release of high-end spherical powders.
Advanced packaging is an important tool for improving computing power, and high-end plastic packaging materials accelerate penetration. With the development of Chiplet technology, the size of the gap between wafer to wafer and wafer to die has decreased significantly. Advanced packaging is the foundation of Chiplet technology, and the requirements for packaging materials are constantly increasing. More than 90% of integrated circuits use EMC as the packaging material. The filling ratio of silicon powder in EMC is about 80%, and there are high requirements for indicators related to high filling characteristics such as the particle size distribution of silicon powder. The HBM packaging MR-MUF process uses improved LMC, which places higher demands on the purity, particle size, and various indicators of silicon powder. The global advanced packaging market is expected to grow from $44.3 billion in 2022 to $78.6 billion in 2028, and high-end packaging fillers will continue to benefit.
Stacked packaging puts forward new requirements for semiconductor thermal conductivity. Spherical alumina is the most cost-effective thermal conductive powder material. Consumer electronics and communications are the most important application areas for thermal interface materials. Heat dissipation is a key indicator affecting product quality, and heat dissipation issues in 2.5D and 3D packages are particularly important. China's high-end thermal interface materials are basically imported. Raw materials such as high-purity, low-radioactivity spherical alumina are one of the difficulties in localization; the company relies on existing technology to seize domestic replacement opportunities for high-end spherical aluminum. As demand for PCBs increases and the penetration rate of spherical aluminum in heat-conducting powder materials increases, the global spherical alumina thermal conductive material market is expected to reach 5.4 billion yuan in 2025.
Continue research and development to replace domestic production, expand high-end production capacity and enhance profit margins. With R&D innovation as the core driving force, the company sells micron and sub-micron spherical silicon powder, low radioactivity spherical silicon powder, and low radioactivity high-purity spherical alumina powder to leading customers in the industry. The gross margin level of similar products is higher than that of domestic peers. The company actively expands high-end production capacity, optimizes product structure while consolidating the company's leading position; the company currently has a production capacity of 107,700 tons of square silicon powder and 45,000 tons of spherical silicon powder (including 8,000 tons of spherical alumina production capacity); 252,000 tons of electronic-grade functional powder materials for integrated circuits, making it the largest producer of silicon powder in China. The new construction project is mainly used in fields with high performance requirements such as high-frequency high-speed substrates for 5G communication, IC carrier boards, and high-end chip packaging, which helps the company expand to high-end products and increase the added value of the company's products.
Profit forecast, valuation analysis and investment suggestions: The company is expected to achieve net profit of 174/2.45/327 million yuan in 2023-2025, up -7.7%/41.0%/33.4% year-on-year, corresponding EPS of 0.94/1.32/1.76 yuan. According to the closing price of 50.00 yuan on March 10, PE is 53.4/37.9/ 28.4 times, maintaining a “buy-B” rating.
Risk warning: Market competition increases risk; risk of R&D failure and loss of core technicians; risk of production capacity investment progress falling short of expectations; risk of downstream demand falling short of expectations; risk of large fluctuations in raw material and fuel power prices, etc.