Key points of investment

The semiconductor materials business accounts for more than 30%, and the consumables business has become profit-oriented. In 2023, the company's semiconductor business (including semiconductor materials business, integrated circuit chip design and application business) achieved operating revenue of 857 million yuan (of which the chip business revenue has excluded internal offsets), an increase of 18.82% over the previous year, accounting for 32.12% of total revenue. The company's general consumables sector for printing and copying (excluding printing consumables chips) achieved product sales revenue of 1,786 billion yuan, a year-on-year decrease of 8.08% (for example, excluding the influence of factors exhibiting factors in Zhuhai Tianyu, the company's consumables business product sales revenue fell 4% compared to the same period of the previous year). The main reason for the decline was adjustments in the company's business strategy, which emphasized profit orientation in 23, while focusing on consolidating core competitiveness in the relatively competitive printing consumables industry, focusing on cost reduction and efficiency. For example, on the finished product side of Zhuhai toner cartridges through human resource integration and organizational structure optimization; Various cost control measures are carried out to reduce procurement costs, reduce warehousing and logistics costs, and reduce other operating costs to improve profitability.

The one-stop layout of core consumables for the semiconductor CMP process continues to be improved. (1) Polishing pads: In 2023, we achieved product sales revenue of 418 million yuan, a year-on-year decrease of 8.65%; of these, we achieved sales revenue of 149 million yuan in the fourth quarter, up 25.68% month-on-month and 49.21% year-on-year, setting a record high in single-quarter revenue, showing a clear recovery and growth trend from quarter to quarter. In terms of polishing hard pads, the development of domestic logic fabs has achieved phased results. The coverage of process nodes has been further expanded, and related new models of products have been ordered in batches; product yield and factory efficiency have been further improved, and quality stability has reached a higher level. In terms of polishing pads, many cushion products at the Qianjiang factory have been sold in batches. The number of customers that have passed the test has increased, and production has entered the climbing stage. Including non-woven polishing pads, they have also passed the Grinding process tests and obtained orders from many customers. (2) CMP polishing liquid and cleaning liquid business: In 2023, it achieved product sales revenue of 77 million yuan, an increase of 330.84% over the previous year. Among them, sales revenue of 28.9 million yuan was achieved in the fourth quarter, up 32.96% month-on-month, and 294.61% year-on-year, entering a stage of rapid growth. The company completed an integrated production line model for grinding particle production and polishing liquid production and shipment in Xiantaoyuan District. It uses a larger tank capacity to guarantee customer orders while improving product quality stability. In terms of cleaning solutions, in addition to the existing copper CMP cleaning solution, which continues to generate sales revenue, various other process cleaning solutions were developed in 2023 to solve customer production line problems. The product introduction results were good, and a certain amount of sales revenue was obtained.

Increased client penetration is compounded by an increase in the utilization rate of downstream panels, which together promotes the growth of the display materials business. In 2023, the company showed sales revenue of materials products of 174 million yuan, an increase of 267.82%; of these, the fourth quarter achieved sales revenue of 66.73 million yuan, an increase of 17.46% month-on-month and 174.86% year-on-year, with a clear trend of stable release.

Main sources of growth: (1) The company's penetration into clients continues to deepen; (2) shows that the industry has been in a strong recovery phase since the second half of 2023, and the corresponding increase in the utilization rate of downstream panel customers has led to an increase in material usage.

At present, the company has become the first supplier of YPI and PSPI products to some mainstream domestic panel customers. It has established a leading position in domestic supply of YPI and PSPI products, and the system capacity for large-scale production continues to improve to ensure stable product quality. In terms of new product development, new semiconductor display materials such as fluorine-free photosensitive polyimide (PFAS Free PSPI), black pixel definition layer material (BPDL), and thin film packaging low dielectric material (Low Dk INK) are also being developed and sampled as planned. In 2024, the company will continue to promote product development and market development in the semiconductor display materials business. On the one hand, it will promote the introduction of more new display materials to customers, and on the other hand, strive to become the first supplier of corresponding material products for more panel customers. At the same time, the company will continue to pay attention to market opportunities in the field of medium-sized flexible displays and strive to maintain the rapid revenue growth trend of the semiconductor display materials business.

High-end wafer photoresists are advancing rapidly, and verification of advanced packaging materials is progressing smoothly. (1) Photoresists: Currently, the company has deployed 16 mainstream wafer photoresists that have not broken through in China, including 8 high-end KrF photoresists and 8 submersible ArF photoresists (including 4 negative imaging immersion ArF photoresists), all of which are models voluntarily commissioned by customers. Customer samples for 7 products have been completed, including one extreme resolution KrF photoresist and one extreme resolution ArF photoresist. The test results have all been unanimously approved by customers, and the rest of the products are scheduled to be sampled by customers in 2024. In terms of production capacity, the construction of the Qianjiang Phase I small-scale photoresist mass production line was basically completed, and the construction of the Qianjiang Phase II 300-ton photoresist mass production line began in the second half of 2023. (2) Advanced packaging materials: ① In terms of semiconductor packaging PI, the company has laid out 7 products, fully covering non-photosensitive PI, positive PSPI, and negative PSPI, and has sent 5 samples. Customers fully cover front-end fabs and back-end packaging companies, aiming to complete some product verification and begin introduction within 2024. ② The verification and mass production introduction of temporary bonding adhesive products in a mainstream domestic integrated circuit manufacturing client has basically been completed. In addition, more than three fabs and packaging plants have completed technical docking, and internal verification is ongoing according to the needs of some customers. In terms of mass production, the industrial construction of temporary bonding adhesives has been completed. The core raw materials are autonomous and controllable, and mass production and supply capabilities are available.

Investment advice: In view of the current recovery process in the semiconductor industry, we are adjusting our original performance expectations. Revenue from 2024 to 2026 is expected to be 30.85 (previous value: 30.29) /38.15 (previous value: 37.37) /42.16 billion yuan (increase), growth rates are 15.7%/23.7%/10.5%, respectively; net profit to mother is 3.93 (previous value is 4.53) /5.96 (previous value is 6.22) /7.37 billion (new) yuan (increase), with growth rates of 76.9%/51.8%/23.7%, respectively; corresponding PE is 49.9/32.9/26.6 times. Considering that Dinglong Co., Ltd. has accumulated technology over many years on organic synthesis platforms and polymer synthesis platforms, as the one-stop layout of core consumables in the CMP process continues to be improved, and various semiconductor materials are verified and released, it is expected to drive performance growth and maintain the buy-A proposal.

Risk warning: Downstream terminal market demand falls short of expectations; risk that new technologies, new processes, and new products cannot be industrialized as scheduled; market competition increases risks; systemic risks, etc.