Leading domestic wet electronic chemicals, production capacity continues to increase in market share. In terms of high-purity chemicals, the company's technology has reached the international advanced level. The entire high-purity series of mainstream products has reached the highest purity SEMI G5 grade, and has become one of the few leaders in the world that also master high-purity product technology such as semiconductor-grade high-purity hydrogen peroxide, high-purity sulfuric acid, high-purity ammonia, high-purity hydrochloric acid, and high-purity isopropyl alcohol. At the same time, the company has now built the largest production capacity of two high-purity electronic chemicals in China: high-purity sulfuric acid and high-purity hydrogen peroxide. By the end of 2023, the company had a production capacity of 0.232 million tons/year of high-purity chemicals and 0.1 million tons/year under construction.

In terms of high-purity hydrogen peroxide, the company is the only local supplier of high-purity hydrogen peroxide. In 2023, the company's high-purity hydrogen peroxide revenue increased by nearly 30% year-on-year, and shipments increased by nearly 40%, surpassing major international manufacturers to become the largest domestic supplier of high-purity hydrogen peroxide, with a market share of over 40%. In 2023, through an equity acquisition, Qianjiang Yihe became a holding subsidiary of the company (currently holding 55.9% of the shares). Qianjiang Yihe's industrial-grade hydrogen peroxide production scale exceeds 0.1 million tons/year, which will enrich the company's high-purity hydrogen peroxide raw material supply channels and reduce the impact of fluctuations in raw material procurement prices on the company's profit level. In terms of high-purity sulfuric acid, the company's products are supplied in batches to some domestic 12-inch wafer manufacturers, and shipments of high-purity sulfuric acid increased by nearly 42% year-on-year in 2023.

The subsidiary Ruihong Suzhou completed 1.07 billion yuan in financing in '23. The photoresist business of the high-end photoresist R&D company is the subsidiary Ruihong Suzhou. After 30 years of accumulation, it has hundreds of models of products, including UV broadband series, G line series, i-line series, and KrF series. The company's i-line photoresists have been supplied in large quantities to large-scale semiconductor manufacturers such as SMIC and Changxin Storage; various KrF photoresists have been mass-produced and supplied to many semiconductor customers; R&D work on ArF high-end photoresists is being carried out in an orderly manner, and some samples have already been sent to customers for verification. In 2023, the company's photoresist business achieved revenue of 0.155 billion yuan, an increase of 10.8% over the previous year. In 2023, Ruihong Suzhou completed a total of 1.07 billion yuan of financing, earmarked for R&D and mass production of high-end photoresists. Among them, in November 2023, Ruihong Suzhou introduced Sinopec Capital, a strategic investor, and issued 0.101 billion shares to it in a targeted manner, raising 0.85 billion yuan in capital.

Global semiconductor sales improved in 2024, and the upward trend in the industry boosted demand for semiconductor materials. After experiencing continuous adjustments in semiconductor supply chain inventory in 2023, global semiconductor sales have improved since 2024. According to data from the World Semiconductor Trade Statistics Organization (WSTS), global semiconductor sales from January to May 2024 were about 236.3 billion US dollars, up 18.6% year on year; semiconductor sales in the Asia-Pacific region were about 131.3 billion US dollars, up 20.3% year on year. With the gradual recovery of the global semiconductor market, the demand and market size of semiconductor materials such as wet electronic chemicals and photoresists will also recover as important raw materials in the upstream industry, which will facilitate the verification, introduction, and sale of domestic semiconductor materials.

The 24H1 fixed increase issuance was completed, raising 0.45 billion yuan to increase NMP supply capacity. 61.64 million shares were issued to specific targets in the first half of 2024, raising 0.45 billion yuan in capital. The capital raised in this fixed increase will mainly be used for the company's “annual production of 0.02 million tons of gamma-butyrolactone, 0.1 million tons of electron-grade NMP, 0.02 million tons of NMP recycling and 0.01 million tons of conductive plasma projects”. The company is one of the leading companies in the domestic NMP industry. Currently, it has supplied large quantities to high-quality customers such as Samsung Huanxin, Jiangsu Tiannai, and China Airlines. After the completion of the above fund-raising project, the company's battery-grade NMP and semiconductor-grade NMP production capacity will be greatly increased. While increasing the supply capacity of the company's original products, it will also further promote the penetration of the company's NMP products to higher-end semiconductor customers. In addition to NMP, cmCli binders in the company's new energy materials have been successfully mass-produced. Compared with traditional cmCna binders, they can improve initial performance, and also have better low temperature performance and cycle life.

Profit forecasting, valuation and ratings: Since the semiconductor industry is still recovering, the company's main products such as wet electronic chemicals have yet to be released, and corresponding profitability still needs to be improved. As a result, we lowered the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 is expected to be 0.91 (down 46.1%), 1.46 (down 34.8%), and 0.179 billion yuan, respectively. The company is a domestic leader in wet electronic chemicals, and has sufficient capital to effectively promote the development and introduction of high-end semiconductor photoresists. With the country's vigorous promotion of new quality productivity and the gradual recovery of the semiconductor industry, the company will continue to benefit and maintain the company's “buy” rating.

Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, capacity construction risks, customer introduction progress falls short of expectations, R&D risks.