2024 Interim Report: Revenue of 125.2199 million yuan, yoy +58.84%; net profit to mother 4.7621 million yuan, turning a loss into a profit.

2024H1 product structure: large diameter silicon material 80.398 million yuan, silicon parts 36.58 million yuan, silicon wafer 5.1 million yuan. Among them, the gross margin of large diameter silicon materials has been restored to 57.75%, and the gross profit margin of silicon wafers -48% is the main reason why profit is lower than expected.

Expanding production strengthens the position of semiconductor etched silicon materials industry. The main products of Shengong Co., Ltd. are monocrystalline silicon materials used for etching the upper and lower electrodes and jacket rings of equipment. According to the company's annual report, the market size of this material is about 0.4-0.5 billion US dollars, and the silicon electrode market size is about 1-1.5 billion US dollars. The core team of Shengong has more than 20 years of overseas experience. The company's technologies such as non-magnetic field large-diameter monocrystalline silicon manufacturing technology, solid-liquid coexistence interface control technology, and thermal field size optimization process are at the international advanced level. The company's core product quality indicators have reached the international advanced level, which can meet the process requirements for silicon materials in advanced chip etching processes at 7nm and below. In January 2023, the production capacity of silicon materials was about 500 tons/year; a fixed increase of 0.3 billion yuan was raised in 2023 to expand production of silicon materials, which will create an additional production capacity of 393 tons (equivalent to 1,145,710 mm) of silicon materials for etching per year. Of these, 150 tons of polycrystalline silicon material production expansion equipment is ready.

Production capacity for silicon parts is tight, and the localization of supporting 12-inch etching machines is being accelerated. In 2021, two parts factories were established in Jinzhou, Quanzhou, and parts were supplied in small batches; high-precision equipment for chemical mechanical polishing (CMP) was developed in 2022, and polycrystalline silicon structural products above 22 inches have been evaluated by a customer and stable supply has been achieved; the 2023 annual report shows that Shengong has contacted several 12-inch integrated circuit manufacturers, and dozens of materials have obtained evaluation and certification results. Shengong Co., Ltd. is one of the few domestic manufacturers with integrated capabilities “from crystal growth to finished silicon electrode products”.

Semiconductor silicon wafers earned 8.26 million yuan in 2023, and positive film verification will be promoted in 2024. The IPO fundraising project of Shengong Co., Ltd. added an annual output of 1.8 million 8-inch semiconductor polishing sheets and 0.36 million semiconductor accessories. Production capacity of 0.05 million wafers/month has been built in 2022, and equipment with 0.1 million wafers/month ordered in the second phase has entered the market one after another; starting in 2022, 8-inch test silicon wafers will be officially supplied to Japanese customers, and lightweight low-defect ultra-flat silicon wafers have obtained certification and batch orders in mainstream domestic client evaluations.

The share of domestic revenue rose to 59% in 2023, and the regional market was more balanced. Since global manufacturers of etching machines and manufacturers of silicon electrodes for etching are located in Japan, South Korea, and the United States, Shengong's main customers include international companies such as Mitsubishi Materials, SK Chemical, CoorsTek, and Hana. The share of domestic revenue increased from 1.9% in 2019 to 59% in 2023.

The profit forecast was lowered and the “buy” rating was maintained. The 2024 interim report was slightly below expectations. As the semiconductor silicon wafer business development progress fell short of expectations, the 24H1 gross profit margin of -48% continued to be pressured, lowering the 2024-26 silicon wafer business gross profit margin and lowering the 2024/25/26 net profit forecast from 0.11/0.26/0.42 billion yuan to 0.05/0.15/0.18 billion yuan. Shengong Co., Ltd.'s 2025PE 18X is far lower than the average PE 27X of comparable semiconductor material parts companies (Jiang Feng Electronics, Longtu Optical Mask, Helin Weina, and Fuchuang Precision) in 2025, maintaining a “buy” rating.

Risk warning: The semiconductor boom is declining; silicon wafer yield is falling short of expectations; the Shanghai Stock Exchange's 2023 report approval regulatory inquiry letter.