The company is a leading supplier of electronic chemical materials in China. The product range is rich, forming a complete product matrix of electronic wet chemicals+electronic specialty gases+precursor materials. The company grasps high-quality customer resources, consolidates its dominant position through orderly expansion of production, and continues to innovate. As production capacity gradually climbs after various construction projects are put into operation, and products are continuously optimized and innovated, we believe that the company's performance is improving, and for the first time, it has been covered with an “increase in investment” rating.

A leading domestic supplier of electronic chemical materials, with a rich product range. The company is mainly engaged in R&D, production and sales of electronic wet chemicals, electronic specialty gases, and precursor materials. The product range is rich, among which wet electronic chemicals contribute the main revenue. The current “internal volume” of the industry and depreciation are putting pressure on the company's performance. The company's net profit to mother has been disrupted by share payments and production expansion plans. However, considering the steady growth of the company's core products and the continuous expansion of sales channels for new products, it is expected that future performance will gradually improve.

The company is in an industry with a broad market space, and there is great potential for domestic substitution of segmented racetracks. (1) Wet electronic chemicals are one of the key basic chemical materials indispensable in the production process of large-scale integrated circuits, flat panel displays, solar cells, etc., and are mainly used in integrated circuits. The scale of the industry was affected by the downturn in the semiconductor industry in 2023. Currently, European, American and Japanese companies dominate the wet electronic chemical market. The domestic electronic wet chemicals industry as a whole shows uneven structural development. High-end products are still lacking, the localization rate is low, and some enterprises have achieved domestic substitution in segmented fields. (2) Electronic specialty gases are widely used in processes such as etching, cleaning, doping, and vapor phase deposition, which determine the final yield and reliability of devices, and have high product added value. Electronic specialty gases are expected to maintain rapid growth in the next few years. Advanced logic chips and high-end memory chips are the main driving forces for the growth of the electronic specialty gas market. According to the China Business Industry Research Institute, the global electronic specialty gas market is 5.6 billion US dollars in 2023, and the global electronic specialty gas market is expected to reach 6 billion US dollars in 2024. The global electronic specialty gas market is highly concentrated. Currently, it is mainly dominated by European, American and Japanese companies, and there is plenty of room for improvement in the localization rate. (3) Precursor materials are a type of substance that carries target elements, is in a gaseous, volatile liquid or solid state, has chemical thermal stability, and also has corresponding reactivity or physical properties. It is the core material for thin film deposition processes in integrated circuit manufacturing. According to TECHCET statistics, the global precursor market reached 1.582 billion US dollars in 2022, up 12% year on year. The overall growth of the industry was strong, mainly due to increased production of advanced process logic devices and an increase in the number of 3DNAND device stacks. The transition from DRAM manufacturing to EUV lithography will also bring opportunities for increased precursor revenue. The precursor industry has a higher entry threshold than electronic wet chemicals and electronic specialty gases. Foreign companies have been deeply involved in this field for a long time, and the market concentration is high. Currently, manufacturers are basically overseas companies. Currently, the maturity of China's precursor products is still very low, there is a big gap with international advanced standards, and the localization rate is very low.

The company's orderly expansion of production consolidates its dominant position, and continuous innovation awaits breakthroughs. (1) Manufacturers of integrated circuits, display panels, etc. attach great importance to the quality and supply capacity of electronic wet chemicals and electronic specialty gas suppliers, and are very careful in selecting suppliers. At the same time, electronic wet chemicals and electronic specialty gases account for relatively small production costs for downstream customers, but testing costs are high. Once they cooperate with downstream companies, they will form stable cooperative relationships, which will form a high customer barrier for new entrants. The company has become one of the main enterprises producing electronic wet chemicals on a large scale in China. The company's products have established long-term and stable partnerships with major customers with excellent performance and good service, and have high customer stickiness. High-quality customer resources have a significant impact on the company's technological innovation, market share, brand influence and profit level, etc., laying a solid foundation for the company's subsequent business expansion. (2) The company is not blindly expanding production capacity, but rather changed the fundraising project in November 2024 according to changes in domestic and foreign markets and customer needs, in line with the company's future development plans, and in order to improve the efficiency of the use of raised capital. While advancing the construction of fixed investment projects in an orderly manner, the company is also continuously investing in innovation, making significant progress in precursor materials and formulation-type functional chemicals, and further promoting some products with high gross margins and high technical barriers through the company's proprietary technology, such as tungsten hexafluoride. (3) The company plans to purchase 100% of Heraeus's shares in cash. This transaction will further enhance the company's development and layout in the semiconductor materials field, help the company establish links with the world's leading semiconductor equipment manufacturers, and further develop high-end electronic chemical materials for use with advanced semiconductor equipment machines to provide better services for downstream customers.

The first coverage gave an “increase in wealth” investment rating. The company expects to achieve revenue of 1.034/1.289/1.589 billion yuan in 2024/2025/2026, with a year-on-year increase of 16%/25%/23%, respectively. The company is expected to achieve net profit of 0.023/0.04/0.064 billion yuan in 2024/2025/2026, up 70%/71%/62% year-on-year respectively, corresponding PE 626.9/367.5/227.25 times, respectively. The company's valuation is higher than the industry average. The company is currently in the construction process of various fund-raising projects. It takes time for production capacity to climb, faces depreciation pressure and market competition pressure, or puts short-term pressure on profits. However, considering the company's perfect product matrix and strong customer resource advantages, future performance is expected to improve, and for the first time, coverage has given a “gain” rating.

Risk warning: goodwill impairment risk, industry risk, macro-environmental risk, customer certification risk, supplier concentration risk, etc.