Conclusions and suggestions: The company started with printer consumables, focused on new semiconductor materials. It has become a leading domestic CMP polishing pad company, and has a horizontal layout in the fields of semiconductor display materials, CMP polishing solutions, semiconductor packaging materials, and high-end photoresist. Currently, display materials and CMP polishing solutions are being released, and packaging materials and temporary bonding adhesives are in the early stages of development. Semiconductor materials are driving the company's second growth. Currently, the share of semiconductor materials in the company's revenue continues to grow, driving the company's gross margin and profit to continue to rise. It is optimistic that the company will grow into a diversified semiconductor materials platform enterprise, covering it for the first time, and giving it a “buy in” rating.

The production capacity of polishing pads continues to grow, driving the company's business growth: The company is a leading domestic polishing pad company and has fully mastered the core R&D technology and production process of the CMP polishing pad process throughout the process. In the first three quarters of 2024, the company's polishing pad business achieved cumulative revenue of 0.523 billion yuan, yoy +95%, accounting for 22% of total revenue. Currently, the company has the current production capacity of 0.4 million pieces of hard pads per year in Wuhan (mainly used for rough polishing) and 0.2 million pieces of soft pads per year in Qianjiang (mainly used for fine polishing) and supporting cushions for polishing pads. In September 2024, for the first time, the company achieved a record high of sales of polishing pads breaking 0.03 million pieces in a single month. The company has now initiated a plan to expand the production capacity of the Wuhan hard pad production line. It is expected to complete production of 0.48 million tablets per year in Q1 of 2025. Following an appropriate increase in equipment investment and about 9 months, production capacity can be further increased to 0.6 million tablets per year. The degree of penetration of the company's hard pad products in the domestic market has steadily deepened with the increase in orders. In terms of foreign investment, the company has achieved breakthroughs in customers. Copper polished hard pad products have been supplied in small quantities by a mainstream foreign-funded logical manufacturer, and is in contact with more foreign domestic and overseas market customers. In terms of polishing cushions, many cushion products at the Qianjiang factory have been sold in batches. Production capacity has entered the climbing stage, production and sales have increased rapidly, turning a loss into a profit in August 2024, and it is expected that profits will continue in the future. With the continuous evolution and continuous breakthroughs in process technology, the degree of refinement has gradually increased, leading to a significant increase in the number of polishing times in the polishing process, which will strongly drive the continuous growth of demand for polishing pads in the market. We are optimistic that the company's dominant product, polishing pads, will continue to expand in terms of customers and sales, driving the growth of the company's semiconductor business.

Improve the industrial layout and add polishing liquid and cleaning liquid business: The company relies on the existing polishing pad business to develop CMP polishing liquid and cleaning liquid products and improve the industrial layout. The company has a total of 0.015 million tons/year of polishing liquid at its Wuhan headquarters and Xiantaoyuan district. Among them, the 0.01 million ton CMP polishing solution (phase 1) and the 0.01 million ton CMP polishing solution supporting nano-grinding particle production line in Xiantaoyuan District was completed and tested in November 2023, and it currently has mass production capacity in large quantities and on a stable scale. In the first three quarters of 2024, the company's CMP polishing liquid and cleaning liquid business achieved revenue of 0.14 billion yuan, yoy +190%, accounting for 6% of total revenue. The company's various types of polishing liquid, such as dielectric layer, polysilicon, silicon nitride, etc., and post-copper CMP cleaning liquid products are being sold incrementally by many domestic customers. In addition, various new products such as copper and barrier layer polishing solutions continue to advance in the client verification process, and some products have entered the mass production introduction verification stage. We are optimistic that the company will rely on the customer base of polishing pad products and actively introduce CMP polishing liquid and cleaning liquid products to provide new contributions to the company's performance.

Entering wafer photoresist, the first customer order: The company has laid out and developed more than 20 products in the field of photoresists, 9 of which have completed internal development and samples have been sent to clients for testing and verification. In December 2024, the company announced that an immersion ArF wafer photoresist and a KrF wafer photoresist product have successfully passed customer verification, and each received orders from two mainstream domestic fab manufacturers, worth millions. The company currently has the Qianjiang Phase I high-end wafer photoresist production line with an annual output of 30 tons. In the future, the company plans to raise funds to build a “KrF/ArF photoresist industrialization project with an annual output of 300 tons”, a “domestic industrial base project for upstream key raw materials of optoelectronic semiconductor materials” and supplementary working capital by issuing convertible bonds to unspecified targets. The total planned capital raised will not exceed RMB 0.91 billion. As a key material for wafer manufacturing, photoresist products have high technical and entry barriers. In particular, high-end photoresists such as KrF/ArF have few domestic suppliers, and the demand for domestic alternatives is particularly urgent. For customers, photoresist product performance, quality stability, and the safety and reliability of the supply chain are all core elements related to the production and operation of enterprises. Currently, some domestic customers are included in the US entity list, which will directly cause their original import supply chain to face the risk of disruption. The high demand for import substitution will strongly push domestic photoresists into the market faster.

The competitiveness of semiconductor display materials continues to increase, with YPI and PSPI leading domestically: the company's semiconductor display materials business achieved cumulative revenue of 0.282 billion yuan in the first three quarters of 2024, yoy +168%, accounting for 12% of total revenue. The company is leading in polyimide products. Currently, the main products of display materials include yellow polyimide (YPI), light-sensitive polyimide (PSPI), and film packaging materials (TFE-INK), which are mainly used in the manufacture and packaging of flexible display panels. Currently, all three products are supplied at the scale of mainstream domestic panel manufacturers, and YPI and PSPI products are in a leading position in domestic supply, and are the first suppliers of YPI and PSPI products to most mainstream domestic display panel customers. The company has 1,000 tons of PSPI production capacity for panels in Xiantao Industrial Park. It is the first kiloton PSPI production line in China and the main supply base for key materials for panel displays in China. The company is also continuing to develop new products, including PI oriented liquid, fluorine-free photosensitive polyimide (PFAS Free PSPI), black photosensitive polyimide (BPDL), thin film packaging low dielectric material (Low Dk INK), etc. Currently, the development and verification of new products continues to advance, and it is expected that the company will accelerate its entry into the relevant supply chain in the future with the company's existing customer base. I am optimistic that the company's display materials business line will continue to be rich and that its market share will expand further, driving the sector's revenue to continue to rise.

Advanced packaging materials are breaking through, and temporary bonding adhesives are receiving orders from customers: The company has entered the semiconductor advanced sealing materials business. The main products are semiconductor packaging PI (polyimide) and temporary bonding adhesives. PI is a key raw material for semiconductor packaging and is mainly used in rewiring (RDL) processes. The company has deployed 7 products, fully covering non-photosensitive PI, positive PSPI, and negative PSPI. Currently, samples of 5 products have been sent, 3 customer audits were completed in the first half of the year, and the first batch order was obtained in June, forming a business breakthrough. The company's Xiantao's 1,000-ton PSPI production capacity can also be used for semiconductor packaging, and a seamless connection can be achieved after receiving customer orders. The company announced in December that it had received the first temporary purchase order for bonding adhesives from a mainstream domestic fab customer. Temporary bonding adhesive is an intermediate layer material that bonds wafers to temporary carrier boards, and is a key material for wafer thinning. At present, more than three fab customers and packaging customers have completed technical connections with the company, and the company is conducting internal verification according to the needs of some customers. The company currently has an annual production capacity of 110 tons of temporary bonding adhesive (bonding adhesive+unbonding adhesive), and has mass production and supply capacity, which can meet the continuous order needs of clients.

Printing consumables have been leading the way for a long time, providing a solid foundation: The company has been developing the general consumables business for printing and copying for many years. It is a leading global laser printing and copying consumables company, and has achieved a full industry chain layout. The products range from raw materials such as toner, pigments, and charge regulators to finished consumables such as cartridges and toner cartridges. In the first three quarters of 2024, the company's printing and copying consumables products achieved revenue of 1.322 billion yuan, yoy +3%, accounting for 54% of total revenue. It is expected that the business in this section will maintain a steady development trend, providing stable cash support for the company's second growth.

Profit forecast: The company achieved revenue of 2.426 billion yuan in the first three quarters of 2024, yoy +29.54%; net profit to mother 0.376 billion yuan, yoy +113.51%. We are optimistic about the company's multi-faceted development in the semiconductor materials sector. We expect the company to achieve net profit of 0.46/0.67/0.85 billion yuan in 2024/2025/2026, YOY +105%/+48%/+26%, equivalent to EPS of 0.49/0.72/0.91 yuan. Currently, the PE corresponding to the A-share price is 57/38/30 times, and the valuation is reasonable, covered for the first time, and given a “buy in” rating.

Risk warning: 1. The price of the company's products falls short of expectations; 2. The release of new production capacity falls short of expectations;