The risk of epidemic situation in Japan and South Korea is rising rapidly. China has a large exposure to Japan and South Korea in the fields of mechanical and electrical products, transportation equipment, plastic rubber, chemical products, metal products and so on. It is suggested that we should pay attention to the risk of price increase and cut-off supply; the extension of the industrial chain may impact the domestic mid-downstream pan-semiconductor industry and automobile manufacturing industry. Under the impact, the domestic industry is expected to strengthen its independent supply chain. We sort out the targets of the subdivided fields with high correlation, which can be found in the text for details.

The epidemic risk of Japan and South Korea is rising rapidly, and the impact on the domestic industrial chain can not be ignored.

The risk of overseas outbreaks is rising rapidly, especially in Japan and South Korea.

The epidemic of COVID-19 overseas has become more and more serious recently.As of February 26, a total of 36 overseas countries had confirmed cases, with a total of 3546 confirmed cases and 53 deaths, with the largest number in South Korea and Japan, with 1261 and 894 confirmed cases and 19 deaths respectively. The countries with the fastest increase in recent confirmed cases include South Korea, Japan, Italy and Iran, of which South Korea and Japan are of particular concern.

Recently, the number of confirmed cases in South Korea has soared in the form of an index, mainly because believers from the "Xintiandi" church in South Korea have become super communicators, resulting in more than 300 infections in Daegu City, thousands of people being quarantined, and the government did not take corresponding prevention and control measures in time at the initial stage. The South Korean government announced on the afternoon of the 23rd that it would raise the response level of the epidemic to the highest level-the "serious" level. Judging from the overseas reaction, 15 countries and regions have implemented immigration controls on South Korea.

The main confirmed cases in Japan came from the Diamond Princess (a total of 701 cases, accounting for about 80% of the total number of confirmed cases in Japan), and the airtight environment of the ship was suspected to have exacerbated the spread of the virus. At the same time, it is worth worrying about the rapid growth of the epidemic in Japan. Due to the imperfect government prevention and control measures at the beginning of the outbreak, a total of 16 confirmed cases have been found in Japan, and the possibility of community infection still needs to be paid attention to in the future.

The rapid outbreak in Japan and South Korea has raised global concerns about whether the epidemic can be brought under control and a slowdown in global economic growth. As of the latest news from the Global Times on February 25, some countries have imposed entry restrictions on Japan and South Korea, including restrictions on domestic personnel travelling to Japan and South Korea, as well as entry into Japan and South Korea. If the epidemic escalates further, more countries will adopt entry restrictions, as well as trade, flights, tourism and other measures. If the epidemic in Japan and South Korea continues to spread, the escalation of restrictions imposed by other countries on the two countries is expected to have a significant negative impact on the global economy and trade.

The main contradiction of the global industrial chain is shifting from domestic to overseas.

In the last report "paying attention to the spillover impact of the COVID-19 epidemic on the global industrial chain" (2020-2-17), we combed the impact of the epidemic, falling demand and delayed resumption of work on some countries and industries in the global industrial chain. at that time, the main contradiction was the impact of the domestic epidemic on the global industrial chain. at the same time, we proposed that China should pay attention to speeding up the resumption of work in order to prevent the second impact of the overseas industrial chain on the domestic. Recent high-level meetings also put special emphasis on the restoration of the industrial chain, taking the county level as a unit to check the orderly rotation of the flow of people, logistics, and capital, which is also conducive to the rebound of domestic demand and the repair of enterprise production capacity.

The risk of Japan and South Korea being affected by the epidemic to impact the global industrial chain has increased significantly.Recently, the risk of the epidemic in China has declined, and the number of new cases overseas has increased rapidly every day, and it will take time for the epidemic to be brought under control. In particular, the escalation of the epidemic in Japan and South Korea may trigger national quarantine and production suspension measures similar to those in China, which will seriously affect domestic transportation and logistics, enterprise construction, import and export trade, and so on. Considering the important position of Japan and South Korea in the global industrial chain and their close trade ties with China, the escalation of the epidemic in Japan and South Korea is expected to have a significant impact on the global industrial chain, including China.

Focus on the impact of the epidemic in Japan and South Korea on the domestic industrial chain

Japan and South Korea play an important role in the global trading system, while Japan and South Korea have close trade relations with China.It is mainly reflected in the following three aspects:

1. Japan and South Korea occupy an important position in the global trade share, and China is the largest importer of Japan and South Korea.

2. Japan and South Korea are also major exporters of intermediate goods. From the point of view of the dependence of intermediate goods, China is highly dependent on the intermediate goods of Japan and South Korea.

3. From the perspective of industrial chain, Japan, South Korea and China rely on each other in the upper, middle and lower reaches of trade, which is a link that can not be ignored in the domestic industrial chain.

From the perspective of the transmission path, if the epidemic escalates further, Japan and South Korea, as China's important trading partners, enterprise shutdowns, logistics outages, and reduced exports will have a direct impact on the supply of upstream raw materials and finished products in the middle and lower reaches of our country. the prices of some materials may rise.

At the same time, the supply and price changes of materials have an indirect impact on the production and sales of some enterprises in the industrial chain.

China has a large exposure to Japan and South Korea in the fields of mechanical and electrical products and transportation equipment, and pays attention to the risk of price increase and supply interruption.

We have sorted out the industries and products involved in the trade between Japan and South Korea and China, among which mechanical and electrical products, transport equipment, plastic and rubber, chemical products and metal products may be greatly affected by Japan and South Korea's exports. It is particularly noteworthy that Japan and South Korea occupy a high market share in the upstream IC preparation raw materials, middle and downstream memory chips, panels and other fields. Once the epidemic spreads rapidly in these two countries, it will affect the normal production and transportation of relevant enterprises, thus pushing up the prices of relevant upstream raw materials and finished products in the middle and lower reaches and the risk of disconnection.

Among the industries and products involved in China's trade with Japan and South Korea, mechanical and electrical products, transportation equipment, rubber and plastics, chemical products and metal products may be greatly affected by the exports of Japan and South Korea.The products that China imports most from Japan and South Korea are mechanical and electrical products (electrical equipment, mechanical equipment, electronic equipment, etc.), accounting for 43.1% and 54.3% of the total domestic imports from Japan and South Korea, respectively.

Compared with other countries in the world, China is highly dependent on Japan and South Korea in transportation equipment, rubber and plastics, chemical products and so on.We measure China's dependence on a single product according to the proportion of China's imports to all global imports. Overall, China's dependence on all exports from Japan and South Korea is 19.5% and 26.8%, of which imported rubber and plastics, chemical products and transportation equipment account for 27.0%, 25.6% and 20.1% of Japan's total exports, and 44%, 27% and 3% of South Korea's total exports. From the proportion of products, it can be found that China is more dependent on Japan and South Korea for rubber and plastic, chemical products and transportation equipment, so it is more vulnerable to the suspension or hindrance of trade between Japan and South Korea.

What is particularly noteworthy is thatJapan and South Korea occupy a high market share in the upstream IC preparation raw materials, middle and downstream memory chips, panels and other fields.Once the epidemic spreads rapidly in these two countries, it will affect the normal production and transportation of relevant enterprises, thus pushing up the prices of relevant upstream raw materials and finished products in the middle and lower reaches and the risk of disconnection.

South Korea's memory chips, panel manufacturing and Japan's wafers, photoresist and other semiconductor preparation raw materials occupy an absolutely leading position in the global market, and will be more easily transmitted to downstream production links.

South Korea dominates the memory chip market, with Samsung and SK Hynix, the first and second largest memory chip manufacturers in the world. At present, both Samsung and SK Hynix have reported suspected and confirmed cases, and the subsequent factory shutdown due to the epidemic will have an impact on the global market for memory chips and electronic components.

Japan also has a high market share in many semiconductor manufacturing raw materials, especially the indispensable raw materials in semiconductor manufacturing processes such as wafers and photoresist, which have a market share of more than 50%. As some key materials are almost monopolized by Japan and South Korea, once the epidemic spreads rapidly in these two countries, it will affect the normal production and transportation of relevant material enterprises, thus pushing up prices in some areas of domestic materials. there is even the risk of supply disruption when inventory fails to meet existing demand.

The extension of the industrial chain may impact the domestic pan-semiconductor industry and automobile manufacturing industry in the middle and lower reaches.

We suggest that we should pay attention to the negative impact on the two domestic industrial chains-pan-semiconductor industry and automobile manufacturing industry.

(1) Pan-semiconductor industry: the middle and lower reaches of the plate will be affected by the increase in the price and supply of key raw materials for IC preparation, such as wafers and photoresist in the upper reaches of Japan and South Korea, in view of the high level of protection in this industry, the risk of short-term outage is small, and the impact is relatively controllable. However, the domestic industry is highly dependent on Japan and South Korea in the fields of electronics, machinery and equipment, and the price increase caused by the shutdown of Japanese and South Korean panels and chips may increase downstream production costs.

(2) Automobile manufacturing industry: some metal products, rubber and other chemical raw materials in the upper reaches of the industrial chain, as well as mechanical and electrical products and transportation equipment are related to the supply chain of Japan and South Korea. However, considering the high localization rate of Japanese-Korean joint venture automobile manufacturing enterprises and the relatively abundant domestic supply of domestic parts and components, its negative impact can also be partially hedged.

Generally speaking, we think that the corresponding sectors such as pan-semiconductor industry chain and automobile industry chain may be negatively affected by upstream price increases and supply cuts in the short term. However, taking into account the relevant industrial characteristics, inventory management, industrial chain transfer and other factors, the overall impact is not expected to be obvious. In extreme cases, if the epidemic in Japan and South Korea gets out of control, the dominant position of Japan and South Korea in related fields will lead to a cut-off of material supply in the middle and upper reaches, and its impact on downstream production enterprises may be further expanded.

From the perspective of policies and the response of enterprises, while speeding up the resumption of work and production at home, we should also guard against the import risk of overseas epidemic changes to the domestic industrial chain, which is mainly the risk of price increases and supply cuts caused by the impact of the epidemic in Japan and South Korea on the upstream and middle and downstream key raw materials. In the short term, it is necessary to pay close attention to the development of overseas epidemics, especially the new cases in Japan and South Korea and the production and logistics-related restrictions taken by the government. If the epidemic situation further escalates, some key materials may be directly impacted by Japan and South Korea, with the risk of rising prices and cutting off supply; at the same time, enterprises in the upper and lower reaches of the industrial chain should also guard against the possible impact of the interruption of supply of key materials upstream, middle and downstream, such as pan-semiconductor industry chain, automobile manufacturing industry chain, and so on.

Under the impact, the domestic industry is expected to strengthen its independent supply chain.

On the one hand, price increases will increase the profits of enterprises in the domestic subdivision industry chain and increase investment in supporting supply chains.

On the other hand, product outage is often the time for potential competitors to cut into the supply chain, which will accelerate the transformation and upgrading of domestic enterprises. Focus on three main lines:

1. Upstream new materials industry: focus on domestic supporting enterprises with a certain foundation, including photoresist, wet chemicals, polishing mats and polishing fluids, special gases, targets and other subdivisions.

2. Pan-semiconductor industry in the middle and lower reaches: product price increases and supply cuts will promote the independent development of semiconductor and electronics-related segments, including domestic memory chips, panels, etc.

3. Middle and lower reaches of auto parts: the supply of domestic listed companies in the auto parts segment dominated by Japanese and South Korean competitors is also expected to increase.

According to the viewpoints of the New Materials Group, Electronics Group and Automobile Group of CITIC's Research Department, we sorted out the subdivided areas with high correlation as follows:

Upstream new material industry

1. Wafer: Shanghai Xinyi (Silicon Industry Group)

2. Photoresist: Feikai material, Jingrui Co., Ltd., Shanghai Xinyang, Nanda Optoelectronics

3. Wet Chemicals: Jingrui Co., Jiang Hua Wei Co., Shanghai Xinyang Co., Binhua Co., Ltd., Polyfluorodo, Jiahua Energy Co., Juhua Co., Ltd., Xinzubang, Xingfa Group

4. Polishing pad and polishing fluid: Anji Technology, Dinglong Co., Ltd.

5. Special gases: Haohua Technology, Jacques Technology, Walter Gas, Sanfu Co., Nanda Optoelectronics, Juhua Co., Ltd.

6. Target material: Jiangfeng Electronics, Youyan New material, Ashichuang

7. Other (low-K, high-K): Jacques Technology

Pan-semiconductor industry in middle and lower reaches

• Memory chip: if the epidemic spreads violently in the future and the enterprise has a short-term shutdown to raise the price of memory chip, you can pay attention to Zhaoyi innovation.

• Panel: the epidemic strengthens the logic of the withdrawal of Korean manufacturers in the field of large-size panels, and further promotes the independent development of the domestic sector. BOE and TCL are recommended, and it is recommended to pay attention to Sanli Spectrum and Rainbow shares of second-tier companies.

Middle and lower reaches automobile parts

1. Combination of teeth and differential gears: precision forging technology

2. Battery: Ningde era

3. Negative materials: Pu Tai Lai, Shanshan Co., Ltd.

4. High pressure casting: Aikodi

5. Castings and forgings: Xusheng shares

6. Car hardware, audio: Desai Xiwei:

7. Dynamic seals: Zhongding Co., Ltd.

8. TPMS launcher: Baolong Technology

9. TPMS battery: Yi Wei Li energy