For the first time, Walter Gas was covered and rated as an increase in holdings. The target price was 60.21 yuan. The company is mainly engaged in the electronic special gas business. It is one of the leading enterprises in the domestic electronic special gas industry. It has imported about 50 products and added new high-value categories. Along with the growth and progress of the downstream semiconductor industry, demand for special gas is expected to increase. With product quality comparable to imports, service and cost advantages, and the help of large national funds, the domestic replacement rate of special gas is expected to increase in the future, and the company is expected to gradually release performance as a leading enterprise.

Downstream demand for special gas continues to increase, and the localization rate is expected to increase in the future. According to SIA, sales in the global and Chinese semiconductor industry began to improve in 23. According to WSTS, the global semiconductor market size is expected to be +16%/+13% year on year in 24/25, respectively. The industry sentiment is expected to gradually recover. The increase in the operating rate of domestic and foreign wafers and the continuous expansion of production are expected to help increase demand for specialty gas. In addition, semiconductors are progressing in the direction of more advanced manufacturing processes and more 3D NAND layers, and the unit consumption of special gas is also increasing. According to Intelligent Research and Consulting, the localization rate of China's electronic special gas increased from 9% to 14% from 2018 to 2020. Currently, domestic specialty gas is comparable to imports in terms of purity and other qualities, and has certain service and cost advantages. The third phase of the National Big Fund is also expected to help, and the domestic replacement rate for special gas production is expected to increase in the future.

The company is a leading domestic electronic specialty gas enterprise, promoting domestic substitution and adding high-value category companies as one of the leading enterprises in the domestic specialty gas industry. Over 20 products are supplied to 14nm, 7nm and other production lines. Some products have entered the 5nm process and entered supply chain systems such as Samsung, Micron, TSMC, and Hynix. At present, the highest purity of the company's products is 7N, and most products are 5N or above, which is comparable to imported products. The company has deployed high-value products such as hexafluorobutadiene, 15 tons of ethysilane, and 10 tons of germanium. Germanium has successfully entered the supply chains of Hynix and Samsung. In terms of projects under construction, the company plans to invest in semiconductor materials projects and R&D center projects in Jiujiang, Jiangxi, Rugao, Jiangsu, Zigong, Sichuan, and Zhongshan, Guangdong. In the future, it may contribute to the company's performance one after another.

How we differ from the market view

The market believes that with the increase in the supply side of the industry, speciality gas prices and gross margins may be under pressure. We believe that with the company's high-value products such as hexafluorobutadiene, germanium, and ethysilane being released one after another, and the company's changes in overseas sales models, etc., the company's gross margin is expected to continue to be optimized. Furthermore, we believe that with the national policy side's requirements for autonomous and controllable electronic specialty gases, and the continuous improvement of the quality of electronic specialty gases by domestic enterprises, the localization rate is expected to gradually increase with advantages in transportation, service, and cost.

Profit forecasting and valuation

We estimate that the company's net profit for 24-26 will be 0.2/0.27/0.34 billion yuan, +19/ +32%/+28% year over year, corresponding EPS of 1.69/2.23/2.85 yuan. Referring to a comparable company's 25-year average Wind of 31xPE, considering that many of the company's specialty gas varieties are still in the early stages of development, the company was given a 25-year valuation of 27xPE. The target price was 60.21 yuan, which gave the first coverage a “gain” rating.

Risk warning: downstream demand falls short of expectations; progress of new projects falls short of expectations; raw material prices fluctuate greatly.