Lianrui new materials: domestic silicon powder leading enterprises. The company has ploughed the silicon powder industry for nearly 40 years, continuously deepened research and development through core technology, provided products and services guided by customer demand, and grasped the development opportunity in the period of downstream application demand expansion to achieve rapid development. From 2016 to 2021, the company's income and return net profit CAGR were + 32.4% and + 39.5% respectively, making it a leading manufacturer of silicon powder in China. With the expansion of downstream application fields and the improvement of application requirements, middle and high-end spherical silicon powder products have become the core driving force of the company's performance growth; at the same time, the company relies on the accumulation of core preparation technology to expand to markets such as spherical alumina powder. it is expected to become a new performance growth point in the future.

The driving force for the future growth of the company: the wide application of high-frequency and high-speed copper clad laminate and advanced packaging materials promotes the high-end demand of silicon powder, and the company's spherical silicon products have the advantages of performance / price / service, and there is a good opportunity to increase the market share in the future; the homology of spherical powder preparation technology has become an opportunity for the company to extend its product category. Under the high prosperity of new energy vehicles, the company's thermal conductive ball aluminum business is expected to open the second growth space.

The application of high-frequency and high-speed copper clad laminate drives the demand of high-end silicon powder. 5G technology puts forward higher requirements for the transmission speed / loss / heat dissipation of PCB core material copper clad laminate. Silicon powder is an important functional filler of copper clad laminate. Molten and spherical silicon powder can match with high frequency and high speed copper clad laminate, and the application demand of 5G is expected to increase rapidly. By 2025, the domestic market scale of silicon powder for copper clad laminate is expected to reach 3.5 billion yuan, of which the scale of silicon powder for high frequency and high speed copper clad laminate is 1.11 billion yuan.

Advanced packaging materials broaden the growth space of spherical silicon powder. Epoxy plastic packaging material is the key material for packaging chips, and the market increment mainly comes from advanced packaging materials. The proportion of the global advanced packaging market is expected to increase to 50% in 2026, an increase of 5pct compared with 2020. The core of the package is epoxy plastic sealing material, 70% of which are made of silicon powder, which increases the demand for high-quality spherical silicon powder. It is estimated that the market scale of silicon powder for epoxy plastic sealing materials in China is expected to reach 4.52 billion yuan in 2025.

The product performance matches overseas and has the advantages of price and service, and there is a lot of room for domestic substitution to increase the market share. The company has studied for many years to overcome a series of technical problems in the preparation of electronic grade spherical silicon powder by flame method, and achieved rapid growth after mass production in 2012 as the company's main profit point. At present, the company's production of different levels of spherical silicon in a number of parameters has exceeded similar foreign manufacturers. And in view of the strict material requirements for downstream high-end applications, the company insists on independent design, installation and debugging of key equipment components to ensure that product performance remains in the lead. On the basis of ensuring product quality and performance, the price of the company's products is significantly lower than that of overseas products, and customized products according to customer needs, establish long-term and stable cooperative relations with high-quality customers at home and abroad, and catalyze domestic substitute demand. We estimate that in 2021, the market share of the three local spherical silicon production enterprises in the domestic market is only 15.9%, and the market share of the company is less than 10%. In the future, relying on the advantages of technology, service and price, we will catalyze the domestic alternative demand. The follow-up company, as a leading enterprise in the industry, has a lot of room to improve its market share.

New energy vehicle Gaojing air-assisted heat conduction ball aluminum has become a new performance growth point. The miniaturization of electronic equipment puts forward higher requirements for heat dissipation, in which thermal interface materials play a key role. Nodular aluminum with high performance-to-price ratio is often used as thermal conductive fillers to improve thermal conductivity. The high prosperity of new energy vehicles and the importance of thermal management further promote the application of thermal interface materials and drive the demand for thermal conductive fillers such as spherical alumina. We estimate that the global market demand for nodular aluminum is expected to reach 6.05 billion yuan in 2025, the company relies on the core technical experience of spheroidal silicon to cut into emerging markets, the production of nodular aluminum with industry-leading electrical performance, low CUT point, high filling rate, high purity and other excellent characteristics, high unit price, high gross margin, hope to become a new performance growth point.

Profit forecast and investment advice: the high-end downstream demand increases the demand for spherical silicon, the performance of the company's products can match overseas and the price is lower, and the company has more room to increase its market share under the acceleration of domestic substitution, which has become the core growth driver. Another company timely cut into the ball aluminum market, fully benefit from the high prosperity of downstream new energy vehicles, and is expected to become an important performance growth point of the company in the future.

We predict that the company's return net profit from 2022 to 2024 will be 1.8,2.70 and 350 million yuan respectively, corresponding to 36,25 and 19 times PE respectively, covering for the first time and giving a "buy" rating.

Risk hints: intensified market competition, lower-than-expected downstream demand, lower-than-expected production capacity, less-than-expected new business development, deviation in market space measurement, and the risk that the public data used in the research report may lag behind or not updated in a timely manner.