In the rapidly evolving landscape of consumer electronics, a notable resurgence in demand has been witnessed, particularly within the realm of semiconductor and display materialsThis uptick can be attributed to a combination of factors, including the continual uptrend in the semiconductor cycle, which has driven a robust appetite for chemicals and materials essential for productionAs domestic enterprises in China enhance their technological capabilities and production capacities, the penetration rate of local firms into this vital industry is on a steady rise.

The array of chemicals used in the semiconductor sector is extensive, coupled with significant entry barriers that have historically challenged newcomersHowever, several publicly-traded companies have reported staggering increases in their net profits, with some achieving growth exceeding 50% year-over-year in the first three quarters of 2024. This remarkable performance extends across various companies, including those specializing in display materials, electronic specialty gases, and wet electronic chemicals.

A pivotal development is the transfer of the semiconductor display industry to China, bolstered by an expanding domestic semiconductor market

This growth is further fueled by an increase in production capacity among downstream wafer customers, advancements in process technology, and an uptick in the number of layers in chip stackingConsequently, there is a corresponding increase in the volume of chemicals and consumables required, presenting significant opportunities for related enterprisesIndigenous wet chemical solutions are now being utilized in a variety of applications, including logic chips, memory devices, analog chips, power components, sensors, and third-generation semiconductorsLocal companies have made remarkable strides in technological innovation, achieving mass production and supply of high-end wet chemicals.

Additionally, domestic enterprises in the electronic gas sector are actively seeking breakthroughs, increasingly adopting a comprehensive gas service model, gradually overcoming the barriers associated with one-stop service requirements

This shift is poised to continue enhancing market share in the years to come.

The strong economic performance of these companies has provided a clear indicator of market trends, propelled by a revival in consumer demand for electronic goodsThe proliferation of OLED panels across diverse application scenarios significantly increases the penetration rates of such technology, with innovations like layer stacking promising rapid growth in the demand for OLED materialsDespite local manufacturers commanding over 80% of the wet electronic chemicals market for low-generation panels, the overall domestic production rate of wet electronic compounds for display panels remains below 40%. With the ongoing development of high-generation OLED IT panel production lines by firms like BOE Technology Group and Visionox, there’s substantial potential for domestic high-end display materials.

For instance, Ruillon New Materials (688550.SH) has recorded a staggering operating revenue of 1.093 billion yuan and a net profit of 174 million yuan attributable to shareholders in the first three quarters of 2024. Their fourth-quarter profitability also hit record highs, with net profits rising 145.64% compared to the previous year, aided by effective cost management and an optimized product structure covering both luminescent and general materials.

Similarly, Lattice Optoelectronic (688150.SH) reported a revenue of 356 million yuan, a striking 79.91% increase year-on-year, and a net profit of 130 million yuan, showing a remarkable growth of 131.70%. A whopping 89% of their income stemmed from OLED organic materials, with the remaining 11% arising from other intermediates and cleaning agents for panels.

In a comparable stride, Dinglong shares (300054.SZ) posted 2.426 billion yuan in sales, reflecting a 29.54% annual rise, with a net profit of 343 million yuan representing a dramatic 165.26% increase

Their quarterly revenue for the third quarter reached 452 million yuan, cementing their standing with consistent growth across their semiconductor business.

A technical focus remains attuned to the development of new high-end materialsThe company is vertically integrating the supply chain for general printing and copying consumables while horizontally expanding into semiconductor materials, particularly in the critical domain of OLED displays, solidifying their competitive edgeAdditionally, they achieved mass production of photosensitive resins for packaging, while lithography materials for wafer manufacturing are progressing through customer verification stages.

ADVANCED TECHNOLOGIES

Anji Science and Technology (688019.SH) reported revenue of 1.312 billion yuan with a 46.10% year-on-year growth, coupled with a net profit surge of 58.64%. The rise in gross margins has been attributed to additional value-added contributions from chemical mechanical polishing (CMP) fluids and functional wet electronic chemicals, both of which are increasingly critical in advanced semiconductor applications

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Greenlighted amongst these efforts, significant outcomes in new product introductions have also contributed positively to the structure and demand volume.

Shanghai Xin Yang (300236.SZ) similarly reported revenues and a net profit of 1.067 billion yuan and 129 million yuan, respectively, with their non-recurring net profit demonstrating a staggering 80.79% year-on-year increaseThey have seen rapid sales growth in plating additives, with their dry-etching cleaning agents achieving full coverage in technology nodes of 14nm and above, indicating robust market adaptation.

As the wet electronic chemicals sector advances, their vast application in microelectronics and optoelectronics is significantFor instance, the demand for wet electronic chemicals in processing 300mm wafers dominates the market, with consumption during the fabrication process reaching up to 4.6 times that of 200mm wafers and 7.9 times that of 150mm wafers

Projections indicate that by 2025, the domestic market for wet chemicals will burgeon to 460,450 tons, with an impressive compound annual growth rate of 20% expected.

Currently, the domestic localization rate for semiconductor wet electronic chemicals stands at 38%. The localization rates for 200mm wafer processing chemicals have shot up to 82%, while the 300mm market has slowly risen to about 20%. Overall, the average localization for wet chemical requirements remains around 26% amidst a competitive landscape.

Notably, several local firms such as Zhongjuxin, Jinrui Electric Materials, Danor, and others have made significant technological advancements, with certain products reaching or nearing G4 and G5 levelsThe ability to achieve mass production and supply of high-end wet chemicals is expanding as domestic enterprises continue to bolster their technological prowess and production capacities.

Jianghua Microelectronics (603078.SH) has been steadily transitioning its G5-grade hydrochloric and ammonia solutions to high-end semiconductor clients, achieving preliminary certification phases with firms like Huahong Semiconductor and Huahai Microelectronics

They also attained certification for G5-grade sulfuric acid among notable Taiwanese semiconductor playersBy June 2024, major equipment for their second-phase project is set to be installed and test-run, signifying a crucial milestone for growth.

This pioneering movement in the sector is emphasized by Tongcheng New Material (603650.SH), which successfully launched mass production of G5-grade photoresist reagentsTheir Shanghai facility aims for an annual output of 11,000 tons for semiconductor and flat panel display resists, along with related accessory projects, and plans are well underway for their chip polishing pad production base in Jintan.

MARKET EXPANSION EFFORTS

In terms of market dynamics, electronic gases rank just behind silicon wafers in their share of semiconductor manufacturing materials, accounting for roughly 14% of wafer manufacturing costs

Electronic gases encompass both bulk gases and specialty gases, with integrated circuits and display panels serving as their two main downstream consumersThe localization of specialty electronic gases was at a mere 14% in 2020. However, predictions suggest that by 2025 this figure could reach around 25% due to ongoing industrial shifts.

For example, Huate Gas (688268.SH) invested four years to penetrate the TSMC supply chain and successfully gained certifications from ASML and GIGAPHOTON, now boasting over 80% coverage within chip production facilities using 8-inch or larger wafersThis accomplishment underscores Huate's position as a supplier for major integrated circuit companies such as Intel, SMIC, and TSMC.

Similarly, Jinhong Gas (688106.SH) has received acknowledgment from major industry players like Semiconductor Manufacturing International Corporation (SMIC) and BOE (Beijing operating system), documenting their resilience against pricing pressures by augmenting sales volumes

Their projects, including on-site gas production and major electronic gas initiatives, are expected to come online in the fourth quarter, enhancing company revenues substantially.

According to Guotai Junan Securities, the market for on-site gas production has largely been claimed by overseas players who entered the Chinese market much earlier, taking considerable share in the bulk gas sectorIn response, domestic firms are pivoting towards providing comprehensive gas and chemical services, forging a TGCM model to competitively engage in domestic tender projectsThis strategy has shown promise, with Jinhong Gas successfully securing contracts for on-site bulk gas projects.

Moreover, the semiconductor industry places high demands on the capabilities of supporting enterprisesCompanies offering a limited range of products often struggle to carve out significant market shares due to the multifaceted nature of their requirements