Key takeaway: The company's leading position in photovoltaic silver paste is solid, and it is striving to build a pan-semiconductor materials platform. The company entered the semiconductor field by acquiring the blank mask plate business from SK Enpluse, with process coverage spanning 18-90nm nodes. It has passed customer verification with SK Hynix, TMC, Disiwei, and Zhongwei Mask, and has achieved mass sales. In the AI era, chip diversification and the super expansion cycle resonate, and process upgrades drive exponential growth in blank mask plate volume and pricing. Currently, the domestic blank mask localization rate is almost zero, and the company will directly benefit from the semiconductor boom cycles in China and South Korea.

A leader in photovoltaic conductive paste, with a solid silver paste foundation, actively embracing low-silverization and space-based P-type HJT application scenarios. The company's traditional silver paste operations have significant advantages, with a market share exceeding 30%, already becoming a cash flow business. The company safeguards profitability by increasing the self-supply of silver powder and the proportion of overseas operations. The company pioneered pure copper paste and has been developing and producing silver-coated copper paste and silver-nickel paste. Longi, Aiko, and Jinko have planned 30/20/40GW of base metalization capacity, and it is estimated that more companies will follow suit in the future. At the same time, the company actively cooperates to meet the special requirements for P-type HJT paste in space application scenarios. The processing fees and unit consumption of new products such as copper paste and P-type HJT paste are usually several times higher than the original levels, further providing performance flexibility.

In the AI era, chip diversification and expansion cycles resonate, making blank mask plates a core segment with rising volume and pricing, with market scale and localization speed accelerating upwards. Blank mask plates are mainly used as the raw material for mask/reticle required in chip design, analogous to unexposed film negatives. They possess attributes of both equipment and consumables, with demand primarily dependent on downstream expansion and chip diversification.;Meanwhile, as semiconductor manufacturing processes upgrade, chip patterns become increasingly complex and begin to adopt multiple patterning, causing the volume and price of blank mask plates required for a single chip to increase exponentially. Accompanied by the current semiconductor boom cycle and process upgrades, and because the expansion cycle for blank mask plates is relatively long and they are positioned relatively upstream in the industry chain, supply-demand prosperity will continue to be revised upwards. Currently, domestic blank mask plates remain fully monopolized by Japan and South Korea, with near-zero localization. The company will directly benefit from the semiconductor upcycle in China and South Korea.

The core team previously worked at Samsung. The blank mask plate business unit acquired from SK Enpulse holds leading technology in China. The acquired blank mask plate assets cover the 14-90nm process node, representing a leading technical level in China. Mass production validation has been completed and sales realized with customers such as SK Hynix, TMC, Disi Micro, and Zhongwei Mask. The company will adopt a strategy of "initial validation of Korean products, followed by import substitution with domestic capacity". It is conducting technical exchanges and validation with multiple domestic fabs and third-party mask shops, positioning itself as a leading domestic blank mask plate player.

The company has made forward-looking strategy of developing semiconductor photolithography materials, MLCC/LTCC conductive pastes, shingled conductive adhesives, 0BB positioning adhesives, and other materials, aiming to build a platform-type materials enterprise for the pan-semiconductor sector. Juxinguang, a subsidiary of the company, primarily focuses on photolithography materials, specializing in electron beam and ArF photoresists. Its team has been fully assembled and will collaborate with the blank mask plate business to achieve localization in the future. Jiangju and Juxinyao mainly target the pan-semiconductor electronic paste sector. Dedelangju primarily focuses on adhesives, developing 0BB adhesives and shingled conductive adhesives, actively building a platform-type materials enterprise for the pan-semiconductor sector.

Risks:

1. Intensified industry competition in the silver paste sector. Silver paste involves low capital expenditure, fast capacity expansion, and high elasticity. If new silver paste technologies spread rapidly, processing fees may decline sharply;

2. Raw material cost volatility. The main raw materials for silver paste are silver powder and silver ingots. If silver prices fluctuate significantly in the short term, the company's silver paste gross margin may be affected. Based on the company's 2022 cost structure, the average cost of silver paste was RMB4,373/kg, with direct material costs at RMB4,360.4/kg, accounting for over 99% of total costs, primarily from silver powder and silver ingots. If the cost of silver powder and silver ingots rises by 10%, the company's 2022 silver paste gross margin would decline from 11.3% to 2.5%;

3. Risk of rapid decline in silver paste usage per solar cell. If N-type cell silver paste usage per cell drops rapidly, the market size growth of the silver paste industry may disappoint, affecting the company's silver paste shipment volumes;

4. PV end user demand is weaker than expected. Our forecast for the company's shipment volumes is based on an anticipated 20%-30% growth rate in the PV industry over the next few years. If the industry demand falls short of these expectations, the company's silver paste shipment volumes might also be lower than our projected values;

5. Risk of persistently negative operating cash flow. In the silver paste segment, since the payment terms from customers are longer than the payment cycle for raw material procurement, the company's operating capital requirements will continue to grow as its business scale expands, which may result in persistently negative operating cash flow.