CITIC SEC: Semiconductor expansion + substitution Some equipment and materials will benefit.

CITIC SEC released a research report stating that photovoltaic equipment and material enterprises that have layout in the field of semiconductor capacity expansion and local substitution are expected to benefit. Since December 2024, more than 70 major semiconductor projects have been disclosed in various parts of the country, and the demand for semiconductor equipment and materials is expected to improve. Considering the increasing sanctions on the domestic semiconductor industry by the United States in recent years, the bank believes that in the long term, this will lead to an acceleration in the pace of independent research and development and local substitution by domestic enterprises, and the localization rate of semiconductor equipment and materials is expected to continue to increase. The bank has seen some photovoltaic equipment and material enterprises have actively laid out in this field, their products have also started to ramp up, and it is recommended to pay attention to investment opportunities in equipment and material enterprises with technological and financial advantages. Key points of CITIC SEC: Investment in new semiconductor projects in various regions, domestic semiconductor equipment and materials demand is improving. According to Shanghai Securities News, since December 2024, more than 70 major semiconductor projects have been disclosed in various parts of the country. According to the official WeChat account of Chengdu Hi-tech Zone, on February 18, Shenzhen China Microsemiconductor signed an investment cooperation agreement with Chengdu Hi-tech Zone to establish the Southwest Headquarters Project in Chengdu Hi-tech Zone with a total investment of about 3.05 billion yuan, which is planned to be constructed this year and officially put into operation in 2027. At the end of January, the Beijing 2025 Key Engineering Plan was released, which includes the Beidian Integrated 12-inch Integrated Circuit Production Line project with a total investment of 33 billion yuan, planning to start equipment installation in Q4 2025 and achieve mass production by the end of 2026. Shanghai also released the 2025 Key Engineering Plan, with 16 projects including Semiconductor Manufacturing International Corporation Lingang 12-inch wafer foundry production line and New Sheng Semiconductor 300mm integrated circuit silicon wafer research and advanced manufacturing base. Many regions are actively expanding semiconductor capacity, and equipment and materials are expected to benefit. The United States has intensified sanctions on the Chinese semiconductor industry in recent years, aiming to restrict the development of domestic high-end semiconductor industry, and the domestic substitution process continues to advance. On December 2, 2024, the Bureau of Industry and Security (BIS) of the US Department of Commerce issued new export control measures on semiconductors to China, formally listing 140 Chinese semiconductor-related companies on the Entity List, and also imposing new restrictions on 24 types of semiconductor manufacturing equipment. As a key factor restricting the development of China's semiconductor industry, the US government has long focused on the semiconductor equipment sector. According to Reuters, the US government persuaded the Dutch government in July 2019 to cancel the export license for Extreme Ultraviolet (EUV) lithography equipment to Semiconductor Manufacturing International Corporation; in December 2020, the US Department of Commerce included Semiconductor Manufacturing International Corporation on the Entity List, prohibiting it from purchasing semiconductor equipment below the 10nm advanced process. The bank believes that the long-term export control of advanced semiconductor equipment by the United States and its allies to China is inevitable. Although it has restricted the development of the domestic semiconductor industry in the short term, it will inevitably accelerate the pace of independent research and development and local substitution by domestic enterprises in the long term, and the localization rate of semiconductor equipment and materials is expected to continue to increase. The localization rate continues to increase, providing important development opportunities for domestic semiconductor equipment and components enterprises. Among the disclosed major semiconductor projects, there are a larger number of projects in the semiconductor packaging and testing, wafer manufacturing, and third-generation semiconductor fields. The bank estimates that 70%-80% of the investment in packaging and testing plants and wafer plants is used to purchase equipment, so the investment and construction of a large number of semiconductor projects will provide important development opportunities for domestic semiconductor equipment and component enterprises. According to the Semiconductor Equipment and Materials International (SEMI), global wafer fab equipment spending is expected to increase to $112.8 billion in 2025, a year-on-year growth of +15%, and the global semiconductor equipment market size is expected to reach $150-180 billion in 2026. According to Sanford Bernstein statistics, domestic semiconductor equipment suppliers only account for 15% of the domestic market share. The bank believes that the current market share of domestic semiconductor equipment is relatively low, and the process of domestic substitution is expected to accelerate, benefiting the domestic semiconductor equipment sector in the medium to long term. Some photovoltaic equipment and material enterprises have completed their layout, and their products are beginning to ramp up. Zhejiang Jingsheng Mechanical & Electrical has achieved breakthroughs in the localization of 8-12 inch semiconductor large silicon wafer equipment, with product quality reaching international advanced levels. It has also achieved domestic substitution in 6-8 inch silicon carbide epitaxial and other power semiconductor equipment. Sichuan Injet Electric continues to receive bulk orders for RF power supplies used in semiconductor etching and PECVD processes, with mass production already achieved in some models, and the order amount for 24H1 has exceeded the total order amount for 2023. Kbc Corporation, Ltd. has developed a variety of ultra-high purity carbon-based composite thermal field products, which can be widely used in high-temperature thermal field systems for semiconductor crystal growth. The related products have been validated and applied by multiple silicon carbide substrate manufacturers. Kewell Technology has been deeply involved in the research and development of silicon carbide and dynamic and static testing equipment for production lines, and has obtained recognition from top international customers, with a substantial year-on-year growth in order revenue in 2023. Risk factors: Global economic recovery falls short of expectations; domestic semiconductor project construction falls short of expectations; domestic substitution process falls short of expectations; the United States intensifies short-term export controls on semiconductor exports to China; domestic advanced process research and development progress falls short of expectations.