Donghai Securities: Thermal Interface Materials Benefit from Increasing Heat Dissipation Demand, Industry Chain Foundations Support Breakthroughs in Localization.

East Sea Securities released a research report stating that the main application areas of thermal interface materials in China's downstream market are consumer electronics, new energy vehicles, communication technology, and medical fields. It is predicted that the compound annual growth rate of the market size from 2024 to 2034 could reach 11.3%. Leading materials in the thermal interface material supply chain are expected to benefit from the localization of the electronics chain and the new demand brought by artificial intelligence upgrades. In addition, companies are transitioning from being single thermal interface material suppliers to comprehensive heat dissipation solution providers, forming platform product introductions, binding downstream leading customers, exploring new customers, and demonstrating growth capabilities through stable performance, high levels of research and development expenditure, and a rich product matrix. The main viewpoints of East Sea Securities are as follows: 1. Thermal interface materials are important components of electronic component heat management devices. 2. Common thermal interface materials on the market mainly include polymer-based composite materials, metal-based thermal interface materials, and new types of thermal interface materials in the exploratory stage. Polymer-based composite materials include thermal conductive silicone grease, thermal conductive gel, thermal conductive adhesive, thermal conductive pads, and thermal conductive phase change materials; metal-based thermal interface materials are represented by low melting point solders and liquid metal materials; and new types of thermal interface materials are represented by thermal conductive polymers, graphene, and carbon nanotube arrays. Currently, the main application areas of thermal interface materials in China's downstream market are consumer electronics, new energy vehicles, communication technology, and medical fields, with consumer electronics accounting for the largest proportion at 46.7%, followed by communication equipment at 38.5%. 3. The "AI+" trend is driving the demand for electronic device heat dissipation. The global thermal interface materials market is expected to exceed $7 billion by 2034, with a compound annual growth rate of over 10% from 2024 to 2034. Currently, the heat dissipation design methods for AI terminals are in a diversified development stage, and thermal interface materials are essential participants in mainstream heat dissipation solutions. The "AI+" trend is expected to further drive the recovery of consumer electronics. IDC predicts that by 2025, the shipment volume of new AI smartphones in China will reach 118 million units, with a year-on-year growth of 59.8% and a market share of 40.7%; as electric vehicles become more popular, the demand for TIMs is also rapidly increasing, and this trend is expected to continue; data centers are moving from "smart" to "intelligent computing", with market investments expected to reach 288.6 billion yuan in China by 2028, more than three times the investment in 2023; in the next three years, China's 5G base station demand is expected to increase by about 25% overall. According to future market insights, the global thermal interface materials market is expected to reach $24.826 billion in 2024 and $76.233 billion by 2034, with a compound annual growth rate of 11.9% from 2024 to 2034. The compound annual growth rate of the thermal interface materials market in China from 2024 to 2034 is estimated to be 11.3%. Localization and high-end development will continue to be the trends in China's thermal interface materials development, and China has advantages in the industrial chain. Currently, the global thermal interface materials market is still dominated by overseas companies, with market share of 45% to 50% held by companies such as Henkel, 3M, Shin-Etsu Chemical Co., Ltd., Honeywell International Inc., and Dow Chemical Company. According to iiMedia Research, the localization rate of thermal interface materials in China was 23.1% in 2022. Currently, China has good industrial chain foundations in key materials in the thermal interface area. 1) Organic silicon, an important base material that accounts for about 42.9% of the use in thermal interface materials, has seen increased industry concentration, with subsequent capacity growth slowing down. Emerging applications are effectively driving capacity digestion, waiting for a turning point in microeconomic fundamentals. 2) Spherical alumina, the most widely used thermal filler, accounted for 22% of the market in China in 2022, with the top three companies in the industry accounting for 65% of shipments, indicating high market concentration. 3) The rapid development of China's artificial graphite heat dissipation film industry now accounts for approximately 70% of the global market demand. Chinese companies are relying on series of advantages such as the increase in localization rate of key upstream raw materials (PI film), breakthroughs in midstream manufacturing technology, and binding key downstream customers, which are rewriting the market situation previously monopolized by overseas manufacturers such as Panasonic, Graftech from the United States, and Kaneka from Japan, and are expected to further extend the advantages in the industrial chain and increase market share in the future. Risk warning: Recovery of downstream consumer electronics and other cyclical industries may not meet expectations; main customer order share may fall short of expectations; risks of fluctuating raw material prices.