Caitong: Photoresist accelerates breakthrough High-end domestication greets critical window.

Caitong released a research report stating that photoresist, as a core material in the semiconductor industry, has been long dominated by Japanese and American companies in the high-end market, accounting for 95%. The domestic production rates of ArF and KrF photoresists are less than 1% and 3% respectively, making them a bottleneck in chip manufacturing. With the focus of the national fund phase three moving towards the materials sector, domestic companies are accelerating breakthroughs. Some mature products of KrF photoresists have already been developed as substitutes, while ArF photoresists are entering the validation stage. The localization of high-end photoresists is now at a critical key phase. Caitong's main points are as follows: - Photoresist is the "pearl on the crown" of semiconductor materials, with the high-end market long dominated by Japan and the United States - Photoresist is a core semiconductor material that accurately transfers mask patterns to the wafer surface through exposure and development processes, directly affecting line-width control, pattern accuracy, defect density, and final yield. It is an irreplaceable basic material in advanced manufacturing processes. The cost of the lithography process can account for 30%-40% of the entire chip manufacturing cost, and in the wafer manufacturing material cost, photoresists and their related reagents account for 12%-15%, making them one of the most important integrated circuit materials. Currently, photoresists used in the integrated circuit field are mainly dominated by Japanese and American companies, including JSR, Shin-Etsu Chemical, TOK, Sumitomo Chemical, DuPont, South Korea's Dongjin Semichem, and Fujifilm, with a combined market share of 95%. JSR and TOK hold a monopolistic position in the high-end EUV photoresist market. High-end photoresists ArF and KrF are bottleneck processes in chip manufacturing, with very low domestic production rates. According to the data from the China Electronic Materials Industry Association, the current domestication rate of g/i line photoresists in China is 20%-25%, still at a low level, with an overall domestication rate of KrF photoresists at about 3% and ArF photoresists at less than 1%. In this context, as photoresists are still heavily reliant on Japan, considering China's strong demand for independent and controllable core semiconductor materials, the firm believes that the domestic photoresist industry chain will usher in an important growth opportunity. The localization of high-end domestic photoresists is entering a critical key phase, and it is recommended to focus on the opportunities in the domestic photoresist sector. In recent years, China has been continuously promoting the localization of photoresists through policies. According to Luanch Finance, the scale of the National Integrated Circuit Industry Investment Fund Phase 3 has reached 160 billion yuan, with about 18% of the funds allocated to photoresists and other semiconductor materials. Some mature products of KrF photoresists have already been domestically substituted, especially in mature process applications such as logic chips, power devices, and CIS image sensors. Several domestic companies are currently in the development and validation stages of ArF/ArFi photoresists. For example, Hubei Dinglong's Wuhan Phase II annual production of 300 tons of KrF/ArF high-end wafer photoresists production line is about to enter the trial operation stage as planned, with good overall progress. Their Wuhan Phase I 30 tons KrF/ArF high-end wafer photoresists production line has the capability for mass production and supply. Shanghai Sinyang Semiconductor Materials has established a complete research and production platform including I-line, KrF, ArF dry and ArF immersion photoresists and has achieved mass sales. Red Avenue New Materials Group's subsidiary Beijing Kehua has already certified several KrF photoresist products with mainstream wafer and storage factories and has entered the mass supply phase. Jiangsu Nata Opto-electronic Material has achieved tens of millions of RMB in revenue from three ArF photoresists by 2024. The localization of high-end integrated circuit photoresists is entering a rapid path to production. Investment recommendation: It is recommended to focus on platforms that have the capability for mass production and delivery of high-end integrated circuit photoresists, such as Hubei Dinglong, Red Avenue New Materials Group, Shanghai Sinyang Semiconductor Materials, Xiamen Hengkun New Materials Technology, Jiangsu Yoke Technology, Jiangsu Nata Opto-electronic Material, JiangSu Aisen Semiconductor Material, etc. Risk warning: Risks related to technology and yield/scaling, risks of lower-than-expected demand, geopolitical and trade frictions.