China Securities Co., Ltd.: The MLCC industry is experiencing a "moment of outbreak", with upstream high-end materials expected to benefit first.

China Securities Co., Ltd. released a research report stating that MLCC, as a core passive component of electronic circuits, is deeply tied to the cycles of the semiconductor and electronic industries in terms of demand, price, and inventory fluctuations. It always revolves around the logic of "demand-driven, inventory-transmitted, supply-demand magnified," with the two interdependent and fluctuating synchronously. With the start of the super cycle in the electronics and semiconductor industries, the MLCC industry is experiencing a "breakout moment." The super cycle of MLCC also brings about favorable opportunities for the upstream raw materials industry. China's years of material science development have nurtured globally competitive enterprises, such as Jiangsu Boqian New Materials Stock, the global leader in nano nickel powder with self-researched equipment and processes, and Shandong Sinocera Functional Material, a globally competitive ceramic materials company. Main viewpoints of China Securities Co., Ltd.: The electronics and semiconductor super cycle is erupting, and the MLCC industry is experiencing a "breakout moment." MLCC, as an important component of capacitors, is deeply tied to the demand, price, and inventory fluctuations of the electronic industry cycles. It is currently in a new round of super cycles. AI and autonomous driving are accelerating the growth of mid-to-high-end MLCC demand. The development of new energy vehicles and AI has increased the demand for passive components with high power, high frequency, high reliability, and miniaturization. The industry is moving towards a new prosperity cycle. The German automotive industry predicts that by 2035, the penetration rate of ADAS and autonomous driving will increase from 65% in 2025 to 94%, with Level 3 and above autonomous driving accounting for 24%. The amount of MLCC per electric vehicle is more than six times that of traditional fuel vehicles, and the higher the level of autonomous driving, the larger the MLCC usage. Additionally, AI servers, AIPC, AI phones, and other MLCC demand are expected to increase by about 100%, 40-60%, and 20%, respectively. Materials determine device performance, providing a favorable opportunity for the development of the high-end materials industry in the upstream. Materials determine device performance, and with the higher power of AI servers, the high-end MLCC in new energy vehicles, AI servers, AI phones, and others have higher requirements for ceramic powders and nickel powders. The increase in the demand for high-end powders has also brought favorable opportunities for the development of the upstream raw materials industry in the MLCC super cycle. China's years of material science development have nurtured globally competitive enterprises, such as Jiangsu Boqian New Materials Stock, the global leader in nano nickel powder with self-researched equipment and processes, and Shandong Sinocera Functional Material, a globally competitive ceramic materials company. Investment recommendations: The global high-end MLCC value chain is concentrated in Japan and South Korea, with companies like Murata, Samsung Electro-Mechanics, and Sun Yoo Electric. Jiangsu Boqian New Materials Stock supplies about 50% of its nickel powders to Samsung Electro-Mechanics, and Samsung Electro-Mechanics has grown rapidly in this super cycle of MLCC, not only increasing its market share in automotive MLCC but also expanding its global share in MLCC for AI servers to over 45% by having access to Jiangsu Boqian New Materials Stock's excellent materials in 120nm, 80nm, and 60nm. Samsung Electro-Mechanics has also started to expand its production capacity in places like the Philippines. From a global value chain perspective, it is recommended to focus on Jiangsu Boqian New Materials Stock (605376.SH) and Shandong Sinocera Functional Material (300285.SZ), as well as Zhejiang Jiemei Electronic and Technology (002859.SZ), which provides core materials for MLCC packaging. In terms of devices, focus on Chaozhou Three-Circle (Group) (300408.SZ), Guangdong Fenghua Advanced Technology (000636.SZ), and others. Risk analysis: Macroeconomic policy risks: The industry's development is greatly influenced by economic conditions and policies. Any changes in the situation or policy adjustments that lead to industry development below expectations will result in lower-than-expected demand for related materials. Rapid development of AI and fast technological iteration bring investment opportunities, but also risks of being replaced by new materials and technologies. Risk of industry development falling below expectations: The development of AI brings investment opportunities for passive components and related materials industries, but if the hardware shipments are slow, it may lead to companies' performance falling below expectations. Raw material risks: Price fluctuations in the production of new materials may cause fluctuations in the production and operation of related companies, which may have an adverse impact. Additionally, some raw materials with high external dependence, such as tantalum, may be interrupted or restricted in the supply chain, affecting the production of related companies.