China Securities Co., Ltd.: Pay attention to the accelerated certification pace and investment opportunities of domestic semiconductor material companies in the context of import substitution.

China Securities Co., Ltd. has issued a research report stating that the current AI inflation has reached the materials sector, where the targets are more diversified and most strong companies are located in Japan. Since the second half of 2025, there have been increasing signs of tension in bilateral relations. On the supply side, import substitution is becoming a nearly perfect combination with AI inflation on the demand side. There will be more room for interpretation regarding Japan's import substitution theme. Continued attention should be paid to semiconductor materials import substitution transactions, and to the pace of certification and investment opportunities for domestic semiconductor material companies accelerating their import substitution efforts. With the approach of the export peak season, silicon wafer prices surged last week. On August 21, the China Nonferrous Metals Industry Association's Silicon Branch released the latest silicon wafer prices, indicating an increase in downstream demand that led to a significant rise in silicon wafer prices last week. The average transaction price for N-type G10L monocrystalline silicon wafers (182*183.75mm/130m) was 1.12 yuan/piece, a substantial increase of 40.00% from the previous week; the average transaction price for N-type G12R monocrystalline silicon wafers (182*210mm/130m) was 1.14 yuan/piece, up 26.67% from the previous week; and the average transaction price for N-type G12 monocrystalline silicon wafers (210*210mm/130m) was 1.22 yuan/piece, an increase of 10.91% from the previous week. The primary reason for the significant rise in silicon wafer prices last week was the increase in downstream demand. Specifically, although domestic terminal demand is average, overseas battery cell companies, influenced by the 232 policy, have accelerated their purchases of silicon wafers during the window period to mitigate risks. Additionally, with the arrival of the traditional installation peak season in India, there has been concentrated release of silicon wafer export order demand. The increase in demand, coupled with market sentiment favoring buying on the rise rather than the decline, has resulted in a tightened supply situation in the short term, driving prices upward. The EU's mandatory blending policy continues to be implemented, further accelerating the expansion of the global SAF market. Reports indicate that the latest data from leading European airlines shows that the actual blending ratios of SAF for the IAG Group, Air France-KLM, and Ryanair for the 2025-2026 fiscal year reached 3.3%, 2.9%, and 2.0%, respectively. Overall, the SAF usage scale of European airlines has now surpassed that of all U.S. airlines combined. The core driving factor for this difference is the mandatory blending regulations implemented by the EU and the UK, which stipulate that the blending ratio of SAF in aviation fuel in the UK will increase to 3.6% by 2026. The rigid demand growth in the European market will drive the long-term premium of global sustainable aviation fuel upward. Domestic leading enterprises with biojet fuel and e-SAF technology reserves are expected to benefit from a window of increased overseas export orders, while the industry demonstration effects in foreign markets will also raise expectations for the implementation of domestic blending policies. Upstream links in the biomass raw materials, green hydrogen synthesis, and SAF refining engineering industries all have the potential for medium to long-term catalytic prosperity. SK Hynix announced a major stock repurchase plan. On August 19, SK Hynix announced a stock repurchase and complete cancellation plan worth 40 trillion KRW (approximately 28.6 billion USD), setting a record for the largest buyback in Korean listed company history. According to the announcement submitted to the Korea Exchange, the repurchase amount is 40.0043 trillion KRW, calculated based on the closing price of 1,662,000 KRW per share on the day before the board resolution, corresponding to approximately 24.07 million shares, or 3.3% of the total issued shares of the company. The repurchase plan is expected to commence on August 20 and will take about three months to complete, after which all repurchased shares will be canceled. Two ministries have issued the "14th Five-Year Plan for the Construction of New Power Systems." On August 3, the National Development and Reform Commission and the National Energy Administration released a notice on the "14th Five-Year Plan for the Construction of New Power Systems," outlining the development goals for the power system and various types of power sources during the 14th Five-Year Plan. The document states that by 2030, a preliminary new power system will be established: a green and low-carbon power supply pattern will be basically formed, with the proportion of non-fossil energy generation reaching 50%, and the high-level consumption of over 2.8 billion kilowatts of new energy will be achieved. In terms of new energy, the plan proposes to set guidance targets for new energy utilization rates by region, aiming for around 90% utilization for Shanxi Guoxin Energy Corporation. The Ministry of Industry and Information Technology has released the "14th Five-Year Plan for Industrial Green and Low-Carbon Development": The application of green electricity in the industrial sector is entering a period of accelerated scale. On July 31, the Ministry of Industry and Information Technology officially issued the "14th Five-Year Plan for Industrial Green and Low-Carbon Development" (MIIT Regulation [2026] No. 169), outlining the roadmap for the green transformation of the industrial sector during the 14th Five-Year Plan. In this document, green energy is placed at an unprecedented strategic height from energy structure transformation to industrial spatial layout, from microgrid construction to direct green electricity connection models, the industrial sector is becoming the next main battleground for new energy consumption. The plan clearly states that by 2030, carbon dioxide emissions in the industrial sector are expected to peak, the proportion of green energy applications will significantly increase, energy consumption per unit of industrial added value for above-scale enterprises will decrease by more than 10%, carbon dioxide emissions will be reduced by more than 17%, and the output value of green factories at all levels will increase from 30% of the total output value of above-scale manufacturing in 2025 to 45%, with the number of zero-carbon factories reaching 500. The "14th Five-Year Plan for Renewable Energy Development" has been released, setting targets for renewable energy power generation with a total installed capacity of 3.5 billion kilowatts by 2030, wind and solar power exceeding 2.8 billion kilowatts, and annual electricity generation reaching 6 trillion kilowatt-hours. It also proposes a first-time reliable alternative target: the average capacity factor of wind and solar energy reaching 8%, and the proportion of on-peak wind and solar power during summer peaks and winter peaks exceeding 20%. The new reliable peak generation capacity added during the 14th Five-Year Plan is expected to exceed 300 million kilowatts. The deployment of new installations in the "Three North" bases is targeted at 370 million kilowatts, with 10 million kilowatts of offshore wind power to be initiated and 300 million kilowatts of distributed new energy installations, while it is emphasized that the reliability of new centralized wind and solar power stations capacity factors should generally not be less than 10%. Samsung launched its first AI smart glasses, accelerating the formation of an Android XR wearable ecosystem. On July 22, Samsung Electronics released its first AI smart glasses at the Galaxy Unpacked 2026 event in London, equipped with the Qualcomm Snapdragon AR1 Gen1 chip and based on the Google Android XR operating system, integrating the Gemini AI assistant and featuring built-in cameras for real-time visual perception, boasting a battery life of up to 9 hours. The product is the first consumer-grade lightweight wearable to be commercialized on the Android XR platform, directly competing with Meta's Ray-Ban series, and is expected to accelerate penetration in the category of AI glasses, stimulating demand growth for low-power AI chips, optical modules, and acoustic devices in the supply chain. The world's first "marine net recovery" rocket booster was successfully retrieved. On July 10, 2026, at 12:00, China's aerospace sector witnessed a historic moment the Long March 10B carrier rocket was ignited and launched from the Hai'nan commercial space launch site, successfully completing its net recovery task at sea. This marks China's first successful controlled retrieval of a carrier rocket booster and also the world's first net recovery of a carrier rocket. This achievement signifies a major breakthrough for China in reusable rocket technology. Over the next three years, Chinas commercial space launch costs are expected to drop by about 50%, leading to a shift from a unipolar dominance in the global space competition to a bipolar parallel between China and the U.S., with related materials poised to benefit. Attention should be paid to material selection under import substitution transactions. AI inflation has reached the materials sector, where the targets are more diversified and most strong companies are located in Japan. Since the second half of 2025, there have been increasing signs of tension in bilateral relations. On the supply side, import substitution is becoming a nearly perfect combination with AI inflation on the demand side. We anticipate that the theme of import substitution will have more interpretative space. Japanese semiconductor material companies hold a significant share in the global semiconductor material market, with 14 out of 19 major materials showing first-place market shares according to our statistics. On one hand, the demand expansion from industry trends, and on the other hand, the logic of supply substitution brought about by tense national relations, suggests that import substitution of key materials is likely to be further elaborated. We have selected specific segments where Japanese companies possess a high market share and are paying attention to investment opportunities arising from accelerated domestic substitution: photomasks, blank masks, semiconductor precursors, CMP polishing pads, photoresists and monomers, ceramic powders, InP substrates, PI films, high-end fluorinated materials, wet electronic chemicals, and large silicon wafers. Wet electronic chemicals: Driven by AI demand, the localization rate is expected to improve again. Wet electronic chemicals are primarily used in the wet processes like cleaning, etching, developing, and stripping in the manufacturing of electronic devices such as semiconductors and display panels. They go through strict purification with extremely low impurity content, possessing high technical barriers and customer stickiness. On the demand side, advanced processes and applications like 3D NAND driven by AI are expected to significantly increase the per capita consumption of wet electronic chemicals. On the supply side, the global wet electronic chemical market is still dominated by foreign companies from Japan, Germany, and the U.S., with less than 30% localization in the G5 high-end market. Furthermore, relying on the stable supply of upstream generic chemical raw materials, coupled with rapid expansion of downstream domestic storage and logical chip production capacity and accelerated customer validation, China is expected to continue witnessing product structural upgrades and increases in localization in the G5 high-end wet electronic chemical industry. ArF photoresist monomers are highly monopolized by Japan, with localization expected to accelerate. The photoresist resin monomers have long been monopolized by Japanese companies, posing prominent risks of supply interruption. Even Japanese photoresist firms procure monomers externally. Thus, breakthroughs in localizing photoresists do not fully ensure self-sufficiency, as import substitution of monomers is crucial for guaranteeing the reliability of domestic supply. The key aspects for monomers are purity and batch stability; G-line, I-line, and KrF photoresist resin monomers have already made preliminary strides toward localization, while ArF photoresist resin monomers are currently in a bottleneck stage, with 70% of the global supply controlled by Osaka Organic Chemical. A supply interruption would lead to shortages in raw materials for advanced processes, making the import substitution of ArF photoresist resin monomers a necessary condition for the continuous development of the domestic semiconductor supply chain. Under the demand driven by AI, the market for MLCC nano-ceramic powders is reversing its fortune. AI servers are upgrading from GB300 to Vera Rubin/Rubin, and automotive electronic components are expanding under electrification, 800V, and advanced intelligent driving requirements. High-end MLCCs are encountering bottlenecks, affecting upstream materials like barium titanate powders/formula powders. AI-grade powder requires particle sizes of 100-300nm and necessitates higher consistency and batch stability. The price of AI-grade powders is also significantly higher than that of traditional powders; simultaneously, high-end formula powders rely on rare earth doping systems. Under the constraints of rare earth exports and the safety competition in the Sino-Japanese supply chain, there are uncertainties regarding Japan's capacity expansion and closed supply. Domestic suppliers like CNG can fully benefit from the expanding demand for high-end MLCC dielectric powders in the AI era. Fluorinated materials: Performance propels explosions in AI and semiconductor applications, making them a good choice for import substitution. PFA: Due to its extremely low metal ion leaching characteristics and resistance to strong acid and alkali corrosion, PFA can be used in semiconductor etching and cleaning processes for etching tanks, cleaning tanks, CMP components, heat exchangers, and as a coating for wafer carriers and CVD reaction chambers during the wafer transport process. It is expected that as advanced processes improve, the demand for PFA will increase significantly. On the supply side, high-end semiconductor-grade PFA is monopolized primarily by foreign companies like Chemours and Daikin, with Zhejiang Juhua recently starting production of 10,000 tons of ultra-pure PFA, becoming the first domestic company to break the 600,000/ton price point. Electronic-grade PTFE: PTFE is currently the most ideal high-frequency, high-speed CCL substrate resin material due to its extremely low dielectric loss (Df) and dielectric constant (Dk). As PTFE is significantly cheaper than other materials and has performance advantages, it is expected to enter a high-volume growth period. High-end FEP can also serve as an optical fiber protective layer and in the semiconductor wet cleaning pipeline. High-end high-purity electronic/semiconductor grades need to be imported from companies like Chemours, Daikin, and Asahi Glass. Under the rapid development of advanced semiconductor processes, renewable energy, and high-frequency communications, the upgrading of fluorinated polymer materials is ongoing. Fluorinated polymer materials are known for their strong carbon-fluorine bonds, making them extremely stable, with outstanding resistance to corrosion, chemical stability, and dielectric properties. In the semiconductor sector, 1) PFA, or melt processable polytetrafluoroethylene, is the high-end modified version of PTFE. PFA has become an irreplaceable key material in advanced semiconductor processes due to its extremely low metal ion leaching characteristics and resistance to strong acid and alkali corrosion. It can be utilized in etching tanks, cleaning tanks, CMP components, heat exchanger linings, and wafer carriers and CVD reaction chamber coatings in the semiconductor etching and cleaning processes. High-end products in the semiconductor sector can reach prices of up to 600,000/ton. Currently, global semiconductor market demand is about 20,000 tons, with domestic demand around 6,000-7,000 tons. It is anticipated that as advanced processes improve, demand for PFA will grow significantly. The global production capacity of PFA is mainly overseas; recently, Zhejiang Juhua has achieved mass production of ultra-pure PFA, enabling self-sufficiency and broad import substitution potential. 2) FFKM, or perfluoroether rubber, is an upgraded version of fluororubber FKM. In FFKM's molecular structure, all carbon-hydrogen bonds are replaced with carbon-fluorine bonds, exhibiting excellent performance in ultra-high temperature resistance, extreme chemical resistance, plasma erosion resistance, and ultra-high purity. It is regarded as the best performer among all synthetic rubbers and is indispensable as a sealing material in advanced semiconductor processes. Currently, the total global market demand is about 200 tons, monopolized by overseas giants such as Chemours, Daikin, Solvay, and DuPont. The AI and drone integration is driving the fiber optic industry, with materials expected to enjoy an upward trend in both volume and price. The training of AI large models is pushing data center network architectures from the traditional three-tier aggregation to an all-connected leaf-spine architecture. The data traffic is shifting from north-south access to east-west interconnects within GPU clusters. To meet the needs for unblocking and low latency communication, the fiber consumption per rack or single GPU is rapidly increasing. Additionally, rapid expansion of drones has made fiber an essential consumable. Driven by the demand from AI and drones, upstream fiber optic materials like silicon tetrachloride, D4 organosilicon, fiber coatings, and para-aramid are expected to experience a significant upward trend in both volume and price. Rapid growth in high-frequency and high-speed demand drives potential large-scale application of electronic-grade PTFE. PTFE is known for its primary characteristics, including excellent thermal stability, chemical resistance, and dielectric performance, and is referred to as the "king of plastics." The downstream demand in three major areas military, server high-speed cables, and high-speed boards is expected to accelerate. As Nvidias next-generation server, Rubin ultra, approaches its mass production node, industry discussions about using PTFE materials for orthogonal backplanes are actively ongoing, with domestic firm Shengyi Technology collaborating to validate this. We believe that with the sustained growth of high-frequency and high-speed transmission demands led by computing infrastructure, the downstream fields for PTFE are likely to be redefined. Attention should be given to the precursors industry's volume and value enhancement under downstream expansion. The precursor products benefit from a significant cycle of downstream capacity expansion, and there is strong certainty for high growth in performance. Downstream wafer fabs, such as SK Hynix, plan to double their wafer fab capacity over the next five years, and Changxin also plans to nearly double capacity by 2030. Given the crucial role of precursor products in the manufacturing process and the ongoing microscopic/high-end evolution of the chip manufacturing process, we believe that leading companies in the industry have a strong likelihood of gaining leverage in pricing with downstream clients, along with a leap in value due to product category iterations. The rapid development of AI has triggered a shortage of MLCCs. With the fast growth of the artificial intelligence industry, the increased power consumption of AI servers has led to significant increases in MLCC usage compared to ordinary servers, with reports indicating a rise of over 300% in demand, intensifying supply strain. Electrification, intelligence, and connectivity have become the development trends in the automotive industry, and with the increase in control modules, the usage of MLCCs per vehicle has also noticeably risen. According to SEMI, despite impacts from the Middle East crisis, trade uncertainties, and raw material shortages, the semiconductor demand surge is expected to continue. Driven by AI data centers, global semiconductor sales are projected to reach $1 trillion this year, doubling to $2 trillion by 2035. Geopolitical risks may not curb industry prosperity this year, but raw material shortages could affect long-term prospects, as countries seek to address the shortage of key minerals and critical gases like bromine and helium. The price of helium has surged significantly in March due to the Middle East situation, and bromine also faces shortage risks. The main sources of helium supply are obstructed, with downstream acceptance of price increases being high, leading to significant price elasticity expectations. 1) Supply side: Current imports from the Middle East and Russia are nearly zero, and even if Middle Eastern sources were to fully reopen immediately, it would take several months considering transportation time and facility restart time. The expected replenishment of Russian sources is hindered; since April 14, regulations have been imposed on helium exports. 2) Demand side: In main terminal applications such as MRI and semiconductors, helium does not represent a large percentage of overall costs, leading to moderate acceptance of price increases; 3) Inventory side: Stocks have rapidly decreased over nearly three months since the conflict began. We believe that the momentum for continued helium price increases is substantial, with significant elasticity. Planning for wind and solar installations exceeds 930 GW, with key new energy plans released by 21 provinces and cities. As of April 2026, among the 31 provinces and cities in the country, Inner Mongolia, Shanxi, Beijing, Tianjin, Heilongjiang, Jilin, Shandong, Shanghai, Anhui, Zhejiang, Jiangsu, Hunan, Hainan, Guizhou, Yunnan, Sichuan, Gansu, Ningxia, Shaanxi, Qinghai, and Tibet have released the outlines for their 14th Five-Year Plans. According to the construction goals for new energy as well as installed capacity by the end of 2025 across the provinces and cities, the added scales of wind and solar in these 21 provinces and cities exceed 930 GW, with Inner Mongolia planning the largest scale of nearly 155 GW, followed by Qinghai at approximately 102 GW. Shanxi, Gansu, Jiangsu, Shandong, and Sichuan each plan to add over 50 GW. The mass production of solid-state batteries is accelerating in 2026. Starting in 2026, the solid-state battery market continues to thrive, with 16 projects concerning solid-state batteries and materials being launched, initiated, or signed. In Jiangsu, Zhejiang, Guangdong, and other regions, 16 projects related to solid-state batteries and materials are intensively being initiated, put into production, or signed, focusing on key electrolyte materials and the two major core areas of solid-state batteries. Among these, semi-solid battery technology enjoys higher maturity and is the main force driving mass production in the industry, while all-solid-state batteries are in the mass production pilot, commercial exploration stage. From a technical perspective, in already launched and started projects, the oxide electrolyte routes are advancing faster in mass production and commercialization. In terms of materials, there are two solid-state battery projects in production or initiation: Zijin Mining Groups new solid-state battery lithium battery materials project and the Taizhou Qingtao solid-state battery raw materials project (Phase I). Currently, the solid-state battery industry is seeing a continuous increase in prosperity, with leading companies progressing in building pilot lines and product testing validation. It is expected that more significant all-solid-state products will be available in the second half of 2026.