BOC International: High growth in AI computing power demand resonates with accelerated domestic substitution; material leaders' performance realization accelerates.

BOC International issued a research report stating that driven by the continued high prosperity of AI infrastructure, high-performance computing, and advanced storage investment, as well as the further transmission of semiconductor material price increases to financial statements, combined with the gradual release of new production capacity and the continuous advancement of domestic substitution, the revenue of material companies is expected to maintain rapid growth. Among them, materials related to advanced processes and advanced packaging, as well as categories with a faster pace of domestic substitution realization, are expected to continue leading the trend. The bank believes that the electronic materials sector is expected to continue to usher in development opportunities and maintains an outperform rating for the industry. The main views of BOC International are as follows: Industry prosperity AI drives high prosperity in semiconductors, with materials seeing both volume and price increases and accelerated domestic substitution. WSTS expects the global semiconductor market size to reach US$1.655 trillion in 2026 (YoY +108%) and US$702 billion in 26H1 (YoY +102%), with memory as the core of growth; global semiconductor material sales in 2025 were US$73.2 billion (YoY +6.8%) and are expected to reach US$130.2 billion by 2030. Since 2026, a wave of price increases has swept through global semiconductor materials, and the scope of this round of price increases has spread from point to surface, from key chemical raw materials to the entire manufacturing chain. The bank believes that the reasons for this round of semiconductor material price increases include a triple resonance of surging demand, rising costs, and geopolitical conflicts. On the other hand, domestic substitution of electronic materials in China continues to advance. 26H1 performance review of the electronic materials industry 1) Total operating revenue: steady scale growth, with volume and price resonance boosting revenue. According to the bank's 69-company electronic materials industry sample library (see Figure 9 in the main text), 26H1 revenue totaled RMB78.321 billion (YoY +28.97%), with 26Q2 YoY +31.99% and QoQ +16.86%, mainly due to the expansion of AI computing power and advanced storage demand driving downstream wafer fab capacity release, accelerated domestic substitution bringing share gains, and some materials entering a price increase channel. 2) Net profit attributable to parent: profit improvement accelerated in 26Q2, with profit elasticity concentrated in AI chain and domestic substitution leaders. 26H1 totaled RMB6.509 billion (YoY +24.11%), with 62 companies profitable and 7 loss-making; 26Q2 YoY +43.98% and QoQ +52.00%, with the slope of profit improvement faster than revenue. 3) Gross margin and net margin: structural divergence is significant. 26H1 overall gross margin/net margin was 25.06%/8.43% (YoY -0.70pct/-0.24pct). 4) R&D expenses: continued increased investment in development and verification of high-end material categories. 26H1 totaled RMB4.805 billion (YoY +24.85%), with an R&D expense ratio of 6.14%. Over the past three years, the overall R&D expense ratio of the electronic materials industry has remained above 6%, while leading companies such as Hubei Dinglong and Anji Microelectronics Technology have R&D expense ratios exceeding 15%. Continuous investment lays a solid technical foundation for breakthroughs in domesticization of high-end materials. 5) Capital expenditure: steady pace of expansion, investment intensity stabilizing, with leaders stepping up advanced capacity and new product layout. 26H1 totaled RMB13.566 billion (YoY +4.84%), accounting for 11.12% of net fixed assets at period-end (YoY -1.38pct). Investment intensity has fallen back from its 2022 peak, and the rolling 12-month figure of 23.88% shows signs of stabilizing. 6) Leading companies grew faster, with higher profit contribution and concentration. The 24 companies selected by the bank with market capitalization above RMB30 billion had 26H1 revenue and net profit attributable to parent growth rates higher than the overall 69 companies, and their proportion increased YoY; in terms of incremental contribution from 26H1 versus 25H1, the 24 companies accounted for 55.38% and 67.03% of the 69 companies' revenue and net profit attributable to parent increments, respectively. Changes worth noting in the interim reports of the above companies: first, the resonance of AI computing power and domestic substitution, with material leaders' performance realization accelerating; second, high revenue growth in asset-heavy segments, with profitability still recovering; third, acceleration in new categories and global layout. Outlook for the electronic materials industry in 2026H2 and beyond Demand side: the high prosperity of AI and storage is expected to continue, and advanced technology iteration will promote continued expansion of material demand. The global semiconductor market is expected to continue maintaining high growth, and consumption of wafer manufacturing materials and packaging materials is expected to continue rising. In the medium to long term, advanced technology iteration will promote continued expansion of material demand, with advanced processes and advanced packaging jointly driving material usage and category expansion. For example, the number of ALD steps used in precursor materials from Jiangsu Yoke Technology continues to risein the storage field, the upgrade from 2D NAND to multi-layer 3D NAND nearly doubles ALD process steps, while in the logic field, ALD steps at 7nm and below GAA nodes further multiply. Price side: some materials have entered a price increase cycle, and profit elasticity is expected to gradually be released. This round of semiconductor material price increases has covered multiple core categories such as silicon wafers, electronic specialty gases, targets, wet electronic chemicals, and packaging materials. The bank expects the related benefits brought by material price increases to gradually emerge in 2026H2. From the perspective of profit elasticity, leaders in high-barrier categories such as electronic specialty gases and sputtering targets (such as Peric Special Gases, Konfoong Materials International, etc.) have greater profit elasticity. In addition, gross margins of companies in the large silicon wafer track (such as National Silicon Industry Group, Xi'an Eswin, etc.) are expected to recover QoQ in 2026H2. Market share: material domesticization is accelerating, and platform-based and international layout continues to deepen. This round of downstream high prosperity, combined with some overseas supply fluctuations, may bring a key window period for accelerated domestic substitution in China's semiconductor materials industry. For example, the implementation of export control rules for dual-use items related to tungsten, gallium, germanium, and high-purity tantalum has forced overseas wafer fabs to actively increase the proportion of domestic target adoption. In addition, electronic materials companies are transforming toward platform-based industrial chain support and continuously deepening international layout. For example, Hubei Dinglong is developing polishing pads, polishing slurries, cleaning fluids, and high-end wafer photoresists in a coordinated manner, and expanding into new application scenarios such as large silicon wafers, SiC, and TSV for advanced packaging; Anji Microelectronics Technology continues to lay out around three major product platformschemical mechanical polishing slurries, functional wet electronic chemicals, and electroplating solutions and additivesas well as upstream key raw materials, enhancing one-stop service capabilities; Jiangsu Yoke Technology covers semiconductor precursors, photoresists and supporting reagents, silica micropowder, electronic specialty gases, etc., and has established dual R&D departments in China and South Korea. Its Korean subsidiary UPCHEM's third plant is expected to be fully put into operation by the end of 2026, and planning for a fourth plant has been launched. Investment recommendations Based on the rapid development of downstream industries, continuous iteration of advanced technology, and the broader context of domestic substitution, the bank believes that the electronic materials sector is expected to continue to usher in development opportunities. 1. Benefiting from downstream demand growth and continuous technological progress, the global semiconductor materials market size continues to expand, and demand for advanced materials is rising rapidly. In various key semiconductor materials, Chinese companies are steadily laying out capacity and technology R&D, and their competitiveness and production and sales scale are expected to continue to improve. 2. Some semiconductor materials and raw materials benefit from price increases. With downstream high prosperity, combined with slower expansion by overseas leaders and the impact of raw material supply fluctuations, China's semiconductor materials industry may usher in a key window period for accelerated domestic substitution. Recommended: Anji Microelectronics Technology, Hubei Dinglong, Konfoong Materials International, Jiangsu Yoke Technology, Red Avenue New Materials Group, National Silicon Industry Group, Darbond Technology, Shandong Yanggu Huatai Chemical; suggested attention: Shandong Sinocera Functional Material, Guangdong Huate Gas Co., Ltd, Novoray Corporation, Peric Special Gases, Zhongjuxin, Xi'an Eswin, Guangzhou Guanggang Gases & Energy, Haohua Chemical Science& Technology Corp., etc. Main risks facing the rating Risks of technological upgrading and iteration, risk that downstream demand recovery falls short of expectations, and risks from global economic cyclical fluctuations, international trade frictions, and force majeure.