Bank of China International: Optimistic about the growth in material demand brought about by rapid downstream development, iteration of advanced technology, and domestic substitution

The Zhitong Finance App learned that Bank of China International released a research report saying that, benefiting from the rapid development of the downstream industry, continuous iteration of advanced technology, and the background of domestic substitution, the electronic materials sector continues to usher in good opportunities for development. In terms of semiconductor materials, focus on industry changes caused by AI, advanced packaging, etc., and the autonomy and control of semiconductor materials is of far-reaching significance. In terms of PCB materials, focus on the rapid development of AI driving demand for high-frequency high-speed resins, electronic fabrics, etc. In terms of OLED materials, attention is being paid to the increase in OLED penetration rate, the development of new display technology, and domestic replacement of related materials. Maintain the industry's stronger than the market rating.

Bank of China International's main views are as follows:

Semiconductor materials: Rapid development in AI and other fields is driving up demand for materials, and the importance of autonomous and controllable key materials is increasing

Benefiting from the recovery of the overall semiconductor market and growing demand for advanced materials in high-performance computing and high-bandwidth memory manufacturing, the size of the global semiconductor materials market has continued to grow. In 2024, the global semiconductor materials market sales reached US$67.5 billion, up 3.8% year on year; the global semiconductor materials market is expected to exceed US$87 billion in 2029, with a CAGR of 4.5% in 2024-2029. China has achieved the layout or mass production of most semiconductor materials. However, the overall localization rate of semiconductor materials in China is about 15%. Among them, the localization rate of wafer manufacturing materials is < 15%, and the localization rate of packaging materials is < 30%. In particular, the high-end sector almost completely relies on imports. In terms of various key semiconductor materials such as CMP polishing materials, photoresists, precursors, electronic specialty gases, and advanced packaging materials, Chinese enterprises are steadily deploying production capacity and technology research and development. It is expected that scale growth and technology iteration will gradually be achieved in the future, and the localization rate of semiconductor materials is expected to continue to increase.

PCB materials: The copper-clad plate industry is evolving to high frequency and high speed, and demand for high frequency and high speed resins and electronic cloth continues to rise

PCBs are hardware carriers for integrated circuits. Copper-clad plates are the basic materials for processing PCBs. Electronic resin, electronic cloth, and copper foil are the main raw materials for making copper-clad plates, accounting for a total of 87% of the production cost of copper-clad plates. Benefiting from the shift of the global PCB industry to China and the rapid development of localization of the copper-clad plate industry, China has now become the world's largest producer of copper-clad plates. According to estimates that electronic resin/electronic cloth accounts for about 26%/19% of the cost, the global electronic resin/electronic cloth market for copper-clad plate production is about US$33.02/US$2,413 billion in 2023, of which the mainland China market size is approximately US$2,418/1,767 million. The rapid development of 5G communication technology, automotive intelligence, and rapid growth in demand for data centers and cloud computing are driving the copper-clad plate industry to evolve towards high frequency and high speed. Electronic resins such as PPO, hydrocarbon resin, Shuangma resin, and PTFE are expected to become mainstream materials for high-speed copper-clad plates in the AI server era, and domestic substitution continues to advance. On the other hand, market demand for high-end electronic yarns and high-performance electronic fabrics with low dielectric constants and low thermal expansion coefficients is growing rapidly, driven by demand from emerging markets such as AI. The global high-end electronic cloth industry shows a pattern of Japanese oligopoly. Under the gap between supply and demand, Chinese enterprises are speeding up domestic replacement.

OLED materials: Increased demand for terminals, release of high-generation production capacity, and promotion and application of new technologies drive increased demand for materials

Global OLED panel shipments are growing steadily, and the penetration rate in the fields of smartphones, tablets, laptops, and automobiles is expected to continue to increase. The global share of 25H1 display panels in China has surpassed 50% for the first time. Domestic panel manufacturers have successively laid out high-generation OLED production lines, and new technologies such as laminated OLEDs continue to advance, driving further growth in demand for OLED materials. Global OLED display materials market sales will reach US$2.44 billion in 2024, expected to reach US$8.498 billion in 2031, and a CAGR of 19.8% in 2025-2031. In 2024, China's OLED organic materials (terminal+front-end materials) market size was about 5.7 billion yuan, a significant increase of 31% over the previous year. Currently, the localization rate of OLED general auxiliary materials is about 12%, and the localization rate of terminal materials is less than 5%. Domestic manufacturers continue to make breakthroughs in localization. At the same time, with the expansion of domestic OLED panel production capacity and market share, the domestic OLED organic light-emitting materials market space is expected to continue to expand. On the other hand, PSPI material has excellent properties, can simplify the lithography process compared to traditional photoresists, and is the core material of the OLED display process. Japanese and American companies dominate the global PSPI. With the further expansion of demand in China's integrated circuits, OLED panels and other industries, the size of the domestic PSPI market is expected to continue to expand, and the volume of domestic products can be expected.

Investment advice

Based on the rapid development of the downstream industry, continuous iteration of advanced technology, and domestic substitution, the bank believes that the field of electronic materials continues to usher in good opportunities for development. Recommended medium- to long-term investment main lines:

1. Benefiting from the recovery of the overall semiconductor market and the increase in demand for advanced materials in high-performance computing and high-bandwidth memory manufacturing, the size of the global semiconductor materials market continues to grow. In terms of various key semiconductor materials, Chinese enterprises are steadily deploying production capacity and technology research and development. It is expected that they will gradually achieve scale growth and technology iteration in the future, and the localization rate of semiconductor materials is expected to continue to increase. Recommended: Anji Technology, Yake Technology, Dinglong Co., Ltd., Jiangfeng Electronics, Shanghai Silicon Industry, Debang Technology, Yanggu Huatai; Recommended attention: Tongcheng New Materials, Walter Gas, Lianrui New Materials.

2. Demand for AI servers continues to grow. Electronic resins such as PPO, hydrocarbon resin, Shuangma resin, and PTFE are expected to become mainstream materials for high-speed copper-clad plates in the AI server era. Under the supply and demand gap, China's electronic cloth companies will accelerate domestic replacement. Recommended: Shengquan Group, Dongcai Technology, Sinoma Technology; Recommended attention: Honghe Technology.

3. With the rapid growth in demand for OLED terminal applications, the accelerated release of high-generation production capacity, and the continuous promotion and application of laminated OLED technology and domestic substitution of related materials, domestic demand for OLED organic light-emitting materials is expected to maintain a rapid growth trend. Recommended: Wright Optoelectronics, Wanrun Co., Ltd.; Recommended attention: Olaide and Ruilian New Materials.

The main risks faced by ratings

The risk of technological upgrading and iteration; the risk of downstream demand recovery falling short of expectations; the risk of cyclical fluctuations in the global economy, international trade friction and force majeure.