China Securities Co., Ltd.: Focus on the pace of certification for domestic semiconductor material companies accelerating import substitution and investment opportunities.

China Securities Co., Ltd. has released a research report stating that current AI inflation has reached the materials sector, where the targets are more dispersed, and most strong companies are in Japan. Since the second half of 2025, there have been signs of accelerated tension in bilateral relations. The combination of supply-side import substitution and demand-side AI inflation creates an almost perfect synergy. There will be more interpretative space regarding the theme of Japanese import substitution, with a continued focus on semiconductor material import substitution transactions and the accelerated certification rhythm and investment opportunities of domestic semiconductor material companies in import substitution. With the arrival of the export season, silicon wafer prices surged last week. On August 21, the China Nonferrous Metals Industry Association's Silicon Industry Branch released the latest silicon wafer prices, showing increased downstream demand and a significant rise in prices last week. The average trading price of N-type G10L monocrystalline silicon wafers (182*183.75mm/130m) reached 1.12 yuan/piece, a substantial increase of 40.00% from the previous week; the average trading price of N-type G12R monocrystalline silicon wafers (182*210mm/130m) was 1.14 yuan/piece, up 26.67% from the previous week; and the average trading price of N-type G12 monocrystalline silicon wafers (210*210mm/130m) was 1.22 yuan/piece, an increase of 10.91% from the previous week. The main reason for the significant price increase last week was the rise in downstream demand. Specifically, while domestic end demand is generally moderate, influenced by the 232 policy, overseas battery manufacturers are accelerating silicon wafer purchases to mitigate risks during the window period, while the traditional installation peak season in India is also driving concentrated release of demand for silicon wafer export orders. The increased demand, combined with market sentiment favoring price increases, has led to a short-term tight supply situation, driving up silicon wafer prices. The EUs mandatory blending policy continues to be implemented, accelerating the expansion of the global SAF market. According to reports, the latest data from leading European airlines indicates that the actual blending ratios of SAF for the IAG Group, Air France-KLM, and Ryanair in the 2025-2026 fiscal year have reached 3.3%, 2.9%, and 2.0%, respectively. The overall SAF use scale among European airlines has surpassed the total of all U.S. airlines, with the core factor driving the difference being the mandatory blending regulations implemented by the EU and the UK, which clearly specify that the blending ratio of SAF for aviation fuels in the UK will rise to 3.6% by 2026. The rigid growth in demand in the European market will drive a long-term premium for global sustainable aviation fuel, leading domestic leading companies with bio-jet fuel and e-SAF technology reserves to a potential increase in overseas export orders, while the industrial demonstration effect in overseas markets will also uplift expectations for the implementation of domestic blending policies, with an upward trend in the biomass raw materials, green hydrogen synthesis, and SAF refining engineering sectors. SK Hynix has announced a large-scale buyback plan. On August 19, SK Hynix announced a stock buyback plan worth 40 trillion won (approximately $28.6 billion) to be fully cancelled, setting a record in the history of South Korean listed companies. According to an announcement submitted by SK Hynix to the Korea Exchange, the buyback amount is 40.0043 trillion won, equivalent to about 24.07 million shares, accounting for 3.3% of the company's total issued shares based on the closing price of 1.662 million won the day before the board resolution. The buyback plan is expected to begin on August 20 and last for approximately three months, after which all repurchased shares will be completely cancelled. Two ministries have issued the "14th Five-Year Plan for the Construction of a New Power System." On August 3, the National Development and Reform Commission and the National Energy Administration issued a notice on the "14th Five-Year Plan for the Construction of a New Power System," outlining the development goals for the power system and various power sources. The document points out that by 2030, a new power system will be initially established: a basic formation of a green, low-carbon power supply pattern, with a target of 50% non-fossil energy generation share and high-level consumption of more than 2.8 billion kilowatts of new energy. The plan sets regional and hierarchical guidance goals for new energy utilization rates, with Shanxi Guoxin Energy Corporation maintaining a utilization rate of around 90%. The Ministry of Industry and Information Technology has released the "14th Five-Year Plan for Industrial Green Low-Carbon Development," indicating that the application of green electricity in the industrial sector is entering a period of scale acceleration. On July 31, the Ministry of Industry and Information Technology officially issued the "14th Five-Year Plan for Industrial Green Low-Carbon Development" (MIIT Regulation [2026] No. 169), outlining a roadmap for the green transformation of the industrial sector during the 14th Five-Year Plan period. In this document, green energy is placed at an unprecedented strategic heightfrom energy structure transformation to industrial spatial layout, from microgrid construction to direct connection models for green electricity, 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 will peak, the proportion of green energy applications will significantly increase, energy consumption per unit value added in large-scale industrial sectors will decrease by over 10%, and carbon dioxide emissions will be reduced by over 17%, with the output value of green factories at all levels accounting for 45% of the total output value of large-scale manufacturing by 2025, and the number of zero-carbon factory cultivation and construction reaching 500. The "14th Five-Year Plan for the Development of Renewable Energy" has been released, setting targets for a total installed renewable energy generation capacity of 3.5 billion kilowatts, over 2.8 billion kilowatts for wind and solar power, and annual electricity generation of 6 trillion kilowatt-hours by 2030, and first proposing reliable alternative targets: average weather-dependent power output from wind and solar to reach 8%, peak summer and winter evening output from wind and solar to exceed 20%, and new reliable peak power generation capacity of over 300 million kilowatts in the 14th Five-Year Plan period. The deployment of an additional 370 million kilowatts of installed capacity in the "Three North" bases, starting offshore wind power projects with 10 million kilowatts, and adding 300 million kilowatts of distributed new energy, with a clear principle that newly built centralized wind and solar power stations weather-dependent output should not be below 10%. Samsung has launched its first AI smart glasses, accelerating the formation of the Android XR wearable ecosystem. On July 22, Samsung Electronics unveiled its first AI smart glasses at the London Galaxy Unpacked 2026 event, powered by the Qualcomm Snapdragon AR1 Gen1 chip, based on Google's Android XR operating system, integrated with the Gemini AI assistant, and featuring built-in cameras that support real-time visual perception, boasting a maximum battery life of 9 hours, set to be released in autumn 2026. This product is the first consumer-grade lightweight wearable commercialized on the Android XR platform, directly competing with the Meta Ray-Ban series, and is expected to accelerate the penetration of AI glasses into the market, driving growth in demand for low-power AI chips, optical modules, and acoustic devices across the supply chain. The world's first "offshore net collection" rocket first stage has been successfully recovered. On July 10, 2026, at around 12:00, the Chinese space program celebrated a historic moment as the Long March 10B carrier rocket ignited and launched from the commercial launch site in Hainan, successfully completing the net collection task at sea. This marks China's first successful controlled recovery of a carrier rocket's first stage and the first such net recovery globally. This achievement signifies a major breakthrough in reusable rocket technology in China. In the next three years, the launch costs of China's commercial space program are expected to decrease by about 50%, transitioning the global space competition landscape from a unipolar dominance to a bipolar competition between China and the U.S., with related materials poised to benefit. Focus on material selection under import substitution trading. AI inflation has reached the materials sector, with more dispersed targets, and most strong companies are in Japan, with signs of accelerated tension in bilateral relations since the second half of 25. The supply-side import substitution combined with demand-side AI inflation creates an almost perfect synergy. We judge that there will be more interpretative space regarding the theme of import substitution. Japanese semiconductor material companies hold a significant share in the global semiconductor materials market, with statistics showing that among 19 key materials, 14 have a leading market share. On one hand, demand inflation is driven by industrial trends, while on the other hand, supply substitution logic arises from strained international relations, creating potential for further import substitution of key materials. We have identified specific segments where Japanese companies have high market shares, focusing on the 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 rise again. Wet electronic chemicals are primarily used in the cleaning, etching, developing, and stripping processes in the manufacturing of semiconductors and display panels. They undergo stringent purification, contain extremely low levels of impurities, and have a high technical barrier and customer stickiness. On the demand side, under AI-driven advanced processes and applications such as 3D NAND, the per capita consumption of wet electronic chemicals is expected to increase significantly. On the supply side, the global wet electronic chemicals market is still dominated by foreign companies from Japan, Germany, and the U.S., with a localization rate of less than 30% in the high-end market at the G5 level. Moreover, Chinas wet electronic chemicals industry relies on stable supplies of upstream general chemical raw materials, along with rapid expansion of domestic storage and logic chip capacity, and accelerated customer verifications, suggesting that China's product structural upgrades and localization rate improvements in the G5 high-end wet electronic chemicals sector are likely to continue. ArF photoresist monomers are highly monopolized by Japan, and localization is expected to accelerate. Photoresist resin monomers have been long monopolized by Japanese companies, with significant supply risk; even Japanese photoresist companies will procure monomers externally, which means breakthroughs in domestic photoresist production cannot fully ensure autonomy and control; only by substituting imports of monomers can reliable domestic supply be secured. For monomers, key factors include purity and batch stability; the resin monomers for G-line, I-line, and KrF photoresists can already be initially localized, while ArF photoresist resin monomers are at a bottleneck stage, with 70% of global supply controlled by Osaka Organic Chemical, and any supply disruption will lead to shortages of key raw materials for advanced processes, making the import substitution of ArF photoresist resin monomers a necessary condition for the sustained development of Chinas semiconductor industry. Under AI demand, the MLCC nano-ceramic powder market is experiencing a reversal of fortune. AI servers upgrading from GB300 to Vera Rubin/Rubin, and automotive electronics expanding under electrification/800V/high-level intelligent driving, have caused bottlenecks in high-end MLCCs, which has also impacted upstream materials such as barium titanate powder/formulation powders. AI-grade powder has a particle size of 100-300nm and requires higher consistency and batch stability. The price of AI-grade powders is also significantly higher than that of traditional powders; at the same time, high-end formulation powders depend on rare earth doping systems, facing uncertainty due to rare earth export restrictions and supply security disputes between China and Japan. A few domestic suppliers like Gree have the capability for mass production of high-end MLCC dielectric powders and are likely to fully benefit from the growing demand for high-end powders in the AI era. Fluorinated materials: Performance is driving an explosion of applications in AI & semiconductors, making them an excellent choice for import substitution. PFA: due to its extremely low metal ion release characteristics and resistance to strong acid and strong alkali corrosion, it can be used in etching tanks, cleaning tanks, CMP components, heat exchanger linings in semiconductor etching and cleaning processes, as well as in wafer carriers and CVD reaction chamber coatings during wafer transfer. It is expected that as advanced processes improve, the demand for PFA will grow significantly. On the supply side, high-end semiconductor-grade PFA is primarily monopolized by overseas companies, such as Chemours and Daikin. Recently, Zhejiang Juhua has produced 10,000 tons of ultra-pure PFA, becoming the first domestic company to break through the 600,000 yuan/ton price barrier. Electronically grade PTFE: PTFE, due to its extremely low Df and Dk values, is currently the most ideal resin material for high-frequency, high-speed CCL substrates. The substantial cost advantage of PTFE compared to other materials, combined with its performance advantages, is expected to usher in a period of rapid growth. High-end FEP can also be used in fiber optic protection layers and semiconductor wet cleaning pipelines. High-end pure electronic/semiconductor-grade products need to be imported from companies like Chemours, Daikin, and Asahi Glass. With the rapid development of advanced semiconductor processes, renewable energy, and high-frequency communications, the fluorinated polymer materials industry is undergoing an upgrade. Fluorinated polymer materials have strong C-F bonds, lending them extreme stability, excellent corrosion resistance, chemical stability, and dielectric properties. In the semiconductor field, PFA, or Perfluoroalkoxy, is a high-end modified version of PTFE. Due to its extremely low metal ion release characteristics and resistance to strong acids and bases, PFA has become an irreplaceable key material in advanced semiconductor processes. PFA can currently be used in semiconductor etching and cleaning processes in etching tanks, cleaning tanks, CMP components, heat exchangers, wafer transfer carriers, and CVD reaction chamber coatings. The price for high-end products in the semiconductor sector can reach 600,000 yuan/ton. Currently, global demand for PFA stands at about 20,000 tons, while domestic demand is around 6,000-7,000 tons, and as advanced processes improve, the demand for PFA is expected to grow significantly. Most global PFA production capacity is located overseas, but recently Zhejiang Juhua has achieved autonomous mass production of ultra-pure PFA, creating significant potential for import substitution. FFKM, or Perfluoroether rubber, is an upgraded version of fluororubber FKM. In the molecular structure of FFKM, carbon-fluorine bonds replace all carbon-hydrogen bonds, providing excellent resistance to ultra-high temperatures, extreme chemical corrosion from gases and liquids, and ultra-high cleanliness, making it the best-performing synthetic rubber for sealing materials in advanced semiconductor processes. Currently, global total demand is about 200 tons, dominated by overseas giants like Chemours, Daikin, Solvay, and DuPont. The AI and drone industries are driving the fiber optic supply chain, with materials expected to enjoy a trend of increasing volume and price. The training of large AI models is prompting the data center network architecture to transition from the traditional three-layer aggregation to a fully interconnected leaf-spine architecture, changing data traffic patterns from north-south to east-west within GPU clusters. To meet the demands for low-latency communication, the consumption of fiber for single racks or single GPUs is rapidly increasing. Additionally, the rapid expansion of drones has made fiber an essential consumable. Under the combined demand of AI and drones, upstream fiber optic materials such as silicon tetrachloride, organosilicon D4, fiber optic coatings, and para-aramid are expected to see significant trends of increasing volume and price. The rapid growth in demand for computing power and high-frequency speeds suggests that electronic-grade PTFE is poised for massive application. PTFE materials are known for their excellent thermal stability, chemical resistance, and dielectric properties, earning the title of the "king of plastics." Three major downstream demandsmilitary, server high-speed cables, and high-speed boardsare all expected to grow rapidly. With the approach of NVIDIAs next-generation server Rubin ultra mass production node, the industry is actively discussing the potential use of PTFE materials as orthogonal backplane materials, with Shengyi Technology in China actively pursuing verification. We believe that with the continued growth of demand for high-frequency and high-speed transmission led by computing power infrastructure, the downstream fields for PTFE are set to be redefined. Focus on the certainty of volume and value enhancement in the precursor industry due to downstream capacity expansion. Precursor products benefit from large cycle expansions in downstream production capacity, ensuring strong performance growth certainty. Downstream wafer manufacturers like SK Hynix are planning to double their wafer plant capacity over the next five years, while Changxin also plans to nearly double capacity by 2030. Given the critical role of precursor products in the manufacturing process and the ongoing trend towards finer/higher-end chip manufacturing, we believe leading companies in the industry are likely to have high bargaining power with downstream customers and see leaps in product category value. The rapid development of AI has led to a shortage of MLCCs. With the rapid growth of the artificial intelligence industry, AI servers, due to their high power consumption, significantly increase the number of MLCCs compared to ordinary servers; according to China Securities Journal, the increase is about threefold, leading to a worsening supply tightness. Electrification, intelligence, and connectivity have become the development trends in the automotive industry, and as the number of control modules increases, the usage of MLCCs per vehicle has also significantly risen. SEMI indicates that 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, the global semiconductor sales are projected to reach $1 trillion this year, doubling to $2 trillion by 2035. Geopolitical risks are unlikely to suppress industry prosperity this year, but raw material shortages may affect the long-term outlook, with countries addressing shortages of critical minerals as well as bromine and helium gases, with helium prices having surged steeply due to the Middle East situation in March, while bromine also faces supply shortage risks. The main sources of helium supply are hindered, and downstream acceptance of price increases is high, making price elasticity promising. 1) On the supply side: Currently, major import sources in the Middle East and Russia have nearly been completely "zeroed out." Even if Middle Eastern gas sources fully resume operations immediately, the time required for transportation and facility restart will still take months; the recovery of expected gas sources from Russia faces obstructions, with helium export controls implemented since April 14. 2) On the demand side, helium occupies a relatively low percentage of overall costs in major terminal applications such as MRI and semiconductors, hence the acceptance rate of price increases is reasonable; 3) On the inventory side: The conflict has persisted for nearly three months now, rapidly depleting domestic inventories. We believe there is ample momentum for further increases in helium prices, with significant potential for elasticity. Plans for wind and solar installations exceed 930 GW, with 21 provinces and cities announcing key new energy plans for the 14th Five-Year Plan. As of April 2026, among the 31 provinces and cities nationwide, 21, including Inner Mongolia, Shanxi, Beijing, Tianjin, Heilongjiang, Jilin, Shandong, Shanghai, Anhui, Zhejiang, Jiangsu, Hunan, Hainan, Guizhou, Yunnan, Sichuan, Gansu, Ningxia, Shaanxi, Qinghai, and Tibet, have published their outlines for the 14th Five-Year Plan. According to the renewable energy construction targets of these provinces and cities and the status of installed capacity as of the end of 2025, the planned new scale of wind and solar power exceeds 930 GW. Among these, Inner Mongolia has the largest planned new capacity at nearly 155 GW, followed by Qinghai with about 102 GW, and Shanxi, Gansu, Jiangsu, Shandong, and Sichuan each planning new capacities of 50 GW or more. In 2026, the mass production of solid-state batteries is set to accelerate. Starting in 2026, there will be a continuous hot market for solid-state batteries, with 16 projects related to solid-state batteries and materials commencing production, construction, or signing contracts. In regions like Jiangsu, Zhejiang, Guangdong, 16 solid-state battery and materials projects are intensively starting, producing, or signing contracts, with 8 already in production or under construction, and 8 more set for signing, covering core electrolyte materials and the two critical stages of solid-state battery production. Among these, semi-solid battery technology has a higher maturity and is the main thrust for current industrial implementation, while all-solid-state batteries are in the "mass production piloting and commercial exploration" stage. Technologically, within the already initiated or completed projects, the oxide electrolyte route is progressing more quickly in terms of mass production and commercial timing; on the material side, two solid-state battery projects, namely Zijin Mining Groups solid-state battery lithium battery new materials project and Taizhou Qingtaos solid-state battery raw materials project (phase one), are in production or construction. Currently, the solid-state battery industry is experiencing a continuous uptrend, with leading companies advancing the construction of pilot lines and product validation, and more heavyweight all-solid-state products are expected to be released in the second half of 2026.