SMIC, the first "A+H" red-chip company on the STAR Market, completed its IPO review in 19 days and obtained registration approval in 29 days, making it the center of attention. As a part of the semiconductor industry chain, specialty gases represented by electronic specialty gases are also coming into the spotlight.

With the rapid development of China's semiconductor, new energy, aerospace, and other industries, industry insiders generally expect the specialty gas industry to usher in a historic opportunity for domestic substitution.

What are Specialty Gases?

Specialty gases are widely used in emerging industries such as integrated circuits, display panels, photovoltaic energy, optical fibers and cables, new energy vehicles, aerospace, environmental protection, and medical fields. They are categorized by application into electronic specialty gases, medical specialty gases, standard gases, and laser gases.

Significant Space for Domestic Substitution

In recent years, China has successively issued guiding documents such as the "13th Five-Year Plan for National Strategic Emerging Industries" and the "New Materials Industry Guide," aiming to promote the localization of key materials, including specialty gases. Therefore, under the influence of technological advancement, demand pull, and policy stimulation, the localization of specialty gases is imperative.

Taking electronic specialty gases as an example, in the domestic market, the four major foreign gas giants control 88% of China's electronic specialty gas market, while domestic gas companies account for only 12%, indicating a low market share for domestic enterprises.

As domestic companies gradually accumulate experience and make technological advancements, leading companies in the industry have achieved breakthroughs in some products, meeting international standards and gradually realizing import substitution. The localization of specialty gases has objective conditions.

On the demand side, China has recently built multiple 8-inch and 12-inch large-scale integrated circuit production lines and high-generation panel production lines. To ensure stable supply, timely service, and cost control, the demand for the localization of specialty gases is urgent.

Southwest Securities believes that the state supports the electronic specialty gas industry through industrial policies and funding, and promotes R&D and industrialization through the National Integrated Circuit Industry Investment Fund Phase I and II projects. Some domestic companies have achieved technological breakthroughs in some products, meeting the technical level and process requirements for semiconductor production gases, realizing import substitution. This trend will continue to advance in the future.

A relevant person in charge of a listed specialty gas company in East China told reporters that under the industrial environment where foreign monopolies are evident and the demand for localization is urgent, there is significant space for domestic substitution of specialty gases. The advantages of domestic substitution mainly include four aspects: national policy support, cost-effectiveness, stable quality, and proximity service advantages.

These Listed Companies Are Making Strides in Specialty Gases

Yoke Technology: Leading Domestic Production Scale of Fluorinated Specialty Gases

Yoke Technology acquired 90% equity of Chengdu Kemite Specialty Gas Co., Ltd. through a share issuance on October 19, 2017, and consolidated Kemite on May 1, 2018. Since consolidation, the electronic specialty gas business has maintained rapid development. From 2018 to 2019, the electronic specialty gas business revenue was 257 million yuan and 395 million yuan, respectively, with a growth rate of 53.70%. While achieving high growth, the gross profit margin levels were 44.35% and 50.89%, respectively, indicating strong profitability.

The company's fluorinated specialty gases mainly include sulfur hexafluoride, carbon tetrafluoride, and the planned construction of nitrogen trifluoride. As a leading company in fluorinated specialty gases, the company currently has an annual production capacity of 8,500 tons of sulfur hexafluoride and 1,200 tons of electronic-grade carbon tetrafluoride. It plans to build an annual production capacity of 10,000 tons of sulfur hexafluoride, 2,000 tons of carbon tetrafluoride, and 3,500 tons of nitrogen trifluoride, maintaining a leading domestic production scale.

Huate Gas: One of Only Four Companies Globally with All Products ASML Certified

It is understood that ASML is the world's largest supplier of lithography machines. The company's lithography gas products have been certified by ASML, specifically reflected in ASML's lithography machine user manual, which explicitly recommends its customers to use certified lithography gases. Therefore, ASML certification greatly promotes the sales of the company's lithography gas products.

The company has about 230 types of specialty gas products, mainly targeting emerging industries such as integrated circuits, new display panels, photovoltaic energy, and optical fibers and cables. These products are indispensable key materials for their development and have been widely used by leading companies in the industry, including SMIC, Yangtze Memory, Huahong Grace, TSMC, China Resources Microelectronics, BOE, Royole Technology, CETHIK, JinkoSolar, JA Solar, Wuhan Changfei, and Texas Instruments (Chengdu).

The company has also achieved import substitution in the above fields for nearly 20 products, including high-purity carbon tetrafluoride, high-purity hexafluoroethane, lithography gas, high-purity carbon dioxide, high-purity carbon monoxide, high-purity ammonia, and high-purity nitric oxide.

Haohua Technology: Gradual Improvement in Electronic Gas Layout

Recently, Haohua Technology stated that its subsidiary, Zhonghao Guangming Chemical Research and Design Institute Co., Ltd., provided propellant for the launch of the BeiDou-3 satellite.

It is understood that in 2019, the company successively acquired 12 high-quality chemical technology companies under its major shareholder, China Haohua, transforming into an advanced materials and specialty chemicals supplier. With fluorochemicals as the core, the company also develops specialty gases and specialty rubber and plastic products.

Haohua Technology stated that the R&D and industrial base of Zhonghao Guangming Institute has completed the installation of 5 production units, with 4 production units under installation, and plans to complete all installations and enter trial production in June.

The first-phase products of the base project mainly include: arsine, phosphine, and borane, each with an annual production capacity of 5 tons; high-purity chlorine gas with an annual production capacity of 50 tons; boron trifluoride with an annual production capacity of 1 ton; hydrogen selenide with an annual production capacity of 20 tons; hydrogen sulfide with an annual production capacity of 200 tons; ethylene oxide-carbon dioxide fumigant with an annual production capacity of 300 tons; and green nitrogen tetroxide with an annual production capacity of 40 tons.

The company's main products applied in the semiconductor industry include: arsine, phosphine, borane, chlorine gas, ammonia gas, nitrous oxide, hexafluoroethane, nitric oxide, carbon monoxide, boron trifluoride, xenon gas, carbon dioxide, propylene, methane, electronic mixed gases, and ultra-pure nitrogen, hydrogen, oxygen, argon, and helium gases.

Jinhong Gas: Forming Competitive Advantages with Foreign Enterprises

On June 16 this year, Jinhong Gas was listed on the STAR Market. As an important supplier of specialty gases and bulk gases in East China, the company has a multi-variety gas management advantage and has established close cooperative relationships with many high-quality downstream customers in industries such as integrated circuits, liquid crystal panels, LEDs, optical fiber communications, photovoltaics, medical health, energy conservation and environmental protection, new materials, new energy, high-end equipment manufacturing, food, metallurgy, chemicals, and machinery manufacturing, becoming an environmentally intensive comprehensive gas supplier.

It is understood that the company's current gas supply mode is mainly retail gas supply, supplemented by small and medium-sized on-site gas production. The quality of specialty gases such as ultra-pure ammonia and high-purity nitrous oxide has reached import substitution levels.

Compared with foreign gas companies that mainly supply large-scale on-site gas production, the company's bottled gas and tank gas can better meet the gas needs of small and medium-sized enterprises, forming a competitive advantage in the segmented market with foreign enterprises.

Due to the transportation radius limitations of bottled gas and tank gas, the bulk gas retail market has strong regional characteristics. The company has deep roots in the Yangtze River Delta region, building long-term mutually beneficial cooperative relationships with many customers, forming a relatively complete sales service network and stable supply guarantee capabilities, occupying an important position in the region.

Nanda Optoelectronics: Electronic Specialty Gas Business Has Become a New Profit Growth Point

The electronic specialty gas business has become a new profit growth point for Nanda Optoelectronics. The company's main products are high-purity phosphine and arsine, with a purity of 6N level, which have achieved a major market share in the LED industry and quickly realized import substitution in the IC industry, becoming a new profit growth point for the company. Currently, the company's electronic specialty gas sales in the IC field account for about 40%.

In addition, the company acquired 57.97% equity of Shandong Feiyuan Gas in November 2019. Feiyuan Gas is one of the main domestic producers of nitrogen trifluoride and sulfur hexafluoride.

Original text from: Shanghai Securities News