Core Viewpoint - The report from CITIC Securities indicates that three technological trends will significantly enhance the usage and importance of etching equipment: (1) adoption of multiple patterning in photolithography, (2) demand for 3D stacked storage and near-memory computing, and (3) upgrades in underlying transistor structures [1][2]. Group 1: Multiple Patterning - The current EUV lithography technology is limited, making DUV multiple patterning a key strategy for domestic breakthroughs, leading to a substantial increase in the usage of etching equipment [3]. - The DUV multiple patterning method allows for continued iteration down to 3nm, with the etching equipment usage in production lines increasing up to four times compared to the EUV method [3]. Group 2: 3D Stacking Demand - The increase in storage layers for 3D NAND and DRAM is driving exponential growth in the demand for etching equipment, with the usage share rising from 35% to 48% as layers increase from 32 to 128 [4]. - The need for higher aspect ratio etching equipment is also growing, with current mainstream 3D NAND using a 60:1 aspect ratio, and future technologies expected to reach 90:1 for higher layer counts [4]. - TSV (Through-Silicon Via) processes, essential for 3D expansion in packaging, require etching and filling equipment, which constitutes nearly 70% of the TSV process, further increasing demand for etching equipment [4]. Group 3: GAA Transistor - The introduction of GAAFET technology, which will replace FinFET, is expected to increase the etching process steps from 5 to 9, leading to a rise in the share of etching equipment from 20% to 35% in advanced processes [5]. - The value of individual etching equipment is projected to grow by 12% year-on-year, with new demands for high-selectivity SiGe isotropic etching processes emerging, particularly through Atomic Layer Etching (ALE) methods [5].

Group 1 - Nikon aims to double its wafer alignment sales by FY2027 compared to FY2024, highlighting its key advantage in measuring wafer deformation to improve exposure equipment alignment accuracy [2] - SK Hynix has adopted the industry's first High NA EUV lithography system at its M16 chip manufacturing plant in Icheon, South Korea, to accelerate the development of next-generation DRAM chips [2] - LG Energy has secured a total of 107 GWh battery orders from Mercedes-Benz, including a 32 GWh supply agreement for electric vehicle batteries in Europe and a previous 75 GWh order [2] - EVE Energy's "Longquan No. 2" all-solid-state battery has successfully rolled off the production line, targeting high-end applications such as humanoid robots and low-altitude aircraft, with an annual production capacity of nearly 500,000 cells [2]

Core Insights - Zhang Jiansheng, a fund manager at Baodao Fund, has shifted his investment strategy towards Hong Kong stocks, increasing their representation in his portfolio from 3 to over 50% by Q2 2024, indicating a positive outlook on the market [1] - His investment philosophy emphasizes a bottom-up stock selection framework, focusing on competitive barriers, industry dynamics, and valuation metrics [1][2] - Zhang's approach to valuation is unique, prioritizing the implied return over a five-year horizon rather than traditional price-to-earnings ratios, which he believes provides a more rational assessment of a company's worth [2] Stock Selection Criteria - Competitive barriers are deemed essential; companies lacking these barriers, regardless of growth rates, are not considered for heavy investment [1][3] - Industry supply-demand dynamics are critical for risk management, with Zhang highlighting the domestic innovative drug sector as an example of improving investment value due to favorable conditions [2] - Cash flow value is prioritized over market sentiment, as demonstrated by a past missed opportunity in telecom operators due to an overemphasis on short-term negatives [2][3] Focus Areas and Market Trends - Zhang identifies three key sectors for investment: 3D stacking technology, cloud computing, and edge AI, anticipating significant growth driven by technological advancements [3] - The changing pricing logic in the Hong Kong stock market, influenced by increasing southbound capital, presents new opportunities for bottom-up stock selection [3] - Despite the rise in the Hang Seng Tech Index, many quality assets in the Hong Kong market remain undervalued, suggesting potential for future appreciation [3]