Summary of the Conference Call for ShenGong Co., Ltd. Industry Overview - The semiconductor core materials industry is expected to face regulatory challenges, accelerating domestic substitution trends. ShenGong Co., as a leading supplier of large-diameter silicon materials for etching, is poised to benefit significantly from this trend, particularly in its silicon component business, which is projected to grow over three times year-on-year in 2024, with continuous capacity release and record revenue [2][3][4]. Core Company Insights - ShenGong Co. primarily produces large-diameter silicon materials used in the etching process, extending into silicon components and silicon electrodes, which are core consumables in etching equipment. The company is gradually increasing its new business volume while stabilizing and recovering its traditional business [2][6]. - The company has established a strong domestic market positioning, collaborating with local wafer and equipment manufacturers, including leading firms like Huachuang and Zhongwei. The equipment manufacturers slightly dominate the business volume, but the introduction and ramp-up of storage manufacturers are ongoing [10][11]. Financial Performance and Projections - In 2024, ShenGong's silicon component business revenue is expected to reach 120 million yuan, doubling year-on-year. The company anticipates continued capacity release and a quarterly growth trend, with revenue expected to double again in 2025 [4][13]. - The gross margin for the silicon component business has improved to nearly 40%, significantly higher than the traditional level of 30%. The domestic silicon component demand is approximately 4 billion yuan, with ShenGong holding over 1 billion yuan of this market share [14][15]. Market Dynamics and Competitive Landscape - The silicon component industry has historically been tightly bound to equipment manufacturers, with a concentrated market structure. However, as domestic wafer capacity increases and equipment localization progresses, the pace of domestic substitution is accelerating. ShenGong is leveraging a differentiated positioning strategy to penetrate the market through secondary components [8][9]. - The market for etching silicon wafers is estimated at 4 billion yuan, while the photonic wafer market is around 15-16 billion yuan. ShenGong has also begun to explore the 8-inch wafer market, currently undergoing certification [7]. Risks and Opportunities - The ongoing U.S.-China trade tensions have led ShenGong to cease business with core U.S. clients, insulating the company from related risks. The company has expanded its production capacity from 500 tons to 900 tons, providing room for product structure optimization and laying the groundwork for future demand for large-diameter silicon materials [17]. - The company’s zero-component business is experiencing high growth expectations due to the acceleration of domestic substitution, driven by increasing uncertainties around import controls [19]. Conclusion - ShenGong Co. is well-positioned to capitalize on the accelerating domestic substitution trend in the semiconductor materials sector. With strong growth projections for its silicon component business and a stable recovery in its traditional silicon materials segment, the company presents a compelling investment opportunity. The potential implementation of regulatory measures could serve as a short-term catalyst for growth [21].

Investment Rating - The report assigns an "Outperform the Market" rating to the company for the first time [6]. Core Views - The company has shown significant growth in revenue and net profit, with a 1Q25 revenue increase of 81.49% year-on-year and a net profit increase of 1850.70% year-on-year [1][18]. - The demand for large-diameter silicon materials is recovering, and the company is expanding its silicon electrode orders [3][34]. - The company is well-positioned in the semiconductor industry, particularly in large-diameter silicon materials and silicon components, which are expected to drive steady growth in performance [4][34]. Summary by Sections Financial Performance - In 1Q25, the company achieved revenue of 106 million yuan, a year-on-year increase of 81.49% and a quarter-on-quarter increase of 19.44% [1]. - For 2024, the company reported revenue of 303 million yuan, a year-on-year growth of 124.19%, and a net profit of 41.15 million yuan, reversing a loss of 69.11 million yuan in 2023 [2][14]. - The gross profit margin reached 39.68% in 1Q25, showing improvement from previous years [1][21]. Business Segments - The large-diameter silicon materials segment generated revenue of 174 million yuan in 2024, up 108.32% year-on-year, with a gross margin of 63.85% [2][26]. - The silicon components segment saw revenue of 118 million yuan in 2024, a remarkable growth of 214.82% year-on-year, contributing nearly 40% to total revenue [2][26]. - The silicon wafer segment reported revenue of 7.02 million yuan in 2024, down 14.98% year-on-year, primarily due to ongoing customer certification processes [2][26]. Growth Projections - The company is expected to achieve revenue of 498 million yuan in 2025, with a year-on-year growth of 64.4%, and net profit of 98 million yuan, reflecting a growth of 138.7% [30][34]. - Projections for 2026 and 2027 indicate continued growth, with revenues expected to reach 702 million yuan and 1 billion yuan, respectively [30][34]. Valuation - The report estimates a reasonable valuation range for the company between 58.8 billion yuan and 63.7 billion yuan, corresponding to a price per share of 34.59 to 37.47 yuan [4][34]. - The expected price-to-earnings ratio for 2025 is projected to be between 60 and 65 times [34][38].