September 9, 2025 08:00 PM GMT Greater China Technology Semiconductors | Asia Pacific Assessing the bull case for SiC substrates We assess the TAM opportunity for AR glass and AI data centers for SiC substrates, these secular growth drivers should help the P/B multiple for SICC but we suggest investors keep an eye on the competition. We lift our bull case for SICC, but remain EW. SiC substrate vendors - rally hype or hope? A-share SiC substrate vendors were up 13% on average last Friday vs. CSI 300 up 2%, o ...

Investment Rating - The report maintains a "Buy" rating for several companies including NAURA, SICC, SUMCO, Shin-Etsu Chemical, Mitsubishi Electric, and Infineon [2]. Core Insights - The report highlights significant growth in local production and demand for silicon wafers and SiC substrates in China, with local coverage expected to increase from 41% to 54% for 12-inch silicon wafers and from 80% to 87% for 6-inch SiC substrates by 2027E [1][6]. - Pricing trends indicate a decline in average selling prices (ASP) for 8-inch silicon wafers at a CAGR of -10% from 2024 to 2026E, while 12-inch wafers are expected to decline at -6% CAGR during the same period. SiC substrate ASP is projected to decrease from US$443 in 2024 to US$384 in 2026E [1][6]. - Capacity expansion is notable, with 12-inch silicon wafer capacity expected to grow at a CAGR of 21% from 2024 to 2027E, significantly outpacing the 3% CAGR for 8-inch silicon wafers. SiC substrate capacity is also set to expand at 26% and 96% CAGR for 6-inch and 8-inch substrates, respectively [1][6]. - The report anticipates a consolidation in the industry, with the top three Chinese silicon wafer suppliers projected to cover 36% of domestic demand by 2027E, up from 26% in 2024 [1]. Summary by Sections China TAM - The total addressable market (TAM) for silicon wafers in China is projected to grow from US$1.999 billion in 2021 to US$4.511 billion by 2030E, with a notable increase in shipments from 36,962k units in 2021 to 103,570k units by 2030E [37]. - The SiC substrate market is expected to grow from US$197 million in 2021 to US$2.770 billion by 2030E, driven by rising EV penetration and SiC adoption rates [39]. - The GaN devices market is projected to expand from US$66 million in 2021 to US$1.611 billion by 2030E, supported by applications in EVs, data centers, and consumer electronics [42]. Supply and Demand Dynamics - Local suppliers' capacity expansion in silicon wafers is primarily driven by logic and memory clients, while SiC substrate capacity is expanding due to increased adoption in EVs and fast charging technologies [43]. - The report notes that local suppliers are expected to cover 75% of SiC substrate demand in China by 2025E, increasing to 84% by 2027E [6][39]. - The demand for SiC and GaN is anticipated to replace IGBT in high power and high frequency applications, with SiC penetration rates projected to reach 75% in EVs by 2030E [52]. Pricing Trends - The ASP for silicon wafers is expected to decline, with 8-inch wafers decreasing at a CAGR of -10% and 12-inch wafers at -6% from 2024 to 2026E [1][6]. - SiC substrate pricing is also expected to narrow, making SiC MOSFETs more competitive against silicon IGBTs [1]. Industry Consolidation - The report indicates a trend towards consolidation in the silicon wafer industry, with the top three suppliers expected to significantly increase their market share in China by 2027E [1].

Investment Rating - The report maintains an "Overweight" (OW) rating on Yangjie Technology and StarPower Semiconductor, while it is "Equal-weight" (EW) on Silan Micro and "Underweight" (UW) on CR Micro [6][5][12]. Core Insights - Power semiconductor pricing has stabilized, but discounts to end customers will impact gross margins in 1Q25. Companies with higher automotive exposure and better operational efficiency are favored [1][5]. - Power discrete sales have shown signs of recovery, with a 10% year-over-year shipment growth recorded in February 2025. The blended average selling price (ASP) of IGBT is stabilizing, indicating a potential recovery in this segment [2][15]. - Chinese power semiconductor companies are capitalizing on automotive opportunities, with Yangjie Technology's automotive product sales growing over 60% in 2024, significantly outpacing its total revenue growth of 12% [3][5]. - SICC has increased its global market share in SiC substrates to 22.8% in 2024, and there are expectations for further growth in SiC devices due to local self-sufficiency being less than 10% [4][12]. Summary by Sections Pricing and Margins - Power semiconductor pricing has largely stabilized, but normal price discounts will affect gross margins in 1Q25 [1]. - StarPower's gross margin is expected to be the lowest quarterly level this year, with gradual improvement anticipated for the rest of the year [2][10]. Company Performance - Yangjie Technology is expected to see an 18% year-over-year revenue increase in 1Q25, although a 3% quarter-over-quarter decline is anticipated due to seasonality [11]. - StarPower's revenue is projected to grow by 19% in 2025, driven by strong demand in the Chinese EV market and its acquisition of MSCT [10][12]. - SICC's revenue is expected to decline by 6% quarter-over-quarter in 1Q25 due to seasonal factors, but gross margins are anticipated to remain stable [10]. Market Trends - The automotive sector is a significant growth driver for power semiconductors, with companies like Yangjie showcasing their automotive solutions at major trade fairs [3]. - The global market for SiC devices is expected to grow, with local players like UNT and Silan Micro making strides in production capacity [4]. Price Target Adjustments - Price targets for StarPower and SICC have been lowered to Rmb115 and Rmb77, respectively, reflecting changes in market conditions and pricing pressures [6][12].