Huajin Securities: Moving Towards Higher-End Domestic Photomask Manufacturers, Era 2.0 Begins

According to a research report released by Huajin Securities, based on Omdia's 2024 report, mainland China is the world's largest panel production and manufacturing base as well as a research and application center, with its flat panel display capacity exceeding 60% of the global capacity. However, one of the core upstream materials, photomasks, is still monopolized by manufacturers from the United States, Japan, and South Korea. Domestic companies such as SQM and Newway Photomask are continuously catching up with an increasing penetration rate. The report strongly recommends SQM (688138.SH) and suggests paying attention to Newway Photomask (688401.SH) and STARMASK (688721.SH).

Key points from Huajin Securities are as follows:

Photomasks are key materials for production and manufacturing, with a high cost share

Photomasks are the templates for graphic transfer in the microelectronics manufacturing process and are important key materials in the production processes of flat panel displays, semiconductors, touch screens, and circuit boards. As the benchmark and blueprint for photolithography, photomasks are crucial in connecting industrial design and process manufacturing. The precision and quality level of photomasks directly affect the yield rate of the final downstream products. According to statistics and analysis from the Semiconductor Equipment and Materials International (SEMI), the market size of semiconductor wafer manufacturing materials reached USD 32.2 billion in 2019, with the highest cost share attributed to silicon wafers, followed by photomasks and semiconductor gases, accounting for approximately 13% each.

Domestic flat panel display capacity accounts for 60% of the global market, but photomasks are still monopolized by foreign companies

In the flat panel display sector, mainland China, as the world's largest panel production and manufacturing base and research and application center, according to Omdia's 2024 report, has a flat panel display capacity exceeding 60% of the global capacity. However, one of the core upstream materials, photomasks, is still monopolized by manufacturers from the United States, Japan, and South Korea, while domestic companies SQM and Newway Photomask are continuously catching up with an increasing penetration rate.

Domestic photomask manufacturers have relatively low revenue, and penetration rates need to be improved

In the semiconductor field, according to the 2024 annual report statistics from Newway Photomask, based on comprehensive assessments of demand from multiple institutions, it is estimated that the domestic semiconductor photomask market size will be approximately RMB 18.7 billion by 2025, with photomasks for wafer manufacturing expected to be RMB 10 billion, photomasks for packaging expected to be RMB 2.6 billion, and photomasks for other devices expected to be RMB 6.1 billion. Currently, the overall revenue scale of domestic manufacturers in photomasks is relatively low, and various manufacturers are in the stage of continuous technological upgrades, with new high-end capacities about to be released, and the penetration rate of semiconductor photomasks moving from 1 to N.

Risk Warning: Risks of intensified market competition, risks of sluggish downstream demand, risks of product upgrades and customer onboarding falling short of expectations, exchange rate fluctuation risks, and international geopolitical risks