Compared with other industries, as of December 24, 2021, the mechanical equipment industry index has increased by 12.6% year-on-date, ranking 12th among the 31 Shenwan first-level industries, and has performed relatively well.

(Producer/Author: Xiangcai Securities, Xuan Pengcheng)

1.1 The machinery industry index is low at first and high at the end, with obvious excess returns

As of December 24, 2021, the machinery industry's cumulative increase this year was 12.6%, while the Shanghai and Shenzhen 300 index rose by -5.6% during the same period, and the machinery industry outperformed the market by 18.2%, with obvious excess returns. Looking back on the whole year, due to the drag of sectors such as engineering machinery and industrial robots in the early stage, the overall machinery industry was basically the same as the index trend. Since mid-June, with favorable policies in wind power, industrial master machines and other sectors successively introduced, combined with the demand for downstream of related sectors such as lithium battery, photovoltaics, semiconductors, hydrogen energy , natural gas , and natural gas , as a whole, the machinery industry has begun to continue to outperform the market.

time node: In February, the tight transportation capacity caused China's container import and export freight index to continue to rise, and container industry chain companies such as CIMC Group led to a sharp rise in the metal products sector. In March, my country's "14th Five-Year Development Plan and 2035 Vision Outline" was released, and the photovoltaic, lithium battery and hydrogen energy industry chains ushered in favorable policies. In April, the global epidemic once again impacted the semiconductor industry chain, and the chip delivery cycle was significantly extended. In June, Guangdong, Guangxi, Zhejiang and other provinces successively issued offshore wind power subsidy plans, and the market for the wind power sector started. In August, the State-owned Assets Supervision and Administration Commission meeting proposed to strengthen the research and development of key core technologies such as industrial mother machines, and the machine tool sector performed well. In November, CATL , Yiwei Lithium Energy and LG successively issued production expansion announcements, while Panasonic said that 4680 large cylindrical batteries are close to mass production, driving lithium battery equipment to resume its upward trend.

Compared with other industries, as of December 24, 2021, the mechanical equipment industry index has increased by 12.6% year-on-date, ranking 12th among the 31 Shenwan first-level industries, and has performed relatively well. The industries with the largest increase are coal (45.5%), power equipment (43.0%), non-ferrous metals (36.1%) and utilities (33.1%).

specifically covers the various segments of the machinery industry. As of December 24, 2021, the sub-sectors with the highest increase this year were photovoltaic equipment (63.2%), machine tool tools (56.6%), refrigeration and air conditioning equipment (48.8%), metal products III (46.6%) and semiconductor equipment (44.2%). The sub-sectors with relatively backward growth are construction machinery (-23.9%), industrial robots (-16.4%), building equipment (3.7%), agricultural machinery (5.8%) and mechanical basic parts (6.8%).

1.2 Look at the two dimensions of cyclicality and growth in the machinery industry.

As we all know, there are many sub-industry in the machinery equipment industry, and the corresponding downstream demand areas are also different. Therefore, studying various sub-industry of the machinery industry requires closely tracking investment changes in downstream fields closely related to them, thereby determining the prosperity of the machinery sub-industry in the short term. It is precisely because of the different downstream fields corresponding to each sub-industry, the cyclicality and growth of each sub-industry also vary greatly.

periodic dimension. We use the degree of fluctuation in annual operating income of each sub-industry and the degree of correlation with economic fluctuations as the criteria for measuring industry cyclicality. Among them, construction machinery, oil and gas equipment, printing and packaging machinery, etc. have strong cyclical fluctuations due to downstream demand being more sensitive to economic fluctuations, while lithium battery equipment, railway equipment, internal combustion engines, etc. have no obvious cyclicality due to relatively stable downstream demand or rapid growth.

Growth dimension. We use the compound growth rate of industry operating income, the share of related companies in the global market, and the growth space in the downstream demand field in the future as the criteria for measuring the growth of each sub-industry. Among them, sub-sectors such as semiconductor equipment, lithium battery equipment, photovoltaic equipment and industrial robots have a high growth potential due to the rapid growth of the market size in the downstream field or the large room for domestic substitution. However, the sub-sectors such as agricultural machinery, internal combustion engines, textile and garment equipment have basically entered a mature stage and are difficult to expand globally, so their future growth is weak.

The change in demand in various sub-sectors of the machinery industry is essentially the change in capital expenditure in various downstream fields. combined with the performance of various sub-sectors in the capital market, it can be seen that in the short-term dimension, the downstream areas corresponding to each sub-sector are in different stages of prosperity, resulting in different growth rates of capital expenditure, which affects the performance of upstream corresponding equipment companies. For example, in 2007 and 2009, the increase in international oil prices reached 54.2% and 71.1% respectively, driving the increase in the oil and gas equipment index that year to 277.5% and 287.6%. In 2006 and 2010, the growth rate of real estate investment continued to rise, with the annual investment completion increasing by 22.1% and 33.2% respectively, and the increase in the construction machinery index that year was as high as 264.8% and 58.9% respectively.

From a medium- and long-term perspective, it is the macroeconomic transformation and energy structure changes that cause the downstream areas related to each sub-sector are in different development stages, thus determining the future medium- and long-term market space of each sub-sector in the machinery industry. Specifically, from 2005 to 2020, the sub-sectors with the highest annual growth in the machinery industry have been from agricultural machinery and heavy machinery with agriculture and heavy industry as the main application areas, to engineering machinery, building equipment, air-conditioning and refrigeration equipment and railway equipment with real estate and traditional infrastructure as the main demand areas, and to photovoltaic equipment, lithium battery equipment and semiconductor equipment with high-tech emerging industries such as photovoltaics, new energy vehicles, and semiconductor equipment.

In summary, we believe that for each sub-sector of the machinery industry, it should be distinguished from the two dimensions of cyclicality and growth. For sectors with strong periodicity such as oil and gas equipment, engineering machinery, machine tools, textile and clothing equipment, more attention should be paid to the cyclical stages of downstream demand. For sectors with high growth potential such as lithium battery equipment, semiconductor equipment, photovoltaic equipment, and industrial robots, we should pay more attention to the long-term development space of the industrial chain, the changes in competitiveness of companies in the industry, and the degree of matching between the downstream demand and the valuation of the sector.

1.3 Economic growth is under pressure, carbon neutrality leads the main tone of future development

Under the above research framework, we believe that the overall performance of the high-growth sector in the machinery industry in 2022 may be stronger than the cyclical sector. The reason is that after experiencing the impact of the epidemic, my country's economy ushered in a continuous recovery in 2021. However, as the recovery momentum and low cardinality effects weaken, my country's economic growth is likely to slow down in 2022. Xiangcai Securities macro group predicts that the actual growth rate of GDP in my country will be 8.3% and 5.5% respectively from 2021 to 2022. Specifically for fixed asset investments that directly affect the demand of the machinery and equipment industry, as of November 2021, the growth rate of manufacturing, real estate investment, and infrastructure investment in my country were 13.7%, 6.0% and 0.5%, respectively, showing a continuous downward trend.

In 2022, affected by the real estate "three red lines" policy and pressure on economic growth, the growth rate of real estate and manufacturing industries faces different degrees of decline. The macro group expects that the growth rate of real estate investment will be 5.6% and 3.0% from 2021 to 2022, and the growth rate of manufacturing investment will be 12.7% and 5.0% respectively. Although infrastructure investment will rebound due to the increase in fiscal expenditure and is expected to grow at 4.0% for the whole year, it is difficult to fully compensate for the impact of the decline in real estate and manufacturing investment on the demand of the upstream machinery industry.

However, although the cyclical sector of the machinery industry is relatively weakened overall, from the perspective of sub-sectors, benefiting from the sharp rise in energy prices such as crude oil, natural gas, and coal since the beginning of this year, capital expenditure of oil and gas companies is expected to stabilize and rebound, thereby driving the recovery of demand in the oil and gas equipment sector. On the other hand, due to the arrival of its own update cycle and the continuous increase in the domestic production rate, the prosperity cycle of the machine tool sector is also expected to continue. In addition, for the construction machinery sector, although it may be under pressure due to the weakening of downstream real estate demand and the end of the renewal peak in the short term, under the increasing significant driving force of internationalization and electrification, the construction machinery industry still has a lot of room for development in the medium and long term.

For the growth sector, benefiting from the continued advancement of the global carbon neutrality process, industries such as photovoltaics, lithium batteries, wind power and semiconductors are expected to maintain a high prosperity, driving upstream equipment demand to maintain growth.

Since my country proposed the "dual carbon target" in September last year, the United States returned to the Paris Agreement in February this year and passed a $550 billion infrastructure bill and a $3.5 trillion budget resolution in August. Europe approved the European Climate Act in May this year, proposing that the EU's net greenhouse gas emissions in EU will decrease by at least 55% compared with 1990; and the EU will achieve climate neutrality by 2050. As of November this year, according to the global net zero emission tracking table statistics from the UK Energy&Climate Intelligence Unit, more than 130 countries and regions around the world have proposed "zero carbon" or "carbon neutrality" climate goals. Among them, a total of 69 countries and economies have been included in the law, submitted legislative proposals or written into policy documents.

achieves carbon neutrality from both changing the power generation structure and significantly increasing the electrification ratio. According to World Resources Research Institute (WRI) data, the electricity and thermal sector accounts for the highest proportion of global carbon emissions, at 30.4%. is followed by energy consumption in transportation and manufacturing. Compared with the world, my country mainly uses thermal power generation, the carbon emissions of the power and thermal sector account for 41.6%, followed by manufacturing, construction and transportation. Therefore, if we want to achieve carbon neutrality between my country and the world, we must change the power generation structure mainly based on fossil fuels such as coal and natural gas, and significantly increase the electrification ratio of major energy consumption departments such as transportation and manufacturing. For various segments of the machinery industry, the segments such as photovoltaic equipment, wind power equipment, lithium battery equipment, hydrogen energy equipment and semiconductor equipment are expected to continue to benefit.

2 Cyclic sector: Pay attention to oil and gas equipment, machine tools, construction machinery,

2.1 Oil and gas equipment: Oil prices maintain a high level are expected to drive capital expenditures to stabilize and recover

2.1.1 The global economic recovery promotes the continuous recovery of oil demand, supporting oil prices to maintain a high level

The global economic recovery has led to an imbalance in supply and demand, and oil and gas prices have risen sharply. Since the beginning of this year, as the impact of the epidemic gradually weakens, the global economy has begun to continue to recover. However, due to the relatively sluggish recovery of energy supply, global energy prices have seen a significant increase since the beginning of this year. As of December 24, the closing price of IPE Brent Oil was US$75.86 per barrel, up 49.71% from the beginning of the year, and the closing price of WTI crude oil was US$73.76 per barrel, up 55.78% from the beginning of the year. IPE UK natural gas closed at 254.60 p /Sem, up 333.36% from the beginning of the year, and NYMEX natural gas was US$3.73/mmBtu, up 43.58% from the beginning of the year.

Changes in crude oil demand are highly correlated with the global economic growth rate. As one of the most important commodities in the world, its demand is closely related to the global economic situation. Historically, changes in oil prices have a strong positive correlation with the real growth rate of global GDP. With the continued increase in global vaccination rates and the continuous improvement of treatment methods for the new coronavirus, the global economy is expected to continue to recover. Three institutions including IMF, World Bank , OECD, and other projects that the actual growth rates of global GDP in 2022 will be 4.89%, 4.30% and 4.39% respectively. We believe that the continued recovery of the global economy will be expected to drive further growth in crude oil demand.

The recovery rate of global oil supply may lag behind demand, supporting oil prices to remain high. From the supply side, at the OPEC+ meeting held on November 4, the OPEC+ organization ignored the United States' request for accelerated production growth and chose to maintain the established production increase plan, that is, the production capacity will be increased by 400,000 barrels per day in December this year. In addition, according to statistics from Baker Hughes and EIA, as of November this year, there were 1,189 oil drilling rigs worldwide, an increase of 54.22% compared with the same period last year, but it is still far lower than the level of more than 1,500 before the outbreak. As of August this year, global oil production was 96.2671 million barrels per day, an increase of about 5.76% year-on-year, which is also lower than the nearly 100 million barrels per day monthly level before the outbreak.Therefore, the growth rate of global oil supply in the future may lag behind the pace of demand recovery, thereby supporting oil prices to maintain current high levels.

2.1.2 Oil prices remain high, driving the recovery of capital expenditure of oil companies

Historically, every round of oil price recovery has driven the recovery of capital expenditure of international crude oil companies. Historically, we use BP, Shell, ExxonMobil, and Total as samples to study the relationship between their capital expenditure and changes in oil prices. It can be seen that as international oil prices rebound, the capital expenditure of various oil companies will also increase. (Report source: Future Think Tank)

At present, although countries around the world pay more and more attention to carbon neutrality, it will affect the capital expenditure willingness of oil and gas companies to a certain extent. However, we believe that achieving carbon neutrality is a huge project in the medium and long term, and fossil fuels will remain the largest energy pillar supporting global economic activities in the short term. Therefore, as the supply and demand of energy such as crude oil and natural gas continue to be tight, the prices continue to rise, which will drive oil and gas companies to increase their capital expenditures again. Coupled with the low base effect, the capital expenditure of oil and gas companies will be expected to stabilize and rebound in the future.

It can also be seen from the quarterly reports of international oil and gas companies such as ExxonMobil, Chevron and ConocoPhillips that their capital expenditure growth has continued to rebound since this year. In the first to third quarters of 2021, ExMobil's cumulative capital expenditure growth rates this year were -59.6%, -50.3% and -41.5% respectively; Chevron's cumulative capital expenditure growth rates were -44.3%, -32.3% and -20.5% respectively during the same period. ConocoPhillips' cumulative capital expenditure growth rate in the first three quarters of 2021 has turned positive, a year-on-year increase of 3.0%.

2.1.3 external dependence continues to rise, and the capital expenditure of " three barrels of oil " is expected to resume growth

my country's oil and natural external dependence continues to rise, and oil and gas exploration and development are still needed to continue to strengthen. As of January to October 2021, my country's cumulative output, import and export of crude oil were 16,618.80, 425.0600, and 1.3525 million tons, respectively. It can be calculated that my country's apparent consumption of oil from January to October was 589.8955 million tons, and the foreign dependence of crude oil was as high as 71.83%.

On the other hand, with the rapid increase in my country's natural gas demand in recent years, the import volume of natural gas, apparent consumption and dependence on foreign countries are also growing rapidly. From January to October 2021, my country's cumulative output, import and export volume of natural gas were 168.430, 137.755 and 4.76 billion cubic meters respectively. The apparent consumption of natural gas has reached 301.425 billion cubic meters, and its dependence on foreign countries has also increased to 44.12%. Therefore, as my country's dependence on oil and natural gas continues to rise, my country still needs to increase its exploration and exploitation of oil and gas resources.

Seven-year action plan is still halfway, and the task of increasing reserves and production is continued. In order to cope with the increasing dependence of oil and natural gas on foreign countries, as early as September 2018, the State Council issued the "Several Opinions on Promoting the Coordinated and Stable Development of Natural Gas", pointing out that it is necessary to "implement the energy security strategy, focus on solving the deep-seated contradictions in the development of the natural gas industry, effectively solve the problem of imbalance and inadequate natural gas development, ensure rapid domestic reserves and production increase, and basically balance supply and demand." Since then, China National Petroleum and CNOOC respectively issued the "2019-2025 Domestic Exploration and Production Accelerated Development Plan" and "Seven-Year Action Plan" for Strengthening Domestic Exploration and Development in the Future", and Sinopec also issued the seven-year action plan to vigorously increase the intensity of oil and gas exploration and development. In May 2019, the National Energy Administration of stated at the "Promotion Meeting on Vigorously Improving Oil and Gas Exploration and Development Strength", "Petroleum enterprises must implement the main responsibility of increasing reserves and production, and complete the work requirements of the 2019-2025 Seven Action Plan."

On the other hand, the rebound in international oil prices will also drive the growth of domestic "three barrels of oil" profits, thereby providing financial support for it to increase capital expenditure. Take PetroChina and Sinopec as an example (CNOOC has not disclosed quarterly data on capital expenditures). Since 2008, its capital expenditure growth rate has rebounded by an average lag oil price for about 3 quarters, while in the third quarter of 2021, the total capital expenditure of the two companies has reached 90.57 billion yuan, an increase of about 5.7% year-on-year. The annual capital expenditure growth rate of CNOOC is basically consistent with changes in oil prices. International oil prices have maintained a continuous upward trend since bottoming out in April 2020. Therefore, it is expected that the capital expenditure of the domestic "three barrels of oil" will maintain a growth trend in the future, thereby driving the continued growth of demand in the oil and gas equipment industry.

2.2 Machine Tools: The stock update cycle is expected to start, and the CNC rate and domestic rate continue to increase

2.2.1 The profits of industrial enterprises are growing rapidly, and the machine tool update cycle may be started

machine tools have become industrial master machines again. According to the classification of the China Machine Tool Association, the entire machine tool industry can be divided into two parts: whole machine and parts. According to the different functions of use, the whole machine can be subdivided into four categories: metal cutting machine tools, metal forming machine tools, casting machine tools and woodworking machine tools, including metal cutting machine tools and forming machine tools. The parts mainly include accessories, measurement and display devices, cutting tools, abrasive tools, and CNC system . Depending on whether a CNC system is equipped, machine tools can be divided into two categories: ordinary machine tools and CNC machine tools.

companies prefer repair rather than replacing new machines, resulting in the actual service life of the machine tool exceeding 10 years. In the long run, the service life of a machine tool can generally reach more than 10 years. After more than ten years of use, the machining accuracy may drop significantly, so the company needs to repair it, replace parts or replace new machines. Generally speaking, when the company makes a good profit, it will tend to replace the new machine tool, and when the profit decreases or loses, the company will prefer to maintain the existing machine tool and continue to use it. Therefore, in 2020, my country's production of metal cutting machine tools, , was 446,000 units, which was only higher than the output of 306,000 units in 2003 and previous years. The annual output of metal forming machine tool in 2020 was 202,000 units, which was only higher than that in 2008 and before. This shows that due to the pressure of economic growth in recent years, enterprises have tended to maintain existing machine tools rather than replace new ones, which has made the actual service life of metal cutting machine tools and forming machine tools exceed 10 years.

In the short term, the output growth rate of metal cutting machine tools and metal forming machine tools is highly consistent with the total profit growth rate of industrial enterprises. From January to October 2021, under the influence of the continued economic recovery and the low base last year, the total profits of my country's industrial enterprises increased by 42.20%, driving the cumulative output of metal cutting machine tools and metal forming machine tools to 491,700 and 174,000 units, respectively, a year-on-year increase of 31.90% and 6.10%. In the future, with the continued recovery of my country's economy and the continued growth of industrial enterprises' profits, it may accelerate the pace of machine tools and promote the arrival of the update cycle.

2.2.2 The CNC rate and domestic production rate need to be improved. Domestic enterprises have a long way to go

Compared with developed countries, my country's machine tool CNC rate still has a lot of room for improvement. Compared with ordinary machine tools, CNC machine tools better solve the problems of precision, complexity, small batches and multiple varieties, so it has higher processing accuracy and processing efficiency, which is the main direction of machine tool upgrade. As of October 2021, the output of CNC metal cutting machine tools and CNC metal forming machine tools in my country was 220,200 and 19,200 units, accounting for 44.79% and 11.02% of metal cutting machine tools and forming machine tools, respectively. At present, the machine tool CNC rate of manufacturing powerhouses such as Japan, Germany and the United States has reached more than 70%. Compared with developed countries, my country's machine tool CNC rate still has a lot of room for improvement.

high-end CNC machine tools are still relatively low, and there is still a long way to go to improve the task in the future. Due to the "Vanahmet Agreement" including the United States, Japan, Germany, etc., prohibits its member states from exporting high-precision five-axis or above high-end CNC machine tools to controlled objects.Therefore, it is not only extremely difficult for my country to import high-end CNC machine tools, but also the price is very expensive even if it is imported. Data shows that in 2018, the localization rate of high-end CNC machine tools in my country was only 6%, while the localization rate of medium-range and low-end CNC machine tools was 65% and 82% respectively. High-end CNC machine tools are indispensable for high-tech fields such as aerospace and automobiles. Therefore, if China wants to truly achieve the transformation from a manufacturing power to a manufacturing power, it must significantly increase the localization rate of the "bottleneck" links such as high-end CNC machine tools.

In addition to the machine tool whole machine, the domestic production rate of core parts of the machine tool is also relatively low. At the same time, according to the data disclosed by listed machine tool companies, among the core components such as CNC systems and transmission systems of machine tools, except for Kede CNC, which can make its own CNC systems, the CNC systems of other companies basically need to be purchased from the outside. Basically all companies need to purchase core components of transmission systems such as guide rails and lead screws. Therefore, from the perspective of the entire machine tool industry chain, in addition to the need to increase the domestic production rate of machine tools, represented by CNC systems, also urgently needs to increase the proportion of domestic production.

2.2.3 Support policies continue to be introduced, and private machine tool enterprises are gradually emerging

In recent years, my country has attached great importance to the development of the machine tool industry. In May 2015, it is proposed to "develop a number of precision, high-speed, high-efficiency, flexible CNC machine tools and basic manufacturing equipment and integrated manufacturing systems. Accelerate the research and development of cutting-edge technologies and equipment such as high-end CNC machine tools and additive manufacturing . By 2025, the domestic market share of high-end CNC machine tools and basic manufacturing equipment will exceed 80%, of which the average failure-free time of machine tools used in the automotive industry will reach 2,000 hours, and the accuracy retention will reach 5 In November 2016, in the "Notice on Issuing the Development Plan for the Development of the National Strategic Emerging Industries in the 13th Five-Year Plan", it proposed to "accelerate the research and development and industrialization of high-end CNC machine tools and intelligent machining centers, and break through the main functional components of multi-axis, multi-channel, high-precision high-end CNC system, servo motor and other major functional components and key application software." At the Party Committee meeting of the State-owned Assets Supervision and Administration Commission in August 2021, it was also emphasized that key core technologies should be strengthened for industrial mother machines, high-end chips, new materials, new energy automobiles, and , and strive to create a "source of original technology".

Private enterprises are gradually emerging, and the capital market helps to accelerate development . my country's machine tool industry has experienced the rapid development, glory and desolation of state-owned machine tool enterprises such as Shenyang Machine Tool Factory and Dalian Machine Tool Factory . Private machine tool factories such as Haitian Seiko and Richie Machine Tool Machine have developed rapidly. It can be seen that in recent years, the machine tool manufacturers listed are basically private enterprises, and unlike state-owned machine tool companies, private machine tool companies focus more on a certain sub-sector. For example, Kede CNC has achieved self-made CNC systems, Huachen Equipment has a fully automatic high-precision CNC rolling and rolling grinder as its core product, and Zhejiang Heideman focuses on the research and development and manufacturing of CNC lathes .

Compared with global machine tool giants, my country's machine tool companies still have a big gap in size, and there is huge room for catching up in the future. At present, the largest listed machine tool enterprise in my country is Qinchuan Machine Tool . In 2020, the company's operating income was 4.095 billion yuan. However, from a global perspective, the number one Japanese machine tool company Yamazaki Mazak's operating income in 2019 has reached US$5.28 billion, which is more than 8 times that of Qinchuan Machine Tool. In addition, from the distribution of countries, it can be seen that the top ten machine tool companies in the world are all companies in manufacturing powerhouses such as Japan, Germany and the United States. Therefore, although from the current perspective, the gap between my country's machine tool companies and international machine tool leaders is still large, as my country's manufacturing level continues to improve, my country's machine tool companies are expected to continue to narrow the gap with international leaders.

2.3 Construction machinery: It may be under pressure in the short term, and long-term globalization and electrification can be expected

2.3.1 Real estate and infrastructure have entered a downward cycle, and the short-term traditional demand has been under pressure

"Three Red Lines" policy was officially implemented, and the debt growth rate of real estate companies is limited . The "Three Red Lines" policy for real estate proposed in August 2020 will be officially implemented on January 1, 2021. According to this policy, the debt-to-asset ratio of pilot real estate companies after excluding prepayments shall not be greater than 70%, the net debt ratio shall not be greater than 100%, and the cash-to-short-term debt ratio shall be less than 1. At the same time, in response to these three rules, real estate companies are set up for financing supervision. If all three rules do not meet the standards, it is a red-level enterprise and the scale of interest-bearing liabilities shall not increase. If two rules fail to meet the standards, it is an orange-level enterprise, and the annual growth rate of interest-bearing liabilities shall not exceed 5%. And so on.

Under the supervision of the "three red lines" policy, the financing capabilities and willingness of real estate companies have been greatly affected. At the same time, the outbreak of some risk events has further aggravated the concerns of real estate companies. This leads to a weak willingness to invest and acquire land in general. As of November this year, my country's land purchase area has accumulated a cumulative increase of -11.2%, and the growth rate of commercial housing sales, investment completion and newly started construction area has also declined to 8.5%, 6.0%, and -9.1%, respectively. All indicators have shown a continuous weakening trend. (Report source: Future Think Tank)

2.3.2 The update peak is gradually ending, and the demand for short-term update may weaken

update peak is gradually ending, and the demand for future update may continue to decline . In addition to traditional demands such as real estate and infrastructure, in this round of construction machinery recovery cycle, factors such as domestic construction machinery renewal and machine replacement are also important driving forces. Taking excavators as an example, their service life is generally 8 to 10 years, while the peak of sales of excavators in the previous round was 2010-2011, so the peak of excavators renewal in this round should be concentrated in 2018 to 2021. Assuming that the average service life of the excavator is 9 years, it can be calculated that the proportion of update demand in 2018-2020 to domestic excavator sales is 50.6%, 78.4% and 59.3% respectively. However, in 2012, the sales of excavators in my country were only 108,000, a decrease of nearly 38.1% compared with 2011. Therefore, it is expected that the demand for excavators will weaken significantly in the next few years.

2.3.3 The epidemic has driven Chinese companies to accelerate their overseas trips, and their global market share is expected to continue to increase in the future

exports maintain rapid growth, which has become an important support on the demand side. In terms of export, with the continuous increase in product competitiveness of my country's engineering machine machinery enterprises, while increasing their domestic market share, they have also begun to accelerate overseas layout. Since 2020, due to the significant impact of the epidemic on the supply of overseas construction machinery, my country's construction machinery exports have increased significantly. From January to October 2021, my country's total excavators exported 53,400 units, an increase of 96.80% year-on-year, accounting for 17.90% of the total sales. In October, my country's excavator exports were 6,356 units, an increase of 84.80% year-on-year, accounting for 33.52% of the total excavator sales that month.

However, from a global perspective, the global market share of my country's construction machinery companies still has a lot of room for improvement. According to Off-Highway data, the global excavator sales in 2020 were about 658,000 units. Excluding the total sales of my country was 328,000 units, and there is still a demand for 330,000 units in the overseas market. Therefore, in the future, the global market share of my country's construction machinery companies still has a lot of room for improvement.

Domestic demand and exports have increased significantly, and the global market share of my country's leading engineering machinery industry continues to increase. From the perspective of enterprises, with the continuous improvement of product performance of domestic OEMs in my country, coupled with the significant cost advantages and channel expansion, the market share of domestic brands is continuing to increase. At the same time, thanks to the recovery of domestic excavator demand and the significant increase in exports in my country, my country's leading engineering machinery market share in the global market is also increasing rapidly. According to Off-Highway statistics, in 2020, Sany Group surpassed Caterpillar to become the world's highest-selling excavator company with a total sales of 98,700 units. Xugong Machinery and Liugong are also ranked fifth and ninth in global excavator sales.

2.3.4 The electrification of construction machinery begins, and the penetration rate is expected to continue to increase in the future

Electric forklifts are ahead, and the electrification rate of construction machinery is gradually increasing. In recent years, with the increasing development of battery technology and the continuous improvement of environmental protection requirements, the electrification trend of various types of machinery has become increasingly obvious, and the same is true for the field of engineering machinery. Taking forklifts as an example, on the one hand, the continuous increase in labor costs has promoted the continuous transformation of machine personnel, and the sales of electric pedestrian storage forklifts grew rapidly, reaching 323,000 units in 2020, with a compound growth rate of up to 30.7% in ten years. On the other hand, with the continuous expansion of the application fields and application scenarios of electric counterweight forklifts, their sales have also maintained a high growth rate in recent years. In 2020, sales were 76,000 units, with a compound growth rate of 12.8%.

Therefore, although traditional internal combustion balanced forklifts benefited from the increase in the overall size of forklifts and their sales also maintained a growth trend, their growth rate was lower than that of electric pedestrian forklifts and electric balanced forklifts. In 2020, my country's domestic sales of balanced forklifts were 390,000 units, with a compound growth rate of only 8.1% in ten years, and its share of total sales in my country also dropped from as high as 78.8% in 2005 to 48.7% in 2020, while the sales share of various types of electric forklifts increased from 21.2% in 2005 to 51.3% in 2020.

In addition to forklifts, other engineering machinery such as aerial work platforms, concrete pump trucks, car cranes, etc. have also started the electrification process. Compared with engineering machinery that uses internal combustion engines, electric engineering machinery can not only greatly reduce carbon emissions, but also has low noise in use and maintenance costs. In July 2021, Zhengzhou City formulated the "Implementation Plan for the Promotion and Use of Pure Electric Concrete Transport Vehicles in Zhengzhou (Draft for Comments)", proposing that "Since August 2021, all new concrete transport vehicles in Zhengzhou City are pure electric vehicles." This marks that local governments in my country have also begun to gradually encourage and support the electrification of construction machinery.

Sany, Caterpillar, Komatsu and other major global engineering machinery giants have begun the process of electrification. According to the announcement of Sany Group, Sany Group has made electrification one of the key investments in R&D, and has laid out intelligent battery swap technology and independent development of batteries, electronic controls, and electric drives. As of the middle of this year, Sany has launched a total of 26 electrified products, covering excavators, cranes, mixers, dump trucks and road machinery. Global engineering machinery giants such as Caterpillar, Komatsu, and Volvo are also developing electric engineering machinery products. Therefore, we believe that with the continuous development of battery technology in the future, the cost-effective advantages of electric engineering machinery compared with traditional internal combustion engineering machinery will continue to improve. In addition, the global carbon neutrality process continues to advance, the electrification of engineering machinery will continue to evolve towards more categories and higher penetration rates.

3 Growth sector: Pay attention to photovoltaic equipment, lithium battery equipment and semiconductor equipment

3.1 Photovoltaic equipment: The growth of installed capacity and technological progress, driving equipment demand maintains high growth

3.1.1 Photovoltaic LCOE has declined rapidly, pushing photovoltaic power generation to become one of the cheapest power generation methods

Technical progress and production costs have driven photovoltaic power generation to rapidly decline. From 2010 to 2020, driven by the continuous reduction in production costs in all links of the photovoltaic industry chain and the continuous improvement in conversion efficiency, the LCOE (leveling power generation cost) of photovoltaic power generation has dropped rapidly. According to the International Renewable Energy Agency (IRENA), the global weighted average LCOE of photovoltaic power generation has dropped from 38.1 cents/kWh to 5.7 cents/kWh, a drop of up to 85.0%. During the same period, hydropower LCOE rose to 4.4 cents/kWh, while offshore wind power, onshore wind power, photothermal power generation and biomass power generation LCOE decreased by 48.1%, 56.2%, 68.2%, and 0%, respectively, which are all smaller than the LCOE decline of photovoltaic power generation.

lithography. It refers to the transfer of circuit patterns on the photomask to the photoresist using specific light irradiation. Depending on the wavelength of the light source used, it can be roughly divided into three categories: ultraviolet rays (g-line, i-line), deep ultraviolet rays (DUV) and extreme ultraviolet rays (EUV).

3.1.2 Global photovoltaic installed capacity is expected to continue to increase rapidly

carbon neutrality has gradually become a global consensus, and the proportion of power generation of clean energy such as wind power and solar power generation is expected to continue to increase. According to the forecast of the China Photovoltaic Industry Association (CPIA), under conservative circumstances, China's new photovoltaic installed capacity will reach 90GW in 2025, which is a compound growth rate of 13.3% compared with 48.2GW in 2020. The global new photovoltaic installed capacity in 2025 was 270GW, which was a compound growth rate of 15.7% compared with 130GW in 2020. Under the optimistic situation, my country's new photovoltaic installed capacity is expected to reach 110GW in 2025, a compound growth rate of 17.9% compared with 2020, and the global new photovoltaic installed capacity will reach 330GW, a compound growth rate of 20.5% compared with 2020.

3.1.3 Silicon wafer and component enterprises have expanded production on a large scale, and existing equipment has ushered in an update

Global photovoltaic installed capacity continues to grow, driving the rapid increase in production capacity in all links of the photovoltaic industry chain. In the silicon wafer stage, traditional silicon wafer companies and integrated component factories represented by Longi Green Energy Technology Co., Ltd., Zhonghuan Co., Ltd., Trina Solar Energy, Jinao Technology, etc. have built new production capacity in order to consolidate and expand their market share. In addition, photovoltaic equipment manufacturers represented by the above-mentioned CNC, Beijing Yuntong, and Gaoce Co., Ltd. and new entrants in industries such as Gaojing Solar and Shuangliang Energy Conservation have also begun to build a large number of new production capacity. According to the announcements of each company, we expect that the global silicon wafer production capacity is expected to reach 423.4, 552.7, and 673.4GW from 2021 to 2023.

In the component link, with the rapid increase in the prices of upstream polysilicon materials and silicon wafers, the cost advantages of integrated module factories are rapidly highlighted, and coupled with other competitive advantages such as their brands and channels, market share is accelerating to concentrate on it. Therefore, in order to further increase sales and increase market share, leading component companies represented by integrated component factories are also continuing to increase production capacity. According to the current announcements of each company, we expect global module production capacity to reach 425.0, 513.2, and 585.0GW from 2021 to 2023.

3.1.4 The rapid development of N-type battery technology is expected to drive a new round of equipment investment peak

PERC. There is limited room for improving battery mass production efficiency, and N-type batteries will become the mainstream technical route in the future. At present, the average mass production conversion efficiency of mainstream PERC batteries in the market has reached 22.8%, while the theoretical conversion efficiency limit is 24.5%. Therefore, there is limited room for PERC battery conversion efficiency to continue to improve. At the same time, the theoretical conversion efficiency limits of N-type batteries represented by TOPCon batteries and HJT batteries are 27.5% and 28.7% respectively, and there is still a lot of room for improvement in the future. According to CPIA, by 2025, the mass production conversion efficiency of TOPCon and HJT batteries is expected to reach 25.0% and 25.2% respectively, continuously expanding the cost-effective advantages of PERC batteries and promoting the rapid increase in their market share. It is expected that by 2030, the market share of TOPCon and HJT batteries will reach about 25% and 31% respectively, while the market share of PERC batteries will drop to about 37%. The research and development efficiency of

N type batteries is rapidly improving, and the continuous decline in superimposed costs drives a rapid increase in production capacity . Judging from the current R&D progress of various companies, the conversion efficiency of N-type batteries is constantly improving. Up to now, the highest conversion efficiency of TOPCon and HJT batteries in the world are 25.40% created by Jinko Solar and 26.30% of Longi Green Energy Technology Co., Ltd., respectively. The maximum conversion efficiency of HJT battery mass production of companies such as Junshi Energy, Anhui Huasheng, and Zuoneng Power has also reached 25.20%, 25.23%, and 25.31%.

On the other hand, the main obstacle to the large-scale application of TOPCon and HJT batteries is that their cost is still relatively high. In the future, with the continuous improvement of domestic production and production efficiency of core equipment such as TOPCon layer deposition equipment, PECVD, PVD/CVD, and other core equipment, and the implementation of domestic replacement of materials such as silver paste and target materials, the production cost of N-type batteries is expected to continue to decline. According to the PV Infolink organization forecast, from 2021 to 2023, the global TOPCon battery production capacity will reach 14.7, 42.3, and 78.6GW, while the HJT battery production capacity will reach 6.9, 15.4, and 22.8GW, thereby driving the rapid growth of the market size of related equipment.

equipment company orders continue to grow, verifying the high prosperity of the industry. Judging from the order changes of listed photovoltaic equipment companies such as Jingsheng Mechanical and Electrical, Jiejia Weichuang, and Maiwei Co., Ltd., their contract liabilities basically show a trend of continuous growth. As of the third quarter of 2021, the contract liabilities of Jingsheng Mechanical and Electrical, Jiejia Weichuang and Maiwei Co., Ltd. were RMB 3.83 billion, 3.62 billion and RMB 2.20 billion, respectively, which were higher than the amount at the end of 2020, verifying that the demand for photovoltaic equipment is on a continuous growth trend.

In terms of the domestic production rate of equipment, as my country's domestic silicon materials, silicon wafers, batteries and components production continues to increase in the global output in recent years, the domestic production level of photovoltaic equipment is also continuing to increase. Production equipment with relatively mature technologies such as silicon materials, silicon wafers and components has basically completed domestic replacement. In the battery process, domestic companies such as Maiwei Co., Ltd., Jiejia Weichuang and Ideal Energy already have the full-line supply capacity of N-type batteries such as HJT, and the performance parameters of core equipment such as PECVD and PVD are constantly improving.

3.2 Lithium battery equipment: The penetration rate of new energy vehicles is accelerating, and battery companies are closely linked to production expansion drives the demand for equipment to maintain a high prosperity

3.2.1 High-quality products continue to emerge, promoting the penetration rate of new energy vehicles to accelerate

High-cost-performance and high-quality products continue to emerge, promoting the rapid increase in the penetration rate of new energy vehicles in my country. new energy popular models represented by Tesla Model 3, Model Y, BYD Han, Qin Plus, Wuling Hongguang mini, etc. are constantly emerging, promoting the rapid increase in penetration rate of new energy vehicles. It can be seen that new energy hot models are becoming increasingly rich, covering multiple levels of passenger cars such as micro cars, A-class, B-class sedans and B-class SUVs.

In addition, the sales data of new domestic car-making forces represented by NIO, Ideal and Xiaopeng are also very impressive. In November 2021, the monthly sales of automobiles of Xiaopeng, Ideal and NIO were 15,163, 13,485 and 10,878 respectively, an increase of 269.63%, 190.25% and 105.59% year-on-year, setting record sales. (Report source: Future Think Tank)

Driven by traditional car companies and new car manufacturers launching hot models and sales continue to grow, from January to November 2021, my country's cumulative sales of new energy vehicles reached 2.9895 million, an increase of 169.55% year-on-year, accounting for 12.73% of the total automobile sales. Among them, in November 2021, the monthly sales of new energy vehicles in my country reached 449,900, an increase of 124.77% year-on-year, accounting for 17.84% of the total sales of my country's automobiles that month.

New energy vehicles have spread from below-class A models to B models. is a hierarchical perspective. The sales share and penetration rate of B-level new energy passenger cars have begun to increase rapidly. Driven by popular models such as Model 3, Model Y and BYD Han, the sales share and penetration rate of B-class new energy passenger cars have begun to increase rapidly. As of September, the cumulative sales of A00 new energy passenger cars accounted for 25.45% of the total sales of new energy passenger cars, while the sales of A and B new energy passenger cars increased to 27.63% and 31.48% respectively, and the sales of A0 new energy passenger cars also increased to 10.66%. As the sales share of large-size passenger cars continues to increase, the demand for power batteries will increase rapidly. In terms of penetration rate of

, the penetration rate of new energy passenger cars of all levels has shown a continuous increase, among which the penetration rate of A0 and B-class vehicles has increased the fastest. In September 2021, the penetration rates of new energy passenger cars from Class A0 to Class C were 25.14%, 11.58%, 24.60% and 5.26% respectively.

The penetration rate of new energy vehicles in Europe is still increasing. In Europe, driven by factors such as the gradual stricter carbon emission policies and the continued subsidy policies, from January to September 2021, the sales of new energy vehicles in Europe reached 1.58 million, an increase of about 104.7% year-on-year, and the penetration rate further increased to 17.2%. Among them, BEV sales reached 800,000 units, a year-on-year increase of 91%, and PHEV sales reached 780,000 units, a year-on-year increase of 121%.

The Biden administration vigorously promotes the construction of new energy, and the penetration rate of new energy vehicles in the United States has increased rapidly. The United States, after the Biden administration came to power, it has successively introduced a number of bills to stimulate the new energy industry. Among them, the "Clean Energy Proposal" raised the U.S. electric vehicle subsidy from $7,500 to $10,000 and $12,500.In addition, in August, the Biden administration also set a goal of 50% of the penetration rate of new energy vehicles in the United States by 2030. Stimulated by policies such as increased subsidies, from January to September 2021, the sales of new energy vehicles in the United States reached 435,000, a year-on-year increase of 103%, exceeding the annual sales in 2020, and the penetration rate also increased to 3.6%.

3.2.2 Power battery production and sales are both booming, driving major battery manufacturers to accelerate the expansion of production

The rapid growth in sales of new energy vehicles has driven both booming power battery production and sales. Driven by the continued growth in sales of new energy vehicles, power batteries in my country and the world are showing a prosperous production and sales situation. From January to November 2021, my country's cumulative production of power batteries was 188.05Gwh, a year-on-year increase of 175.50%, and the cumulative installed capacity was 128.28Gwh, a year-on-year increase of 153.10%. The cumulative installed capacity of power batteries in the first three quarters was 195.4Gwh, a year-on-year increase of 131.0%.

is expected to exceed 500 Gwh in 2023. Driven by the increasing emphasis on carbon neutrality and the continuous improvement in cost-effectiveness of new energy vehicles, the production, sales and penetration of new energy vehicles are increasing rapidly. Based on the forecast data of various institutions, we expect that from 2021 to 2023, China's new energy vehicle sales will be 3.30.0, 4.50.0 and 5.625 million vehicles, a year-on-year increase of 141.3%, 36.4% and 25.0%, and the installed capacity of the drive power battery will reach 154.3, 209.3, and 270.0 Gwh.

is expected to be 2.20.0, 2.75.0, and 3.163 million vehicles in Europe from 2021 to 2023, a year-on-year increase of 60.9%, 25.0%, and 15.0%. The sales of new energy vehicles in the United States are 60.0, 90.0, and 1.44 million vehicles, a year-on-year increase of 86.3%, 50.0%, and 60.0%. The total sales of overseas new energy vehicles were 3.10.0, 4.10.0 and 5.278 million units, driving the installed capacity of power batteries to reach 124.0, 172.2 and 237.5Gwh.

Therefore, we expect that the global sales of new energy vehicles will be 6.40.0, 8.60.0 and 10.903 million vehicles from 2021 to 2023, driving the installed capacity of power batteries to be 278.3, 381.5, and 507.5Gwh, a year-on-year increase of 104.2%, 37.0% and 33.0%.

terminal demand has grown rapidly, driving the power battery to launch large-scale expansion of production. Driven by the rapid increase in global new energy vehicle production and sales and penetration rates, various power battery companies have started large-scale expansion to meet the continued growth of battery demand. According to the announcements of various companies and statistical data from GGII, SNE and other institutions, in 2020, the global power battery production capacity was nearly 447Gwh. With the large-scale expansion of domestic and foreign power battery companies such as CATL, Ewei Lithium Energy, BYD, and LG Chem, Panasonic, SKI, it is estimated that from 2021 to 2023, the global power battery production capacity will reach 691, 1,087, and 1,552Gwh, with an annual new capacity of about 244, 396, and 465Gwh.

We assume that from 2021 to 2023, the unit investment amount of lithium battery production line will be RMB 17, RMB 160 million/Gwh, and the market space corresponding to lithium battery equipment will be RMB 41.48 million, RMB 63.36 million, and RMB 69.75 billion.

3.2.3 The competitiveness of equipment manufacturers continues to increase, and the global market share continues to increase

is similar to the supply structure of lithium battery, and the supply of lithium battery equipment is basically monopolized by enterprises in China, Japan and South Korea. Among them, Japan and South Korea developed earlier in the battery industry, and its domestic lithium battery equipment companies mainly supply domestic battery companies. For example, the equipment of South Korea's PNE company mainly supplies LG Chemistry to produce soft-pack batteries, while the equipment of Japan's Kataoka mainly supplies Panasonic to produce cylindrical batteries. In addition, similar to other Japanese companies, Japanese lithium battery equipment manufacturers often take a professional technical route, while Korean companies focus on the supply of the entire line.

In comparison, although my country currently mainly uses square batteries, soft-pack and cylindrical batteries also occupy a certain market share. Therefore, my country's lithium battery equipment companies have almost all layouts on three battery types. In addition, Chinese companies have both professional equipment manufacturers in their competitive strategies, such as Xingyun Co., Ltd. and Hangke Technology, which focus on the back-stage process, as well as enterprises that lay out the supply of battery whole-lines. Representatives such as Pioneer Intelligence, Yinghe Technology, and Liyuanheng, they already have the ability to supply the entire line of lithium battery production lines.

The domestic production level of my country's lithium battery equipment has continued to improve in recent years. Currently, the technical indicators of domestic lithium batteries in coating, winding and other special aircraft have surpassed Japan and South Korea, and have basically achieved import substitution.According to Toubao Research Institute, the overall domestic production rate of lithium battery equipment in my country has reached more than 90% in 2020. Especially for the back-stage equipment links with relatively low technical levels such as chemical composition capacity and detection, the domestic production rate has reached 97%. The domestic production rates of coating equipment and winding equipment have also reached 78% and 90% respectively.

From the order data of listed lithium battery equipment companies, it can also be seen that the industry demand is in a high prosperity stage . As of the third quarter of 2021, the contract liabilities of lithium battery equipment companies such as Pioneer Intelligent, Liyuanheng, and Yinghe Technology have all experienced significant growth. For example, the contract liabilities of Pioneer Smart reached 3.52 billion yuan, an increase of 134.6% compared with the same period last year, while the contract liabilities of Liyuanheng and Yinghe Technology were 1.04 billion yuan and 930 million yuan, an increase of 161.3% and 307.3% compared with the same period last year.

3.3 Semiconductor equipment: Demand maintains a high prosperity, and the domestic production rate continues to increase

3.3.1 The semiconductor industry continues to flourish, and the increase in capital expenditure drives the continued growth of equipment demand

Economic recovery combined with the 5G replacement wave and low base effect, global terminal shipments of mobile phones, PCs and other terminals have grown rapidly. In the first three quarters of 2021, driven by the continued economic recovery, coupled with factors such as 5G replacement wave and low base number, global smartphone, PC and tablet shipments ushered in rapid growth. Among them, the shipments of smart phones were 990 million units, a year-on-year increase of 9.04%; PC shipments were 226 million units, a year-on-year increase of 20.14%; tablet computer shipments were 123 million units, a year-on-year increase of 10.74%.

The comprehensive recovery of terminal demand has driven the growth of sales of various semiconductors to varying degrees. At the same time, semiconductor demand in other fields such as new energy vehicles, inverters, wearable devices, and industries has also ushered in rapid growth. Driven by the high prosperity of each terminal demand, sales of all semiconductor sectors have ushered in different degrees of growth, especially power semiconductors, sensors, storage, analog circuits and logic circuits, which have seen rapid sales growth due to the superimposed price increase.

WSTS (World Semiconductor Trade Statistics Organization) predicts that discrete devices, optoelectronics, sensors and integrated circuit sales in 2021 are expected to reach US$293.89, 431.37, 18666 and 459.685 billion, year-on-year increase of 23.50%, 6.80%, 24.80% and 27.30% respectively. Among integrated circuits, sales of analog circuits, microprocessors, logic circuits and storage are expected to reach US$718.8, 773.05, 149.388 and 161.11 billion, respectively, up 29.1%, 10.90%, 26.20% and 37.10% year-on-year.

2022, although the contribution of rising prices to the growth of semiconductor sales is expected to weaken, demand in new energy vehicles, photovoltaics, wind power and data centers is expected to remain at a high level. Therefore, WSTS expects global semiconductor sales to grow by 8.8% to $601.49 billion in 2022.

From the perspective of terminal applications, communication and data processing represented by mobile phones, PCs, and servers are still the most important semiconductor consumption field. In 2020, global semiconductor sales were US$440.389 billion, a year-on-year increase of 6.80%. Among them, the market sizes of automobiles, communications, industry, data processing and consumer electronics are US$493.24, 1387.23, 528.47, 150.613 and 48.883 billion, accounting for 11.2%, 31.5%, 12.0%, 34.2% and 11.1% of the global semiconductor market size, respectively. From the perspective of regional distribution, my country's semiconductor sales in 2020 were US$150.80 billion, an increase of 5.28% year-on-year, accounting for 34.62% of the world, and it is still the world's largest semiconductor consumer market.

strong demand and insufficient supply, the "chip shortage wave" has driven a significant increase in capital expenditure of semiconductor companies. According to TSMC's legal statement in the first quarter, TSMC's capital expenditure is expected to reach US$30 billion in 2021, and the total capital expenditure in the next two years will reach US$70 billion. On the mainland, foundry leaders such as SMIC and Huahong Semiconductor, as well as IDM leaders such as Changjiang Storage and Changxin have also proposed wafer construction plans. SEMI (International Semiconductor Industry Association) predicts that 29 fabs will start construction around the world from the end of this year to 2022, including 8, 8 and 6 in mainland China, Taiwan and the United States respectively.

Therefore, SEMI predicts that global semiconductor equipment sales will reach US$1,027.9, 114.34 and 113.42 billion from 2021 to 2023, an increase of 44.4%, 11.2%, and -0.8% year-on-year. At the same time, as the global semiconductor industry chain further migrates to mainland my country, semiconductor equipment sales in mainland China maintain rapid growth. In 2020, the sales of semiconductor equipment in mainland my country was US$18.72 billion, a year-on-year increase of 39.2%, and its share in the world further increased to 26.3%, surpassing Taiwan, China and becoming the world's largest semiconductor equipment consumer market for the first time. The sales of semiconductor equipment in Taiwan, South Korea, North America and Japan were 24.09%, 22.59%, 9.17% and 10.65% respectively. (Report source: Future Think Tank)

3.3.2 The proportion of wafer processing equipment continues to increase, and the oligopoly characteristics are obvious

chip manufacturing can be mainly divided into three major links: silicon wafer production, wafer manufacturing, and packaging and testing. Among them, the wafer manufacturing process is also called the forefront process, with the highest technical content and equipment value. Wafer manufacturing can be subdivided into multiple subdivision processes such as cleaning, thermal oxidation, photolithography, etching, ion implantation, annealing, thin film deposition, CMP and process measurement. Among them, photolithography, etching and thin film deposition are the three most core processes. Specifically:

lithography. It refers to the transfer of circuit patterns on the photomask to the photoresist using specific light irradiation. Depending on the wavelength of the light source used, it can be roughly divided into three categories: ultraviolet rays (g-line, i-line), deep ultraviolet rays (DUV) and extreme ultraviolet rays (EUV).

etching. The material not covered by photoresist is selectively removed, which is mainly divided into dry etching and wet etching. Currently, dry etching is the main one, and the most commonly used are capacitive coupled plasma etching (CCP) and inductively coupled plasma etching (ICP).

thin film deposition. Physical or chemical methods are used to make the growth substance adhere to the surface of the bottomed material to form a thin film. Common thin film deposition methods include physical vapor deposition (PVD), chemical vapor deposition (CVD) and atomic layer deposition (ALD).

The value and proportion of wafer processing core equipment such as lithography, etching and thin film deposition continue to increase. According to SEMI, global wafer processing equipment sales in 2020 were approximately US$58.67 billion, accounting for 82.40% of the global semiconductor equipment market. The sales of packaging equipment, testing equipment and other equipment were approximately US$3.880, 6.420 and 2.25 billion, accounting for 5.45%, 9.01% and 3.16% respectively. In wafer processing equipment, due to the continuous increase in the shipment of EUV lithography machines, the proportion of lithography equipment value continued to increase, which was about 25% in 2020, while the proportion of thin film deposition equipment and etching equipment also accounted for about 24% and 17%. The total value of the three core equipment was about 66%, showing a continuous improvement trend.

The global semiconductor equipment market shows obvious oligopoly characteristics. In terms of the competitive landscape of , from a global perspective, due to the high technical and financial barriers in all aspects of chip manufacturing, the semiconductor equipment market basically presents a relatively obvious oligopoly pattern. In 2020, the sales of the top five semiconductor equipment companies such as Applied Materials, ASML, Tokyo Electronics, Panlin Semiconductor, and Kelei accounted for as much as 60% of the world's total.

From the perspective of market segments, except for a few markets such as glue removal equipment and cleaning equipment, most of the market share in other markets is concentrated in the hands of leaders such as applied materials and Tokyo Electronics. For example, ASML has a market share of up to 75% in lithography machines, while in the etching equipment market, Applied Materials, Tokyo Electronics and Panlin Semiconductor have a combined market share of up to 91%. In addition, the market share of applied materials in CMP equipment and PVD equipment is as high as 66% and 86%.

Applied Materials, Tokyo Electronics and other leading companies are significantly ahead of the scale, and equipment companies are concentrated in a few countries such as the United States, Japan, and the Netherlands. In terms of operating income, leading companies such as Applied Materials and Tokyo Electronics have been significantly ahead.According to the announcements of each company, in the fiscal year 2020, the top semiconductor equipment companies include Applied Materials, ASML, Panlin and Tokyo Electronics, and the operating income of the above four companies exceeded US$10 billion, while the operating income of companies such as Terreda, SCREEN, Edwan, ASM International and Hitachi Hi-Tech were between US$1 billion and US$5 billion. In addition, more importantly, since the United States, Japan, the Netherlands and other countries have outstanding first-mover advantages in the semiconductor industry, the global leaders in semiconductor equipment are basically concentrated in these countries.

3.3.3 The domestic production rate of semiconductor equipment is low, and there is a huge space for replacement in the future

Domestic enterprises basically cover all chip manufacturing processes, and some equipment has been self-made. At present, domestic companies such as Shanghai Microelectronics, China Micro Company, and Northern Huachuang have basically completed the coverage of all chip production processes from wafer processing to packaging testing. In the lithography machine market, domestic manufacturers are currently represented by Shanghai Microelectronics. In the etching equipment market, domestic representative manufacturers include China Micro Corporation, Northern Huachuang and Yitang Co., Ltd. Domestic manufacturers of thin film deposition equipment are represented by North Huachuang and Tuojing Technology, among which North Huachuang PVD technology is relatively advanced, while Tuojing Technology is mainly CVD technology. Other equipment used in processes such as ion implantation, glue removal, glue coating and development are also involved in several domestic companies such as Wanye Enterprise, Yitang Co., Ltd., and Xinyuanwei.

semiconductor equipment domestic production rate is still low, and the scale gap between domestic companies and global leaders is still large. Although domestic companies have basically completed the coverage of various chip manufacturing processes, the technical level of the production equipment is still far from that of foreign giants. Therefore, most of the equipment purchased by domestic semiconductor companies such as Changjiang Memory and SMIC are still from overseas, and the domestic production rate of my country's semiconductor equipment is still relatively low. In the most core fields of lithography machines, etching equipment and thin film deposition equipment, the market share of domestic companies is basically below 10%. On the other hand, in terms of revenue scale, Northern Huachuang's operating income in 2020 was 6.06 billion yuan, while Yitang Co., Ltd., China Micro Corporation, etc. were only 2.31 billion yuan and 2.27 billion yuan. Compared with international semiconductor equipment giants such as applied materials, there is still a big gap in the scale of my country's semiconductor equipment companies.

China's semiconductor equipment manufacturers have successfully broken through multiple technical nodes. However, after incidents such as the "China-US trade dispute" and "chip shortage wave", the Chinese government's attention to the semiconductor industry has increased rapidly, and relevant support policies have been introduced one after another. Therefore, it can be seen that in many links, the technical level of products of my country's semiconductor equipment companies is rapidly improving, and the gap with international advanced levels is constantly narrowing. For example, in the field of etching, China Micro Corporation's CCP etching machine has successfully broken through the 5nm process and entered the TSMC production line. Shanghai Microelectronics can already produce 90nm DUV lithography machines. In the field of thin film deposition equipment, Tuojing Technology's CVD equipment has also entered domestic first-line manufacturers such as SMIC and Yangtze Memory.

(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)

selected report source: [Future Think Tank]. Future Think Tank - Official Website