Investment Highlights

Covering Novoray New Materials (688300) for the first time, it has an outperform rating with a target price of 70.00 yuan, based on the relative valuation method, corresponding to a 40x P/E ratio in 2025, and the company is committed to the R&D, manufacturing and sales of products in the inorganic filler and particle carrier industry. The reasons are as follows:

The rise of high-frequency and high-speed copper clad laminates and advanced packaging has accelerated, and the localization of high-end silicon powder has accelerated. With the rapid development of AI, 5G and other technologies, the market size of copper clad laminates and advanced packaging will also show a rapid growth trend, we believe that silicon powder as one of the raw materials for the production of copper clad laminates and epoxy molding materials, the demand is expected to continue to grow, and Xinsijie expects that the domestic silicon powder market size will reach 5.5 billion yuan in 2025. In recent years, domestic silicon powder enterprises have entered the high-end market one after another, and the leading enterprises represented by Novoray New Materials have realized the large-scale production of spherical silicon powder, and we are optimistic that the localization rate of high-end silicon powder will continue to increase.

Thermal interface materials and packaging fillers help spherical alumina usher in a period of development opportunities. Driven by the rapid growth of downstream new energy, network communications, consumer electronics and other industries, the global thermal conductive ball aluminum market is expanding: the Institute of Advanced Industry expects that the global thermal conductive alumina market will reach 5.4 billion yuan in 2025, including 2.1 billion yuan in China. In addition, the demand for computing power has led to the progress of ductile aluminum technology, and the heat flux of chips and packaging modules in Chiplet technology, HBM technology and CoWoS technology has been increasing, driving the development of thermal conductive materials, and the dawn of domestic high-end low-α ductile aluminum volume has begun to appear.

Novoray adheres to technology leadership and builds a functional powder material platform. The company continues to focus on advanced technologies in downstream applications such as high-end chip (AI, 5G, HPC, etc.) packaging, heterogeneous integrated advanced packaging (Chiplet, HBM, etc.), a new generation of high-frequency and high-speed copper clad laminates (M7, M8, etc.), and high-thermal conductivity thermal interface materials for new energy vehicles.

What is the biggest difference between us and the market? The market is worried that the intensified competition of traditional silicon powder products will lead to a decline in profit levels, and at the same time, DeepSeek may reduce the total demand for computing power. We believe that the company's low-α and spherical products are widely used in the downstream, and at the same time, the cost reduction effect of DeepSeek may give rise to more AI application scenarios, the demand for computing power will continue to grow rapidly, and the company's high-performance product certification progress may be faster than market expectations.

Potential catalysts: The demand for advanced packaging such as HBM/CoWoS continues to increase, and the company's Low-α spherical alumina has obtained bulk orders from overseas customers.

Earnings Forecast and Valuation

We expect the company's 2024-26 EPS to be 1.29 yuan, 1.74 yuan, and 2.07 yuan, respectively, with a CAGR of 27%, and the company's current share price corresponds to a 2025/26 P/E ratio of 35.2/29.5x. Considering that spherical powder and low-radioactive powder are expected to have a large growth space with the rapid downstream volume, Novoray New Materials is given an "outperform industry" rating for the first time, and a target price of 70 yuan, corresponding to a 40x 2025 P/E ratio and 15% upside.

Risks

The demand for thermally conductive materials for advanced packaging is lower than expected, the demand for PCBs is declining, and the competition in the industry is intensifying.