Equity Research: Jingsheng Electromechanical (300316.SZ)

Date: September 28, 2025
Ticker: 300316.SZ (Shenzhen Stock Exchange)
Sector: Semiconductor Equipment & Materials / Advanced Packaging
Rating: BUY (Maintained)
Current Price: CNY 44.95
Target Price: Implied Upside based on Growth Trajectory
Analysts: Zhou Ershuang (S0600515110002), Li Wenyi (S0600524080005)
Source: Dongwu Securities Institute

Executive Summary

Jingsheng Electromechanical ("Jingsheng" or the "Company"), a leading provider of crystal growth equipment and materials in China, has achieved a significant technological milestone with the official commissioning of its first 12-inch Silicon Carbide (SiC) substrate processing pilot line. This development, realized through its subsidiary Zhejiang Jingrui SuperSiC, marks a critical transition from parallel competition to global leadership in SiC substrate technology. The pilot line achieves 100% localization of equipment, covering the entire value chain from crystal growth and processing to detection, and supports both conductive and semi-insulating substrate types.

While the Company faces short-term headwinds reflected in the projected decline in revenue and net profit for 2025 due to slower equipment acceptance cycles and industry-wide adjustments, the long-term investment thesis is being fundamentally reshaped by two emerging high-growth applications for SiC substrates:
1. Advanced Packaging Interposers for AI GPUs: As NVIDIA transitions from H100 to B200 architectures using CoWoS (Chip-on-Wafer-on-Substrate) packaging, thermal management and interconnect density have become bottlenecks. Single-crystal SiC, with its superior thermal conductivity ($490 \mathrm{~W/m \cdot K}$) and ability to support high-aspect-ratio vias (109:1 vs. 17:1 for silicon), is emerging as an ideal material for next-generation interposers, potentially unlocking a massive new market beyond traditional power electronics.
2. Augmented Reality (AR) Optics: SiC’s high refractive index and thermal stability make it an ideal substrate for AR glasses, enabling wider Fields of View (FOV > 80 degrees) in thinner form factors while mitigating rainbow effects and dispersion issues common in current waveguide structures.

We maintain our BUY rating on Jingsheng Electromechanical. Although we project a temporary contraction in earnings for 2025 (estimated Net Profit attributable to shareholders: CNY 1.01 billion), we anticipate a robust recovery in 2026 and 2027, driven by the ramp-up of 6-inch and 8-inch SiC substrate capacity and the potential commercialization of 12-inch technologies in niche high-value applications. The current valuation, trading at approximately 58x P/E for 2025E but compressing to 38x by 2027E, reflects the near-term cyclical trough while offering exposure to secular growth in semiconductor materials and advanced packaging solutions.

Key Takeaways

1. Technological Breakthrough: 12-Inch SiC Substrate Pilot Line Commissioned

On September 26, 2025, Jingsheng announced that its subsidiary, Zhejiang Jingrui SuperSiC, successfully commissioned its first 12-inch Silicon Carbide (SiC) substrate processing pilot line. This event is not merely a capacity expansion but a testament to the Company’s vertical integration capabilities and R&D prowess.

• Full-Chain Autonomy: The pilot line represents the realization of 100% domestic localization for key equipment. Jingsheng has independently developed and manufactured the machinery required for every stage of the process: crystal growth, slicing, grinding, polishing, and final detection. This reduces reliance on foreign suppliers and enhances cost competitiveness.
• Versatility: The line is designed to process both conductive and semi-insulating SiC substrates. Conductive substrates are primarily used in power devices (EVs, renewable energy inverters), while semi-insulating substrates are critical for radio frequency (RF) devices and, increasingly, for advanced packaging interposers.
• Technical Mastery: The Company has overcome core technical challenges associated with large-diameter SiC crystal growth, specifically temperature field uniformity and crystal cracking. Successfully growing 12-inch conductive SiC crystals places Jingsheng among a select few global players capable of handling wafer sizes larger than the current industry standard of 8 inches. While 8-inch is the current frontier for mass production in power electronics, 12-inch capability positions Jingsheng for future cost-leadership and specialized applications where wafer area efficiency is paramount.

2. New Growth Engine: SiC Interposers for AI & High-Performance Computing (HPC)

The most compelling shift in the investment narrative for Jingsheng is the potential adoption of SiC substrates in the advanced packaging of AI accelerators, particularly NVIDIA’s GPU lineup.

The CoWoS Bottleneck

NVIDIA’s dominance in AI computing relies heavily on its CoWoS (Chip-on-Wafer-on-Substrate) packaging technology. This method allows for the high-density integration of multiple chiplets (GPU cores, HBM memory) onto a single package. However, as GPU power densities increase from the H100 to the upcoming B200 and beyond, traditional silicon interposers face two critical limitations:
1. Thermal Management: Silicon has relatively low thermal conductivity. Integrating high-power chips on a silicon interposer creates heat accumulation hotspots, limiting performance and requiring complex, bulky cooling solutions.
2. Interconnect Density: As chips shrink and I/O counts rise, the aspect ratio of Through-Silicon Vias (TSVs) becomes a limiting factor for miniaturization.

Why SiC is the Solution

Single-crystal Silicon Carbide offers distinct physical properties that address these bottlenecks directly:

*Note: Data referenced from Nelson Science regarding $350\mu m$ SiC substrates.

By substituting silicon interposers with SiC, manufacturers can achieve:
* Reduced Package Size: Higher via density allows for tighter chip placement.
* Enhanced Performance: Superior heat removal maintains optimal operating temperatures for GPU cores and HBM stacks.
* Improved Reliability: Lower thermal stress reduces the risk of delamination and failure in multi-chip modules.

For Jingsheng, this implies a potential pivot from being solely a supplier to the power electronics sector (EVs, solar) to becoming a critical material supplier for the AI infrastructure boom. The demand for semi-insulating SiC substrates, traditionally a smaller market compared to conductive ones, could see exponential growth if adopted by major foundries like TSMC for CoWoS processes.

3. Emerging Application: AR/VR Optics Substrates

Beyond computing, Jingsheng’s SiC technology finds relevance in the consumer electronics sector, specifically in Augmented Reality (AR) glasses. The optical performance of AR displays is heavily dependent on the substrate material used for waveguides.

• High Refractive Index: The Field of View (FOV) in AR glasses is directly proportional to the refractive index of the waveguide material. Current materials often struggle to balance FOV with size. Single-layer SiC lenses can achieve an FOV of over 80 degrees, providing a more immersive visual experience compared to existing solutions.
• Optical Clarity: High refractive index materials help mitigate "rainbow effects" (chromatic aberration) and dispersion, which are common artifacts in diffractive waveguides. SiC’s optical properties contribute to clearer, more natural image projection.
• Thermal & Mechanical Stability: AR glasses are worn on the face, generating heat from onboard processors and batteries. SiC’s high thermal conductivity helps dissipate this heat, improving user comfort and device longevity. Furthermore, its high hardness supports precise etching processes, enhancing manufacturing yield and enabling thinner, lighter lens designs.

This application diversifies Jingsheng’s revenue streams, reducing dependence on industrial and automotive cycles and tapping into the high-growth consumer wearable market.

4. Capacity Expansion and Product Roadmap

Jingsheng is aggressively expanding its SiC substrate production capabilities to meet anticipated demand from both traditional and new applications.

• 6-Inch & 8-Inch Ramp-Up: The Company is currently scaling up production capacity for 6-inch and 8-inch substrates. These sizes remain the workhorses of the current SiC power device market. The expansion ensures Jingsheng can capture market share as EV adoption continues to grow globally.
• 12-Inch Leadership: The successful growth of 12-inch conductive SiC crystals demonstrates technical superiority. While mass adoption of 12-inch wafers for power devices may be years away due to cost and ecosystem maturity, Jingsheng’s early mover advantage allows it to define standards and secure IP rights. In the interim, 12-inch capabilities can be leveraged for specialized research, defense, and high-end RF applications where performance outweighs cost sensitivity.
• Vertical Integration: By controlling the equipment manufacturing (crystal furnaces, grinders, polishers) and the material production, Jingsheng enjoys a unique cost structure. It can iterate faster on process improvements because it does not need to wait for third-party equipment vendors to customize tools. This synergy accelerates yield improvement curves, a critical metric in semiconductor profitability.

5. Financial Performance and Outlook

The Company’s financial trajectory reflects a transitional phase. After a period of rapid growth in 2023, 2024 and 2025 are characterized by normalization and cyclical adjustments.

Historical Performance (2023-2024)

• 2023: A standout year with Revenue reaching CNY 17.98 billion (+69.04% YoY) and Net Profit attributable to shareholders at CNY 4.56 billion (+55.85% YoY). This was driven by strong demand for photovoltaic (PV) and semiconductor equipment.
• 2024: Revenue slightly declined to CNY 17.58 billion (-2.26% YoY), while Net Profit dropped significantly to CNY 2.51 billion (-44.93% YoY). The disproportionate drop in profit relative to revenue suggests margin compression, likely due to increased R&D spending, lower utilization rates, or pricing pressure in the PV equipment segment.

Forecast (2025-2027)

Our projections indicate a "U-shaped" recovery profile.

• 2025 Expectations: We forecast a significant contraction in revenue to CNY 12.03 billion and net profit to CNY 1.01 billion. This decline is attributed to:
  • Slower Equipment Acceptance: Downstream customers in the PV and semiconductor sectors may delay capital expenditure or equipment acceptance amid macroeconomic uncertainty.
  • Transition Costs: Heavy investment in SiC R&D and capacity build-out before full revenue realization.
  • Inventory Adjustments: Industry-wide destocking affecting order volumes.
• 2026-2027 Recovery: We expect revenue to return to growth in 2026 (+8.71%) and accelerate in 2027 (+13.11%). Net profit is projected to grow by ~24% annually in these years. This recovery will be driven by:
  • SiC Material Sales: Volume ramp-up of 6/8-inch substrates.
  • New Applications: Potential initial contributions from SiC interposers and AR optics.
  • Margin Stabilization: As high-margin material sales become a larger portion of the mix, overall gross margins are expected to improve from the 2025 low of 24.79% to 27.02% by 2027.

Balance Sheet Strength

Despite the earnings dip, Jingsheng maintains a robust balance sheet, providing the liquidity needed to fund its aggressive expansion.
* Cash Position: Monetary funds and transactional financial assets are projected to grow from CNY 3.46 billion in 2024 to CNY 11.42 billion by 2027, indicating strong cash generation or conservative capital management.
* Low Leverage: The asset-liability ratio is expected to remain healthy, declining from 43.16% in 2024 to around 38.5% in 2027. Long-term debt is manageable, with no bond payables outstanding.
* R&D Investment: The company continues to prioritize innovation, with R&D expenses estimated at CNY 782 million in 2025, ensuring technological leadership remains intact.

Risks / Headwinds

Investors should carefully consider the following risks, which could impact the Company’s financial performance and stock price trajectory.

1. Downstream Application Expansion Below Expectations

The bullish case for Jingsheng relies heavily on the successful adoption of SiC in new fields such as AI packaging and AR optics.
* Adoption Risk: If major foundries (e.g., TSMC, Samsung) decide against using SiC interposers due to cost concerns or alternative solutions (e.g., advanced glass interposers, improved silicon cooling), the projected growth from this segment will not materialize.
* Consumer Electronics Volatility: The AR/VR market is still in its early stages. If consumer adoption of AR glasses is slower than anticipated, demand for SiC optical substrates will remain negligible.
* EV Market Slowdown: The primary current driver for SiC is electric vehicles. A slowdown in global EV sales growth would directly impact demand for 6-inch and 8-inch conductive substrates, delaying the revenue recovery expected in 2026-2027.

2. Technological R&D Risks

Semiconductor material science is fraught with technical hurdles.
* Yield Challenges: Scaling from 8-inch to 12-inch SiC crystals involves complex thermodynamics. Persistent issues with crystal defects (micropipes, dislocations) could limit yields, making 12-inch production economically unviable for longer than expected.
* Processing Complexity: SiC is extremely hard and brittle. Developing high-yield, low-damage slicing and polishing processes for 12-inch wafers is difficult. Failure to achieve competitive yields could erode margins.
* Competitor Innovation: Competitors domestically (e.g., SICC, TankeBlue) and internationally (e.g., Wolfspeed, Onsemi, Rohm) are also investing heavily in larger wafers and new applications. If competitors achieve breakthroughs faster, Jingsheng’s first-mover advantage could diminish.

3. Cyclical Downturn in Semiconductor & PV Equipment

Jingsheng’s legacy business in crystal growth equipment for photovoltaics and semiconductors is highly cyclical.
* Capex Cuts: In times of economic uncertainty, downstream manufacturers often cut capital expenditures. Since equipment sales are lumpy and project-based, a delay in orders can cause significant quarter-to-quarter volatility.
* Price Wars: The PV equipment sector has seen intense competition. Continued price wars could compress margins further, impacting the cash flow available to fund SiC expansion.

4. Valuation and Market Sentiment

• High P/E Multiple: At 58x P/E for 2025E, the stock is priced for perfection regarding future growth. Any miss in earnings estimates or delay in the SiC narrative could lead to multiple compression.
• Market Volatility: As a growth stock in the semiconductor sector, Jingsheng is susceptible to broader market sentiment shifts, geopolitical tensions affecting supply chains, and regulatory changes in the tech sector.

Rating / Sector Outlook

Sector Outlook: Positive Long-Term, Volatile Short-Term

The semiconductor materials sector, particularly wide-bandgap semiconductors like SiC and GaN, is poised for structural growth driven by electrification and digitalization.
* SiC Market Growth: The global SiC market is expected to grow at a CAGR of over 20% through 2030, driven by EVs, renewable energy, and industrial automation.
* Advanced Packaging Trend: The shift towards heterogeneous integration and 3D packaging in AI chips creates a tailwind for advanced substrate materials. SiC’s entry into this space represents a high-value niche expansion.
* Localization Trend in China: Government policies supporting semiconductor self-sufficiency continue to benefit domestic leaders like Jingsheng, providing a protected market share and access to subsidies.

However, the short-term outlook is clouded by inventory corrections in the PV sector and cautious capex in the semiconductor industry. Investors should expect volatility in the near term but remain focused on the long-term structural trends.

Investment Rating: BUY (Maintained)

We maintain our BUY rating on Jingsheng Electromechanical.

• Valuation Context: While the forward P/E of 58x (2025E) appears elevated compared to historical averages, it must be viewed in the context of the earnings trough. The projected P/E of 38x for 2027E is more reasonable for a company with dual engines in equipment and high-growth materials.
• Strategic Value: Jingsheng is one of the few companies globally with integrated capabilities in both SiC equipment and materials. This vertical integration provides a moat against competitors who are either pure-play equipment vendors or pure-play material suppliers.
• Optionality: The potential for SiC interposers in AI packaging provides a significant "call option" on the stock. If this narrative gains traction with confirmed orders from major foundries, the re-rating potential is substantial.

Investment View

Core Investment Logic

1. From Equipment Vendor to Material Platform: A Valuation Re-rating Opportunity
Historically, Jingsheng has been valued as an equipment manufacturer, a sector characterized by cyclicality and moderate multiples. The successful ramp-up of SiC substrate production transforms the company into a hybrid equipment-material platform. Material businesses typically command higher valuations due to recurring revenue models, higher stickiness, and scalable margins once yields stabilize. As the proportion of revenue from SiC materials increases, we anticipate a gradual re-rating of the stock’s multiple.

2. The "AI + SiC" Narrative: Unlocking Hidden Value
The market has largely priced Jingsheng based on its exposure to EVs and Solar. The potential use of SiC in NVIDIA’s CoWoS packaging is a under-appreciated catalyst.
* Logic: AI GPUs are power-hungry. Thermal management is the next big bottleneck. SiC is physically superior to Silicon for heat spreading.
* Impact: If even a fraction of high-end AI packages adopt SiC interposers, the demand for semi-insulating SiC substrates could surge. Jingsheng’s 12-inch pilot line is perfectly positioned to serve this high-margin, low-volume initial market before scaling down to cost-sensitive power applications. This connects Jingsheng directly to the AI super-cycle, decoupling it partially from the slower-growing EV market.

3. Technological Moat via Vertical Integration
Jingsheng’s ability to design its own crystal growth furnaces and processing equipment gives it a distinct advantage in cost control and process optimization.
* Speed: Internal feedback loops between equipment engineers and material scientists allow for faster iteration.
* Cost: Eliminating the markup from third-party equipment suppliers improves gross margins.
* Customization: Equipment can be tailored specifically for SiC’s unique properties, leading to higher yields compared to competitors using generic tools.

Business Segment Drivers

Important Financial & Operational Changes

• Revenue Mix Shift: Expect a gradual decline in the percentage of revenue from pure equipment sales and an increase in material sales. This will likely lead to smoother quarterly revenue patterns over time, reducing volatility.
• Margin Trajectory: Gross margins dipped in 2024-2025 due to startup costs and product mix. We forecast a steady improvement from 24.79% in 2025 to 27.02% in 2027 as SiC yields improve and economies of scale kick in.
• Cash Flow Improvement: Operating cash flow is projected to turn strongly positive in 2025 (CNY 5.16 billion), reflecting better working capital management and the maturation of previous orders. This strengthens the company’s ability to fund future CapEx without excessive dilution or debt.

Actionable Insights for Institutional Investors

1. Monitor SiC Yield Rates: The key metric to watch in upcoming earnings calls is the yield rate of 6-inch and 8-inch SiC substrates. Improvements here directly translate to margin expansion.
2. Track Customer Qualifications: Look for announcements regarding customer qualifications for SiC substrates, particularly in the automotive sector (Tier 1 suppliers) and potentially in the semiconductor foundry sector (for interposers).
3. Watch for AI Packaging Partnerships: Any news of collaboration with major OSATs (Outsourced Semiconductor Assembly and Test) or foundries regarding SiC interposers should be viewed as a major positive catalyst.
4. Buy on Weakness: Given the projected earnings dip in 2025, any significant price correction driven by short-term earnings misses may present an attractive entry point for long-term investors believing in the 2026-2027 recovery and the AI/SiC narrative.

Conclusion

Jingsheng Electromechanical stands at a pivotal juncture. While short-term financial metrics reflect the inevitable cyclical downturn in its legacy equipment businesses, the Company is successfully executing a strategic pivot towards high-growth semiconductor materials. The commissioning of the 12-inch SiC pilot line is not just a technical achievement; it is a strategic gateway into the lucrative markets of AI advanced packaging and next-generation consumer electronics.

We believe the market has not fully priced in the optionality provided by these new applications. With a strong balance sheet, vertical integration advantages, and a clear roadmap for capacity expansion, Jingsheng is well-positioned to emerge stronger from the current cycle. We recommend institutional investors accumulate positions on dips, maintaining a long-term horizon to capture the value creation from the SiC material revolution.

Appendix: Detailed Financial Analysis

Profitability Analysis

The Company’s profitability metrics show a transient decline followed by a projected recovery.

• Gross Margin: Declined from 33.35% in 2024 to an estimated 24.79% in 2025. This compression is typical during heavy ramp-up phases of new material lines due to low initial yields and high fixed costs. The projected recovery to 27.02% by 2027 assumes successful yield improvement and scale effects.
• Net Margin: Follows a similar trend, dropping to 8.36% in 2025 before recovering to 10.40% in 2027. This indicates that operating leverage will kick in as revenue grows without a proportional increase in fixed overheads.
• ROE (Return on Equity): Expected to bottom at 5.71% in 2025, rising to 7.54% by 2027. While these figures are modest compared to the 15.10% seen in 2024, they reflect the capital-intensive nature of the expansion phase. As the asset base stabilizes and profits grow, ROE will improve.

Cash Flow and Liquidity

• Operating Cash Flow (OCF): A standout feature of the forecast is the robust OCF of CNY 5.16 billion in 2025, despite lower net income. This is driven by a significant positive change in working capital (CNY 2.93 billion), likely due to the collection of receivables and management of inventory levels. This strong cash generation provides a safety net.
• Capital Expenditure (CapEx): CapEx is projected to stabilize at around CNY 400 million annually from 2025 to 2027, down from CNY 1.63 billion in 2024. This suggests that the heavy investment phase in building the SiC facilities is concluding, and the Company is moving into a utilization and optimization phase.
• Free Cash Flow: With strong OCF and moderated CapEx, Free Cash Flow is expected to be strongly positive, supporting potential future dividends or share buybacks, although reinvestment in R&D remains a priority.

Valuation Metrics

• P/E Analysis: The high 2025E P/E is a function of the depressed earnings denominator. Investors should focus on the 2027E P/E of 38x, which is more representative of the normalized growth state. Compared to global peers in semiconductor materials (often trading at 30-50x), this is fair given the higher growth potential from the AI/SiC narrative.
• P/B Analysis: The Price-to-Book ratio is declining from 3.54x to 2.88x, suggesting that the stock price is not running ahead of the company’s asset base growth. This provides a degree of downside protection.

Comparative Peer Context (General Industry)

While specific peer comparisons are not detailed in the source report, generally:
* Wolfspeed (WOLF): Pure-play SiC leader, facing yield and execution challenges. Jingsheng’s vertical integration may offer better cost control.
* Onsemi (ON): Integrated device manufacturer. Jingsheng supplies materials, avoiding the capex burden of fab ownership.
* Domestic Peers (SICC, TankeBlue): Jingsheng’s advantage lies in its equipment background, allowing for faster technological iteration and potentially lower cost structures.

Final Remarks

Jingsheng Electromechanical represents a compelling investment case for institutions seeking exposure to the intersection of semiconductor sovereignty, AI infrastructure, and green energy. The short-term pain in earnings is a necessary step in the transition to a higher-value business model. The 12-inch SiC breakthrough is a tangible proof point of the Company’s technical leadership. As the SiC market matures and new applications in AI and AR gain traction, Jingsheng is well-positioned to capture disproportionate value. We reaffirm our BUY rating, encouraging investors to look through the 2025 volatility towards the robust growth profile of 2026 and beyond.

Disclaimer: This report is based on information provided by Dongwu Securities Institute dated September 28, 2025. The analysis is for informational purposes only and does not constitute financial advice. Investors should conduct their own due diligence. Past performance is not indicative of future results. Market data and financial projections are subject to change.