Soochow Securities Co., Ltd.: Downstream prosperity accelerates capital expenditure, cleanroom overseas expansion opens up a new growth curve

According to the Zhitong Finance APP, Soochow Securities released a research report stating that domestic mid-to-high-end cleanroom engineering companies benefit from the expansion of capital expenditure under the domestic substitution process and are expected to fully seize overseas market opportunities represented by the Southeast Asian market due to their customer base and forward-looking overseas layout, likely initiating a new growth cycle. Under a more favorable competitive landscape overseas, profit margins are also expected to improve, and the mid-term profit growth rate and valuation levels are likely to increase. The main points of Soochow Securities are as follows: Cleanroom Engineering: The foundational engineering of advanced manufacturing, with IC semiconductors being the primary application field for high-end cleanrooms Cleanrooms provide a clean and controlled space for product production and are the foundational engineering of advanced manufacturing. Downstream industries include high-tech sectors such as integrated circuits, new displays, life sciences, and food and pharmaceutical health. Among these, IC semiconductors and optoelectronic panels have high cleanliness requirements. IC semiconductors are the primary application field for high-end cleanrooms, with cleanroom engineering accounting for 5-10% of capital expenditure in integrated circuit manufacturing. The large investment scale, short implementation cycle, and low fault tolerance of mid-to-high-end cleanrooms create high entry barriers. The strong customer stickiness in the mid-to-high-end sector gives leading cleanroom engineering companies a clear advantage, resulting in a relatively concentrated market structure for domestic mid-to-high-end cleanroom engineering. Global demand for mid-to-high-end cleanroom engineering is expected to continue growing driven by capital expenditure expansion from applications like AI/HPC According to SEMI's July 2025 forecast, global semiconductor equipment total sales are expected to reach USD 125.5 billion / USD 138.1 billion in 2025/2026, representing a year-on-year growth of 6% / 10%, reflecting the trend of continued investment expansion in the industry. The U.S. market benefits from the return of manufacturing and a series of chip policy initiatives, coupled with tariff war risks, leading to accelerated capital expenditure growth for leading companies in the U.S. Southeast Asia is also expected to become a major incremental market for cleanroom engineering due to industrial chain development and capacity transfer investments. Additionally, with strong policy support and continuous iteration of advanced process equipment domestically, the domestic substitution process is expected to accelerate, and the medium-to-long-term demand potential for mid-to-high-end cleanroom engineering is considerable. Domestic cleanroom engineering leading companies are following customers overseas, with overseas business becoming a new growth point and expected to enjoy higher profit margins (1) The global mid-to-high-end cleanroom engineering market is concentrated. The large investment scale, short implementation cycle, and low fault tolerance of mid-to-high-end cleanrooms create high entry barriers, and the strong customer stickiness in this sector gives cleanroom engineering companies a clear first-mover advantage. In the overseas market, past participants were mainly multinational professional leaders from Europe and the United States, local companies deeply tied to downstream leading enterprises, and some comprehensive engineering companies, making domestic market competition more intense by comparison. (2) Domestic companies are accelerating their overseas layout, where the entry barriers are higher, likely allowing them to enjoy higher profit margins. The transfer of the industrial chain drives domestic cleanroom engineering companies to follow customers overseas, accelerating investment layouts in regions like Southeast Asia. Companies like L&K and Shenghui Integration, which laid out early, have already seen over half of their overseas revenue in the first half of 2025. The firm believes that mid-to-high-end cleanroom engineering not only emphasizes past project experience but also requires support from local materials, equipment, and labor supply chains, making the entry barriers higher than in the domestic market and resulting in a more favorable competitive landscape Domestic companies have advantages in engineering, personnel management, and supply chain control, and overseas businesses are expected to continue enjoying higher gross margin levels compared to domestic ones. Risk Warning: Risks of downstream semiconductor and other industries not performing as expected, risks of cleanroom engineering companies' overseas expansion not meeting expectations, risks of companies' order conversion not meeting expectations, and overseas political risks