[This Week's Industry Insight] Youngchang Chemical, the Dark Horse in Semiconductor and Display Chemical Materials

Domestic Production of Extreme Ultraviolet Rinse Draws Attention from Securities Firms
Entered KOSDAQ Last Year, Consistently Demonstrating Growth Potential

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to be your hands, feet, eyes, and ears by delivering accurate information about companies. Each week, we focus on companies that rank high in stock inquiries from the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, clients, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We come to you every week under the name "This Week's Watchlist," highlighting stocks of interest. This week, we analyzed Youngchang Chemical, a semiconductor materials company.

Youngchang Chemical, a company specializing in ultra-precision industrial semiconductor and display chemical materials, has rapidly emerged as a company of interest in the securities market. The spotlight is on the company as it has localized EUV rinse products following Samsung SDI's announcement of developing inorganic photoresist (PR) for extreme ultraviolet (EUV) lithography.

Founded in 2011, Youngchang Chemical possesses various technologies related to semiconductor materials such as photoresist (photosensitive solution), rinse, SOC (Spin On Carbon), wet chemicals, and CMP process slurry. It is recognized as a major materials, parts, and equipment (SoBuJang) company that entered the KOSDAQ last year. Recently, it has been gradually increasing its production capacity by completing its 4th factory in the Seongju General Industrial Complex.

Exterior view of the Yeongchang Chemical headquarters located in Seongju-gun, Gyeongsangbuk-do.

The company's founder, Chairman Lee Sung-il, started as a sole proprietorship in 1981 and incorporated the business in 2001 to expand operations. Initially, the main business was industrial specialty chemicals, but from 2006, the company shifted focus from textiles to electronic materials, growing into a producer of functional chemicals for electronic materials. He prioritizes safety above all and has achieved an impressive 20-year record of zero accidents at the workplace.

De-Japanization 'First Generation of Localization' Semiconductor Materials Specialist

Youngchang Chemical mainly produces and supplies three product groups: photo materials, rinse for photoresist (PR), and wet chemicals. It especially focuses on the photo materials sector, expanding research and development (R&D) to improve existing product performance and develop new products.

The company manufactures photo materials such as i-Line photoresist (PR), KrF (Krypton Fluoride) PR, and Spin On Carbon hard mask (SOC), supplying them to semiconductor companies domestically and internationally. PR is a core material used in the lithography process to imprint circuit patterns on wafers.

Youngchang Chemical gained industry recognition by commercializing i-Line PR in 2009 and KrF PR in 2015 for the first time domestically. Currently, it exclusively supplies PR to major domestic customers such as SK Hynix. Previously, Japanese companies dominated the market, but Youngchang Chemical has succeeded in diversifying its customer base.

Kim Rok-ho, a researcher at Hana Securities, said, "This year, Youngchang Chemical's expected momentum includes expanded sales of CMP slurry and new product launches. Sales of tungsten slurry for CMP processes are expected in the first half, and while the company has supplied PR only for i-line and KrF processes, it plans to deliver ArF PR to new customers." He added, "Development of EUV photoresist is also underway."

Youngchang Chemical's recent attention is partly due to Samsung's recent moves. On the 2nd (local time), Samsung Electronics mentioned Samsung SDI's development of inorganic PR alongside global EUV PR trends at the world's largest optical engineering conference, SPIE 2023, held in the United States. PR is an essential material in the lithography process during semiconductor manufacturing.

Core products 'Bump Photoresist (left)', 'I-Line Photoresist (right)'

Inorganic PR is emerging as an alternative that can solve the problems of organic PR. Youngchang Chemical is one of the domestic semiconductor material companies associated with inorganic PR. It has reportedly included its inorganic PR R&D details in its technology roadmap, attracting renewed attention.

Following this positive news, Youngchang Chemical's stock price rose for three consecutive days after the 3rd. The growing importance of the EUV photoresist market and expectations for its expansion positively influenced the stock price of Youngchang Chemical, which is developing EUV photoresist.

Youngchang Chemical entered the KOSDAQ in July last year. At that time, a total of 1,702 domestic and international institutions participated in the demand forecast, recording a final competition rate of 1,616 to 1. The general subscription competition rate was also 1,363 to 1, surprising the market. The results exceeded Youngchang Chemical's expectations.

Transactions with SK Hynix, SK Siltron, SKC, Samsung Electronics, and Others

About 80% of the company's sales come from the SK Group. Major customers include SK Hynix, SK Siltron, and SKC. Interest has grown as signs of expanding transactions with Samsung Electronics have appeared. This expansion of customers is expected to continue steadily, thanks to excellent quality and price competitiveness compared to domestic and international competitors.

The company plans to expand sales channels to major overseas semiconductor material markets such as the United States, Singapore, and China by focusing investments on new product development for next-generation semiconductor production and material development for performance improvement. Youngchang Chemical continues to strengthen its market position by increasing R&D expenses annually.

Last year, Youngchang Chemical recorded sales of KRW 82.35014 billion, operating profit of KRW 5.41193 billion, and net profit of KRW 4.33515 billion. Sales and operating profit increased by 24% and 142%, respectively, compared to the previous year, and net profit turned positive. The company achieved record-high performance, raising expectations.

Performance has steadily trended upward. Sales were KRW 62.5 billion in 2019, KRW 60.7 billion in 2020, KRW 66.4 billion in 2021, and KRW 82.3 billion in 2022. Operating profits during the same period were KRW 5.1 billion, KRW 4.1 billion, KRW 2.2 billion, and KRW 5.4 billion, respectively. Not only sales but profitability has also improved. The market expects Youngchang Chemical to achieve sales of around KRW 120 billion this year.

The current largest shareholders are co-CEOs Lee Sung-il and Lee Seung-hoon, holding 29.22% and 10.87% of shares, respectively. Following them, financial investors (FIs) such as venture capitalists (VCs) hold stakes in the company. Representative investors include K& Investment Partners' K& Secondary No.3 Investment Association (8.84%), L&S Venture Capital's L&S Global Semiconductor Growth Investment Association (3.58%), and Shinhan Venture Investment's Gyeonggi-Neoplux Superman Investment Association (2.15%).

According to the investment industry, CEO Lee Sung-il was not actively receptive to external investment proposals, like many manufacturing company CEOs. However, after venture capitalists recognizing the company's growth potential sent successive love calls, various FIs joined. Using their funds, the company expanded its scale and continues its high growth trajectory.

Early-stage FIs are not in a hurry. A SoBuJang specialized investment analyst said, "Unlike other sectors, the SoBuJang field does not need to rush exits (investment recoveries) because most companies are generating sales." He added, "Especially in the case of Youngchang Chemical, the growth potential is so vast that it is considered to be at a low point now."

The dividend payout to shareholders is also attractive. The company plans to pay a cash dividend of KRW 100 per common share. The total dividend amount for the 10,110,545 issued shares is expected to be about KRW 1 billion, with a payout ratio of approximately 24.3%. The cash dividend plan will be finalized after approval at the shareholders' meeting on the 24th.

However, profitability remains a concern. Although gradually improving, there are limits to making dramatic changes due to cost burdens from rising raw material prices and increased R&D expenses. Another threat is the possibility of reopening Japan's export routes to Korea, which have been blocked, following improvements in Korea-Japan relations.