Tianyue Advanced Materials: Cost improvements and product mix optimization drive SiC substrate gross margin recovery

Overview

This report is Goldman Sachs' company research report on Tianyue Advanced Materials / SICC (688234.SS). Goldman Sachs met with management in Shanghai on May 22 during its China Tech Tour to discuss the SiC substrate business, cost improvements, gross margin recovery, and end-market expansion. The report maintains a Buy rating and believes the company will benefit long term from its leadership in the SiC substrate market, R&D capabilities, and application expansion.

Core views

The report's core views are: first, Tianyue Advanced Materials focuses on SiC substrates and has strong R&D capabilities, driving substrate sizes from 4 inches to 12 inches while maintaining a leading market position; second, lower SiC substrate prices and costs are expected to increase adoption across applications such as EVs, AI data centers, AR glasses, and smart grids; third, the company's 1Q26 gross margin improved, and future profitability can continue to recover through higher yields, lower costs, and product mix upgrades; fourth, emerging applications such as AI data centers and AR glasses may provide additional upside.

Analysis framework

The report combines management discussions with fundamental analysis, focusing on the company's R&D capabilities, production yields, cost curve, product mix, migration pace across different SiC substrate sizes, and end-market expansion. On valuation, Goldman Sachs sets the 12-month target price based on a 2029E P/E multiple and references the correlation between peer trading P/E and YoY net profit growth.

Methodology notes

• Valuation methodP/E valuation

  12-month target price

  Goldman Sachs' 12-month target price is Rmb115, based on 30.9x 2029E P/E; the target P/E multiple is derived from the correlation between peer trading P/E and YoY net profit growth.

• Research frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and integrated score

  The appendix notes that Goldman Sachs uses GS Factor Profile to compare stocks with the market and industry peers across Growth, Financial Returns, Multiple, and Integrated dimensions. This framework is an investment context tool and is not the direct core basis for the target price in this report.

• Scenario and event assessmentM&A Rank

  M&A probability score

  The appendix explains that Goldman Sachs uses an M&A framework across its global coverage to assess the probability that a company becomes a takeover target; if a company's M&A Rank is 1 or 2, an M&A component may be included in the target price. The body of the report does not indicate that this factor is a key driver of Tianyue Advanced Materials' target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tianyue Advanced Materials / SICC (688234.SS)

  Covered company and investment target

  Strengths

  Leadership in the SiC substrate market, strong R&D capabilities, continued substrate size expansion, gross margin improvement potential, and multiple end-market opportunities.

  Weaknesses

  The current shipment share of 12-inch SiC substrates remains small, and migration to larger formats by power semiconductor customers takes time.

  Comparison

  Goldman Sachs' target P/E multiple references the correlation between peer trading P/E and YoY net profit growth; the report believes the company occupies a leading position in the SiC substrate market.

  Risks

  Capacity expansion and 6-inch substrate shipment ramp-up slower than expected, adoption of high-power end applications slower than expected, intensifying competition, valuation volatility, and constraints on key equipment or capacity supply.

• SiC substrates

  Core product and source of profit recovery

  Strengths

  Lower costs, higher yields, and product mix upgrades can improve gross margin and support downstream adoption.

  Weaknesses

  Although price declines can drive adoption, they also require the company to offset pricing pressure through cost and yield improvements.

  Comparison

  Substrates of different sizes have expanded from 4 inches to 12 inches; power semiconductor applications are still in the transition from 6-inch to 8-inch.

  Risks

  Price competition, slower technology migration, and long customer validation cycles.

• Applications in EVs, AI data centers, AR glasses, smart grids, and more

  SiC demand expansion scenarios

  Strengths

  Diversified end-market applications increase long-term demand elasticity, and AI data centers and AR glasses may offer additional upside.

  Weaknesses

  Some applications are still in development and validation, and commercialization timing remains uncertain.

  Comparison

  EV and other power semiconductor applications are important current scenarios, while AI data center cooling and AR glasses are potential expansion directions mentioned by management.

  Risks

  High-power application penetration slower than expected and customer adoption slower than expected.

Key data

• RatingBuyThe report explicitly states that the Buy rating is maintained.
• 12-month target priceRmb115The target price is based on 30.9x 2029E P/E.
• Valuation multiple30.9x 2029E P/EThe target P/E multiple is derived from the correlation between peer trading P/E and YoY net profit growth.
• Meeting date2026-05-22Goldman Sachs met with management during its China Tech Tour in Shanghai.
• Report release time2026-05-23 1:02AM HKTThe cover page shows Equity Research 23May2026 | 1:02AM HKT.
• Disclosure page priceRmb153.74The company-specific regulatory disclosure mentions SICC (Rmb153.74); the report does not directly provide a reliable expected upside/downside calculation.
• 12-inch SiC substrate statusCurrent shipment share remains smallManagement said 12-inch SiC substrates currently account for a small share of total SiC substrate shipments.

Impact & implications

If the company can continue improving yields, lowering SiC substrate costs, and upgrading its product mix, gross margin and profitability could recover further. Lower costs may also accelerate SiC adoption in EVs, transportation, solar, industrial, AI data centers, AR glasses, and smart grid applications, thereby expanding the long-term demand pool. However, commercialization of 12-inch substrates is still at an early stage, and migration of power semiconductor customers from 6-inch to 8-inch also takes time, so near-term performance improvement still depends on yield, cost, and shipment ramp-up delivery.

Risks

• 6-inch substrate capacity expansion and shipment ramp-up slower than expected.
• Penetration of high-power applications such as EVs, transportation, solar, or industrial use slower than expected.
• More intense competition in the SiC substrate market.
• Higher valuation volatility due to the company's short listed history.
• Restricted access to key equipment or tight capacity supply.
• 12-inch SiC substrates still account for a small share of total shipments, and commercialization and customer adoption of related applications face timing uncertainty.

What to watch

• Whether gross margin recovery continues after 1Q26.
• The pace at which production yields improve and costs decline.
• The contribution of product mix upgrades to profitability.
• Changes in shipment mix among 6-inch, 8-inch, and 12-inch SiC substrates.
• Customer validation and order progress in EV, AI data center, AR glasses, and smart grid applications.
• The dual impact of SiC substrate price declines on adoption and margins.
• Key equipment supply and capacity expansion progress.