AI-driven new opportunities in fluorochemical materials, UBS raises target prices for multiple companies

Overview

This report focuses on new demand in China's fluorochemical industry driven by AI. UBS believes that rising compute demand from AI and iterative changes in material systems will drive growth in semiconductor manufacturing materials, high-frequency PCB materials, and data center liquid-cooling chemicals. Compared with electronic chemicals companies, fluorochemical material suppliers currently still trade at a meaningful valuation discount, and the market has not yet fully priced in AI-related growth opportunities.

Core views

Core views include: first, G5-grade electronics-grade hydrofluoric acid will benefit from semiconductor capacity expansion, domestic substitution, and AI-driven memory demand; second, after 3M exited PFAS production, the supply gap in fluorinated liquids creates substitution opportunities for Chinese suppliers, and Capchem is relatively well positioned in semiconductor-grade fluorinated liquids; third, domestic substitution for high-barrier fluorinated electronic specialty gases such as WF6 and C4F6 is accelerating; fourth, because of its low dielectric constant and low dielectric loss, PTFE may become a candidate next-generation high-speed transmission material for AI servers; fifth, data center liquid cooling has not yet converged on a standard path, so both cold-plate liquid-cooling refrigerants and fluorinated liquids for immersion cooling warrant attention.

Analysis framework

Starting from the link between the fluorochemical value chain and AI applications, the report analyzes three application scenarios—semiconductor manufacturing, PCB copper-clad laminates, and data center liquid cooling—and then screens potential beneficiaries by combining company product portfolios, capacity deployment, customer validation progress, earnings forecast adjustments, and valuation methods.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  Dongyue's target price is derived using the SOTP method, with different 2027E P/E multiples applied to PVDF, PTFE and other fluoropolymers, as well as cyclical chemicals and other segments.

• Valuation methodsDCF

  discounted cash flow

  Capchem's target price is based on the DCF method, with WACC kept at 8.0% and the mid-term growth assumption raised from 11% to 12% to reflect the long-term growth potential of its fluorochemical business.

• Valuation methodsPEG

  price-to-earnings-to-growth ratio

  EM Technology's target price uses the PEG method, implying 1.8x 2027E PEG and compared with peers in the CCL value chain.

Asset mapping & comparison

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

• Dongyue Group

  Potential beneficiary of AI material-system iteration and liquid-cooling demand

  Strengths

  China's largest PTFE producer, with 55ktpa capacity, and a portfolio that includes electronics-grade PTFE, electronic fluorinated cooling fluids, PFPE oil, and electronics-grade fluorinated specialty gases among other high-barrier products.

  Weaknesses

  AI-related electronics-grade PTFE applications are still in the testing stage, and the expected AI-related earnings contribution in 2028 is only about 3-5%.

  Comparison

  Compared with some electronic chemicals companies, there is still room for re-rating; UBS raised the 2027E P/E multiple for PTFE and other fluoropolymers from 15x to 30x.

  Risks

  Downstream material-system iteration falling short of expectations, weaker-than-expected recovery in fluoropolymers and organosilicon profitability, and cyclical chemical price volatility.

• Capchem

  Beneficiary of semiconductor-grade fluorinated liquids, liquid-cooling materials, and capacitor chemicals

  Strengths

  Has a complete fluorochemical supply chain, ranks among the leading domestic producers of semiconductor cooling fluids and HFE cleaning agents in China, and has established stable partnerships with major domestic wafer fabs, OEMs, and cooling equipment manufacturers.

  Weaknesses

  Customer qualification cycles are long, and the ramp-up in fluorinated liquids still depends on the pace of commercialization in semiconductors and data centers.

  Comparison

  After 3M exited PFAS production, Capchem is considered better positioned to capture replacement demand for semiconductor-grade fluorinated liquids.

  Risks

  PFAS regulation, changes in substitute material routes, slower-than-expected release of liquid-cooling demand, and volatility in LiPF6 and electrolyte prices.

• EM Technology

  Beneficiary of AI high-speed transmission and high-frequency high-speed PCB resins

  Strengths

  A domestic leader in high-frequency high-speed resins, leading in M6-M8 hydrocarbon resin and already part of the supply chains of Taiwan copper-clad laminate makers.

  Weaknesses

  Valuation and earnings are highly dependent on the realization of sales growth in high-frequency high-speed resins.

  Comparison

  Its 2027E PEG of 1.0x is below the 1.9x average of peers in the CCL value chain.

  Risks

  Changes in AI hardware material routes, weaker-than-expected CCL demand growth, and slower-than-expected customer adoption.

• Guanggang

  Beneficiary of domestic on-site gas generation projects for integrated circuits and electronic bulk gases

  Strengths

  The total capacity of on-site gas generation projects won in 2024-25 is expected to exceed 100,000 cubic meters per hour, which could drive electronic bulk gas revenue CAGR of 23% from 2026-30.

  Weaknesses

  Its current 2027E P/E of 63x already reflects high growth expectations.

  Comparison

  Although below the peer average, UBS believes it leads domestic integrated-circuit on-site gas generation tenders and should deserve a valuation premium.

  Risks

  Project delivery falling short of expectations, slower semiconductor capex, and a pullback in valuation premium.

Key data

• Fluorochemical index relative performanceOutperformed the chemical index by about 9% since early MayUBS mainly attributes this to the U.S. delaying the phase-out of some third-generation refrigerants, as well as rising market expectations for the application potential of fluorochemical materials in AI.
• China electronics-grade hydrofluoric acid market sizeAbout Rmb4.25bn in 2025Electronics-grade hydrofluoric acid is one of the larger must-have categories within wet electronic chemicals.
• China G5-grade electronics-grade hydrofluoric acid2025 capacity 135kt, output 74.9kt, revenue Rmb658mDomestic G5-grade electronics-grade hydrofluoric acid CR5 was 98% in 2025, indicating a concentrated supply structure.
• Direct liquid cooling TAM forecastUS$31bn by 2030EUBS expects a 2025-30E CAGR of 51%.
• Dongyue target price revisionRaised from HK$17.5 to HK$29.72026/27/28E earnings forecasts were raised by 5%/8%/7%, respectively.
• Capchem target price revisionRaised from Rmb86.0 to Rmb122.02026-28E earnings forecasts were raised by 12-21%.
• EM Technology target price revisionRaised from Rmb41.50 to Rmb94.102027/2028 earnings forecasts were raised by 11%/17%, respectively.
• Valuation discountElectronic chemicals companies average 89/10/2.7x 2026E PE/PB/PEG, while fluorochemical materials companies are at 22/5/1.7xThe report believes some AI beneficiaries in fluorochemicals have further room for re-rating.

Impact & implications

If AI servers, semiconductor capacity expansion, and liquid-cooling penetration continue to advance, fluorochemical companies may move from traditional cyclical chemical valuations toward electronic chemicals valuations. Beneficiary areas include high-end electronics-grade hydrofluoric acid, semiconductor-grade fluorinated liquids, high-barrier fluorinated electronic specialty gases, electronics-grade PTFE, and data center liquid-cooling chemical materials. At the company level, firms with high-end products, customer validation, capacity deployment, and downstream collaboration capabilities are more likely to see earnings growth and valuation re-rating.

Risks

• The direction of AI server material-system iteration may not align with expectations for PTFE or fluorinated liquids.
• Data center liquid-cooling technology routes have not yet been standardized, and the market size of immersion cooling, especially two-phase immersion cooling, remains small.
• Semiconductor customer validation cycles are long, and domestic substitution may progress more slowly than expected.
• PFAS regulation may create uncertainty around the supply, demand, and replacement solutions for fluorinated liquids.
• Volatility in fluorochemical raw materials, refrigerants, fluoropolymers, and organosilicon prices may affect profitability.

What to watch

• G5-grade electronics-grade hydrofluoric acid prices, capacity utilization, and progress in semiconductor customer onboarding.
• The global supply-demand gap in fluorinated liquids after 3M exits PFAS production, and replacement orders for Chinese suppliers.
• Prices and domestic substitution progress for high-barrier fluorinated electronic specialty gases such as WF6 and C4F6.
• Whether AI server PCB material systems adopt PTFE or other low-dielectric material solutions.
• Coolant selection for cold-plate liquid cooling, immersion-cooling penetration, and the commercialization pace of fluorinated coolants.
• Changes in earnings forecasts, target prices, and valuation multiples for Dongyue, Capchem, EM Technology, and Guanggang.