(Excerpt from Dongwu Securities report on Jizhi Technology)
2. Benefiting from the Transfer of LCD Capacity, Domestic Optical Films Have Broad Space
Liquid crystal displays will continue to be one of the mainstream display technologies for a considerable time, with a huge market capacity. In recent years, LCD capacity has gradually shifted to mainland China, bringing unprecedented development opportunities for upstream module and material manufacturers. In the field of optical films occupied by the company, diffusion films and reflective films have formed a competitive domestic substitute, while brightness-enhancing films still have certain technical barriers. Overall, the domestic substitution space for optical films still has great potential.
2.1. LCD Will Remain the Mainstream Display Device, Capacity Shifting to the Mainland
Flat panel display technology (FPD) mainly includes liquid crystal display (LCD), organic light-emitting display (OLED), plasma display (PDP), and vacuum fluorescent display (VFD). Currently, LCD has a high cost, technology, and performance advantage, making it the most widely used display technology. Although it has faced challenges from new display technologies such as OLED in recent years, it is expected that for a long time, especially in the large-size display field, LCD will still occupy the mainstream position of displays.
The global volume of LCD is enormous, especially in large-area displays. In 2016, global LCD TV shipments reached 239 million units, and global LCD panel demand reached 166 million square meters. It is expected that in 2017, LCD TV shipments will increase to 245 million units, with LCD panel demand around 177 million square meters.
China will become the largest production base for LCD panels globally. In recent years, with multiple high-generation LCD panel production lines put into operation, the global LCD panel market has formed a tripartite situation of mainland China, Taiwan, and South Korea. In 2016, the shipment volume of mainland TFT-LCD panels, calculated by area, reached the second globally, with a market share exceeding 20%, and the overall industry scale exceeding 300 billion yuan. In 2017, as South Korean panel manufacturers adjusted their product line proportions and closed some LCD panel production lines, large manufacturers in mainland China such as BOE and Huaxing have successively expanded their production lines, and mainland LCD panel capacity is expected to leap to first in the world.
2.2. Optical Films are Core Components of LCDs, Expected to Benefit from Capacity Transfer
The huge market for LCD is shifting to the mainland, while industry competition is intensifying. How to control costs and maintain a foothold in fierce price competition will be an important issue for domestic panel manufacturers. With continuous breakthroughs in the technical barriers of upstream components and materials, the price advantage of domestic products is gradually emerging, and domestic component and material manufacturers will also face unprecedented opportunities during the capacity transfer process of panels.
2.2.1. Optical Films are Important Components of Liquid Crystal Displays
The backlight module is a key component of LCD panels, accounting for the highest proportion of the cost of liquid crystal modules. Since the liquid crystal in the panel does not emit light by itself, an external light source must be provided to achieve display effects, and the backlight module is the light source for image display in liquid crystal panels. The backlight module accounts for the highest proportion of the total cost of liquid crystal modules. Taking a 42-inch TFT-LCD (LED backlight) panel as an example, the backlight module accounts for 47% of the total cost of the liquid crystal module.
Optical films are the core components of the backlight module, accounting for the highest proportion of the backlight module’s cost. In the common structure of optical films for backlight modules, they usually consist of one reflective film + one lower diffusion film + two brightness-enhancing films + one upper diffusion film. The optical film is the most costly component in the backlight module. For a 42-inch TFT-LCD (LED) panel, optical films account for approximately 37% of the cost of the backlight module and about 17% of the total cost of the liquid crystal module. Among them, the cost proportions of reflective films, diffusion films, and brightness-enhancing films are 2%, 6%, and 29%, respectively, with the brightness-enhancing film being the most critical component.
2.2.2. Key Technology for Optical Film Roll Materials is Coating Technology, with Core Challenges in the Manufacturing of Patterned Roller for Brightness-Enhancing Films
The three common optical films produced by the company for backlight modules all use PET optical base films as the basic raw material. As an optical film roll processing enterprise, the company conducts optical structure design and uses precision coating technology, structural micro-replication methods, etc., to coat one or more layers of medium films (brightness-enhancing films are micro-prism structures) on the base film, thus obtaining optical film rolls, which are then processed into optical film sheets by cutting enterprises.
In the optical film roll production process, precision coating technology is the key technology of the production process. The coating process involves key technologies such as raw material formulation and coating process, which require long-term exploration and experimentation to mature and master the core technology.
Diffusion Films: Currently, the production process for domestic diffusion films is very mature, and high-end diffusion films are all produced using precision coating methods. The company’s diffusion films are the domestic leader, with shipments also ranking in the global first tier.
Reflective Films: The production process is more diverse, with commonly used raw materials including PET, PP, PC, etc. Currently, PET is mainly used in the medium and large-size display market, while Mitsubishi’s PP material reflective film is mainly used in the small and medium-size market. The company’s approach is a PET material bonding route, which coats a layer of medium film on the PET base film to improve reflectivity and prevent the white film from aging and turning yellow. Although this approach is relatively more expensive than BOPET, it has a simple process, convenient processing, and good optical performance, occupying a certain position in the reflective film market. At the same time, by optimizing the glue formulation for coating and adjusting the curing process of the composite glue, multi-layer thin-film composite reflective films can be made, which have high stability, anti-warping, and good optical performance advantages.
Table 1: Analysis of Advantages and Disadvantages of Different Reflective Film Production Processes
According to the coating materials, reflective films can be divided into silver-coated reflective films and white reflective films. Silver-coated films have a high surface conductivity and shallow penetration depth, providing the best reflectivity but at a high price. The company is actively developing the production and sales of silver-coated reflective films.
Brightness-Enhancing Films: Also known as prism films, brightness enhancement films, or BEF (Brightness Enhancement Film), consist of three layers, with the bottom layer requiring a certain degree of haze provided by back coating, the middle layer being a transparent PET substrate layer, and the top layer being a micro-prism structure.
The key technology for brightness-enhancing films is the engraving of diamond patterns on rollers. Currently, the mainstream process for preparing brightness-enhancing films involves the use of a light-curing UV glue forming process on the processed rollers. The micro-prism structure requires the use of metal rollers with finely structured micron features, which need to be processed using diamond precision machine tools, resulting in high technical barriers. Currently, there are not many domestic manufacturers capable of independently producing brightness-enhancing films, and Jizhi Technology is one of the few domestic manufacturers capable of independent production. The future trend for brightness-enhancing films is compounding, meaning that one film will replace the functions of two films.
2.2.3. Localization of Upstream LCD Modules is Becoming a Trend, Domestic Optical Films Will Welcome Development Opportunities
The global demand for end electronic products continues to grow, and the demand for liquid crystal modules will continue to increase, driving the development of the optical film market. The downstream demand for liquid crystal modules mainly comes from liquid crystal displays, mobile phones, computers, etc. The market for end electronic products is expanding year by year, gradually increasing the market demand for liquid crystal modules. DisplaySearch predicts that by 2020, global demand for liquid crystal modules will reach 3.438 billion units, an increase of 31.72% from 2011.
The market for optical films used in global liquid crystal modules will also steadily grow. According to DisplaySearch’s predictions, the demand for optical films for liquid crystal display backlight modules will reach 720 million square meters in 2017, with market demand for reflective films, diffusion films, and brightness-enhancing films reaching 184 million square meters, 184 million square meters, and 204 million square meters, respectively.
The domestic localization rate of liquid crystal panels has greatly improved, and there is still space for import substitution of upstream materials. Due to technical and patent barriers, the current localization rate of upstream materials for liquid crystal panels is only about 20%. In the field of optical films, for a long time, the technology and market for optical films have been monopolized by a few manufacturers such as Japanese companies Keiwa, Tsujiden, Kimoto, Toray, South Korean companies SKC, LGE, American company 3M, and Taiwanese company Yuhui. In recent years, many domestic optical film manufacturers have seized the opportunity of LCD industry transfer, achieved key technological advancements in optical films through various integrations, and begun to gradually replace imported optical films.
Currently, domestic reflective films and diffusion films have the strength for import substitution, while the technology for brightness-enhancing films is relatively lagging. At present, domestic reflective films and diffusion films can basically achieve substitution for foreign products, with production capacities in mainland China, Japan, South Korea, and Taiwan being roughly comparable. However, in some high-end products and those with special performance requirements, complete substitution is still not possible.
In terms of brightness-enhancing films, technical barriers still exist, and the production technology in mainland China is mostly at a medium to low level, with significant room for substitution of Japanese, Korean, and Taiwanese products.
2.3. The Company Continuously Enriches High-End Optical Film Types Based on Precision Coating and Micro-Replication Independent Processes
The company’s optical film production processes are all independently designed, with core technological advantages. Optical film production is a high-end technology manufacturing industry with high technical barriers. The company has strong research and development capabilities, having successively overcome core technologies required for producing optical films for liquid crystal displays, such as optical structure design technology, coating formulation design technology, precision coating technology, and clean production technology. It has independently designed and successfully built production lines for optical diffusion films, reflective films, and brightness-enhancing films, effectively reducing the investment costs of the company’s optical film production lines, thereby lowering the production costs of the company’s products and enhancing the market competitiveness of the company’s products.
Among them, the company’s diffusion film and reflective film processes are quite similar, both based on the company’s independently developed coating processes, and can adjust the production of diffusion films and reflective films according to market conditions. The brightness-enhancing film has overcome key challenges such as precision engraving technology and optical structure micro-replication technology, achieving mass production and rapid scaling.
Currently, the company has successfully developed and can mass-produce nearly 80 types of optical diffusion films, brightness-enhancing films, and reflective films, which have been certified by many international and domestic leading consumer electronics manufacturers and liquid crystal panel (module) manufacturers such as Samsung, LGD, Sharp, AU Optronics, Foxconn, AOC, Arcelik A.S., VIDEOCON, PTHartono, TCL, Hisense, Haier, Changhong, Skyworth, BOE, Tianma, Tongfang, Huike, Nanjing Panda, Longteng Optoelectronics, and Xinyi, and are being mass-produced and delivered.
At the same time, the company is actively developing high-end optical films such as 3D display films, fluorescent films, and optical protective films for touch screens around the precision coating and micro-replication technology platform, achieving small batch supply; multifunctional optical composite films, quantum dot films, and films for laser displays have entered the customer sample verification stage; at the same time, the company is conducting technical reserves in new film fields such as high barrier base films for OLED flexible displays and ITO conductive films. The company’s optical film product system will continue to enrich and will not be limited to the LCD display field in the future.
3. Quantum Dot Technology Enhances the Competitiveness of a New Generation of LCDs
Quantum dots, as a promising display technology, provide a competitive innovative route for liquid crystal displays in the context of current LCD technologies facing challenges from OLED and other emerging display technologies, and are expected to help LCD maintain its market position in the competitive display technology landscape. The only industrialized application of quantum dot technology is the addition of a layer of quantum dot film (QDEF, developed by Nanosys and 3M) in the LCD backlight module.
The company has formed a strategic partnership with global quantum dot leader Nanosys, aiming to tap into new display fields.
3.1. Quantum Dot Backlight Technology Improves the LCD Backlight System
Quantum dots are a type of new nano semiconductor material composed of elements such as zinc, cadmium, selenium, and sulfur, with unique luminescent properties. When stimulated by light or electricity, quantum dots of different diameters can emit different colors of high-quality monochromatic light. Due to the excellent luminescent properties of quantum dots, quantum dot technology has become the hottest next-generation display technology.
Currently, quantum dot backlight technology (photoluminescence) has achieved mass production, effectively improving the LCD backlight system. The application of quantum dot technology in the display field mainly involves two technical routes: quantum dot backlight technology (photoluminescence) and quantum dot light-emitting diode technology (electroluminescence). Currently, the industrialized application is quantum dot backlight technology, which essentially improves the traditional LCD backlight system, using blue LED light sources to illuminate quantum dots, thereby generating green and red light.
3.2. Quantum Dot Backlight Technology is an Effective Solution for Large-Sized High Color Gamut Displays
Color performance is one of the display performance indicators most concerned by users, related to the color gamut of the display (the range of colors the display can show). To achieve richer colors and more vibrant images, high color gamut display is an important direction for industry development.
Currently, there are two technologies that can achieve high color gamut display: OLED and quantum dot backlight technology, both of which can achieve over 100% NTSC color gamut display, showing strong color performance compared to traditional LCDs. OLED technology has been widely applied in small-sized high color gamut displays, and costs have dropped to reasonable levels. However, in large-sized displays, it is still constrained by key technologies, costs, and low yield, making it unable to replace LCDs in the foreseeable future. Quantum dot backlight technology can effectively resolve large-sized display issues and is currently an effective solution for large-sized high color gamut displays.
3.3. QDEF Technology is Currently the Only Quantum Dot Display Industrialization Route That Can Be Mass-Produced
There are three ways to encapsulate quantum dots in LCD panels: 1. Directly using quantum dots to replace yellow phosphors, packaged together with blue LEDs (On-Chip); 2. Placing quantum dots in a vacuum glass tube and configuring the glass tube between the backlight source and the panel (On-Edge); the third is directly producing a film containing quantum dots (QDEF) to replace the existing diffusion film in LCDs (On-Surface).
Quantum dot films are currently the most viable means of mass production. Currently, the quantum dot films (on-surface) and on-edge two technical routes can be produced, with mass production of the on-edge method still facing difficulties. The quantum dot film is developed in collaboration with Nanosys and 3M and is the mainstream quantum dot display technology route.
QDEF involves dispersing quantum dots with diameters of 3 nm (which can convert blue light to green light) and 7 nm (which can convert blue light to red light) in resin materials, dispersing and film-making, and encapsulating them with two moisture barrier films. Its main advantages are high reliability and compatibility with traditional LCD backlight structures, allowing for the replacement of the original white light source in LCDs with blue LEDs to complete the display panel modification and achieve a color gamut range of 72%-110% NTSC.
Therefore, the production of QDEF films requires key processes for two types of films: resin films that can uniformly disperse quantum dots and moisture barrier films. The method for dispersing quantum dots in resin films mainly involves coating a solution containing dissolved quantum dots onto substrates; moisture barrier films generally use PET substrates with surface functional coating layers and are coated with inorganic or organic films to provide thermal insulation, oxidation prevention, and moisture barrier functions.
The production barriers for moisture barrier films suitable for display devices are high, and production equipment is a key difficulty. The main methods for achieving high barrier film coating processes include plasma CVD and magnetron sputtering, with magnetron sputtering using equipment for producing ITO conductive films, while most Chinese companies have introduced KOBELCO’s plasma CVD winding coating machines, which are relatively low-cost. Currently, the production of moisture barrier films in China is still in the exploratory stage.
The on-surface route has better growth prospects, and QDEF has huge market potential. Among the currently mass-producible quantum dot display technologies, while the on-edge method uses fewer quantum dots, it is difficult to encapsulate and has poor compatibility with current LCD technologies, leading to higher overall costs and difficulties in mass production. In contrast, the on-surface QDEF film implementation method is more reliable. According to IHS statistics, the market size for quantum dot LCDs packaged in on-surface form was 1.3 million units in 2015, and it is expected to reach 25.7 million units by 2021, with the market share increasing to 76.5%. Correspondingly, the market demand for QDEF films will also maintain a high growth rate.
3.4. The Company Has Strategic Cooperation with Nanosys, and There are Great Opportunities in the Quantum Dot Film Field
Nanosys is the world’s largest producer of quantum dot materials, holding the core patents for quantum dot films QDEF. Nanosys is the largest quantum dot supplier globally and the first to commercialize quantum dot displays. The QDEF film display route developed in collaboration with 3M is currently the most successful industrialization route. The company holds or has exclusive licenses for over 300 patents that have been published or are being applied for worldwide, with QDEF and Nanosys being registered trademarks of Nanosys, Inc. in the United States and other countries.
The strategic cooperation between the company and Nanosys is expected to further open up the vast market for quantum dot displays. Jizhi Technology has a strong technical accumulation in the manufacturing of optical films and has good cooperation relationships with leading downstream display equipment manufacturers, possessing good technological, service, and customer advantages. The collaboration with Nanosys to enter the quantum dot film field reflects the company’s strategic layout thinking and is expected to lead the wave of technological updates in the display industry.
At the same time, Jizhi Technology has also signed a strategic cooperation agreement with Micro Whale Technology Co., Ltd. in Shanghai. Micro Whale Technology is a company focused on Internet television, and cooperation with downstream customers will help the company open up the application market for quantum dot films.
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