China Semicap: Domestic WFE components - Supply shortage driven localization acceleration

China's semiconductor equipment subsystem, component and module (SCM) localization is accelerating driven by global vendors' shortage, helping address supply constraints faced by domestic wafer fabrication equipment (WFE) vendors. Our 2024 report highlighted that China's SCM supply chain had already achieved de-Americanization, but many segments still rely on non-US global vendors. Based on our latest channel checks, we expect the adoption of local SCM vendors will resolve the component shortage within 1-2 quarters, with no material impact on equipment deliveries in 2027. We maintain our Outperform ratings on NAURA, AMEC and Piotech. SCM localization is a two-phase journey, transitioning from geopolitics-driven substitution to supply-shortage-driven adoption. Phase 1 focused on replacing U.S. components amid geopolitical tensions, while Phase 2 is being driven by tightening supply from Japanese and European suppliers, prompting domestic WFE vendors to accelerate local sourcing. Low-loc