Core view
Cultivate diamond Dongfeng and promote industrial revolution: cultivated diamond is a real diamond cultivated in the laboratory, which has the same physical and chemical properties as natural diamond. Cultivating diamond production includes two technical routes: high temperature and high pressure method (HPHT) and chemical vapor deposition (CVD). Different technical routes learn from each other’s strengths to make up for their weaknesses, and diamond blanks converge. Nearly half of the world’s diamond synthetic press is produced by China, and nearly half of the world’s diamond synthetic press is produced by itself.
Cultivating diamond industry chain: led by China, India and the United States. 1) At the upstream production end, the global production capacity of cultivated diamonds will be about 7 million carats in 2020, of which Chinese manufacturers account for 40% +, and the gross profit rate will be as high as 60%. We expect the global production of cultivated diamonds to reach 29.3 million carats in 2025, and the penetration rate at the diamond production end will reach 18%; 2) At the midstream processing end, India accounts for 90% of the global market share, which is a labor-intensive link. The entry threshold is low, and the gross profit margin is only about 10%; 3) At the downstream retail end, the US consumer market accounts for 80% of the world, with strong brand premium effect and gross profit margin of 60-70%.
The downstream demand space is vast, reaching US $10 billion in 2025: compared with natural diamonds, cultivated diamonds have obvious advantages in cost performance and color, and are very attractive to young groups. The consumption of diamond jewelry cultivated in the United States accounts for 80% of the world, the consumption is about US $3 billion / year, and the market penetration is about 7%. It is expected that the United States will remain the main consumer market for a long time, and its penetration improvement will be the main increment of diamond consumption in the future. China’s diamond cultivation market is still in its infancy, with a market penetration of less than 1%. Assuming that the penetration rate of cultivated diamonds in the U.S. market increases by 2-3 PCT per year, we expect that the global cultivated diamond jewelry market will have about $10 billion in 2025.
Investment suggestion: at present, the C-end penetration rate of the global cultivation diamond market is only 4%, and the high cost performance advantage drives the rapid growth of downstream demand. Chinese manufacturers supply 40% of the world’s cultivated diamond blanks, which will significantly benefit from the rise of downstream demand. China’s diamond production is mainly cultivated by high temperature and high pressure method. Due to the capacity constraints of upstream equipment manufacturers, the expansion of the industry is limited. It is suggested to pay attention to Henan Liliang Diamond Co.Ltd(301071) , North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) with high market share and good cooperation with upstream equipment manufacturers, and Sinomach Precision Industry Co.Ltd(002046) with two technical paths of HPHT / CVD at the same time.
Risk tip: the downstream demand is less than expected, the production capacity is less than expected, and the industry competition is intensified
