Price anchoring method: the price of cultivated diamonds is anchored by the demand rather than the cost. The price is the result of the game among channel providers, brands and consumers. Cultivated diamonds and natural diamonds apply 4C standard together. It can be directly compared: the price of cultivated diamonds in 2016 was 70% – 80% of that of natural diamonds. At that time, it was actually a situation of price without market. It was not until 2019-2020, with the breakthrough of process technology, the price of cultivated diamonds reached the threshold of consumers’ psychological price (cultivated diamonds were about 1 / 3 of the price of natural diamonds), the demand began to increase significantly, and the penetration rate began to rise rapidly. For a long time, the 4C standard has been applied to cultivated diamonds and natural diamonds, and the price is anchored by demand rather than cost. It is the result of the game between channel providers, brands and consumers, rather than the decision of upstream manufacturers.
The entry threshold of diamond cultivation by high temperature and high pressure method is actually high, and the process barrier of upstream manufacturers is its source of profit: Diamond cultivation is not a mask, nor is the six sided top press a mask machine. The products themselves are differentiated, and the selling price of higher grade products shows exponential growth, so there are process barriers in diamond cultivation production, Manufacturers with better processes have stronger profitability. Profitability comes from better processes and technologies, not homogeneous equipment and capital investment. Processes and technologies need time and experience accumulation, which also constructs the business barrier for cultivating diamond upstream manufacturers. In addition, even the equipment investment payback period of mature manufacturers takes a long time. When the process technology is not met, the cost price of the products produced by new entrants may be much higher than the psychological price threshold of consumers, which is difficult to make profits and has a longer payback period. Therefore, the entry threshold on the path of cultivating diamond high temperature and high pressure technology is actually high, which makes the motivation of new entrants weak, There are not many new entrants. For head manufacturers, there is still room for progress in technology. With the same cost, they can produce more high-quality products and create more profits. This is the alpha of head manufacturers.
The improvement of technology may lead to the improvement of the overall average price of diamond manufacturers: we believe that the downstream consumption of cultivated diamonds will remain high in the next 2-3 years. In the end, the price of natural diamonds has an anchoring effect on the price of cultivated diamonds. The “price increase” of upstream manufacturers is essentially the increase of the proportion of high-grade diamonds in a furnace of rough produced at one time on the basis of the improvement of technology, With the improvement of the average price, there is still room for improvement in the future, and with the continuous improvement of the appearance of ex factory products, the cultivation of diamond producers is expected to usher in a continuous “structural price increase”.
Investment suggestion: cultivating diamond prices to anchor natural diamonds is the result of the game between channel providers, brands and consumers. Cultivating diamonds is not a mask, nor is the six sided top press a mask machine. There are process barriers in the production itself. Since 2020, the price of cultivated diamonds has been basically stable at the level of 1 / 3 of the price of natural diamonds, which is also in line with the psychological price of consumers. In addition to the industry beta in the future, there is a logic of improving the quality and average price of diamond upstream manufacturing enterprises. Henan Liliang Diamond Co.Ltd(301071) is recommended. It is recommended to pay attention to North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , etc.
Risk tip: the epidemic situation is repeated, the prosperity of terminal consumption is declining, and the market competition is intensifying
