Changes in supply and demand redefine diamonds. In 2020, the global output of cultivated rough diamonds reached 7.2 million carats, and the penetration rate of diamond output reached 6.1%, an increase of 2pcts year-on-year. Three major changes in the supply side gave birth to the opportunity for the outbreak of cultivated diamonds: (1) the epidemic increased the supply pressure of natural diamonds (2) mature technology can stabilize mass production (3) High gross profit level attracts terminal retail layout. It is expected that the industry’s high outlook will continue steadily. By 2025, the global output of cultivated diamonds will reach 19.02 million carats, and the CAGR will be 21.44% in the next five years. Consumer cognition supports the long-term demand for cultivated diamonds: it is estimated that the global retail sales of cultivated diamonds and jewelry will reach about 6 billion US dollars in 2020, accounting for 8.82% of the global diamond market, including cultivated diamonds in the United States The market accounted for 12.06%. The future retail demand will come from the increase of national income and the popularity of Yueji consumption: (1) wedding scene: the price gap of diamonds increases exponentially with the improvement of carat number and quality, and the price advantage of just needed diamonds is more obvious (2) Daily fashion: it can partially replace light luxury brands under flexible demand, and cultivating diamond jewelry at the same price is more attractive. Comprehensively referring to the proportion of cultivated diamonds in the overall diamond jewelry consumption and the penetration of cultivated diamonds in the three consumption scenarios of heavy luxury jewelry / Wedding Jewelry / light luxury jewelry, we expect the global cultivated diamond terminal jewelry market to be US $18.736 billion by 2025 , CAGR will reach 25.58% in the next five years, accounting for 16.51% of the overall diamond and jewelry consumption.
Manufacturers and brands set prices together, and the profit distribution shows a “smile curve”. 1) Upstream manufacturers: the technical level and process directly affect the quality factors such as color, clarity and weight of the cultivated drill. Manufacturers with R & D strength fundamentally determine the product pricing, and the production gross profit margin is as high as 50% – 60%. Manufacturers can be divided into HPHT (Zhongnan diamond, Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) ) and CVD technology ( Beijing Worldia Diamond Tools Co.Ltd(688028) ) , Shanghai Zhengshi, Hangzhou transcendence, etc.). The upstream capacity agglomeration is obvious, and Henan, China, contributes 40% – 50% of the global diamond production capacity. 2) Midstream processors and cutters: the entry threshold is low, the bargaining power is weak, and the gross profit margin is only 5% – 10%. Surat, India, with its low labor cost and industrial agglomeration effect, dominates 95% of the diamond processing links in the world. 3) Downstream jewelry retailers: brands need to invest a lot of marketing and channel laying costs for sales. Brand power and channel power determine the price increase rate of naked diamonds. The gross profit margin of high-quality retailers can reach 60% – 70%. The United States is the world’s most mature cultivation diamond consumer market, accounting for 80% of the global retail sales of cultivation diamond jewelry in 2019.
Upstream manufacturing catches up, and terminal retail is ready to go. North Industries Group Red Arrow Co.Ltd(000519) : the industry’s leading technology, has mastered hpht20-50 carat cultivated diamond single crystal synthesis and centimeter level high temperature and high pressure CVD seed preparation technology, and leads the industry in production and sales under two wheel drive. Henan Huanghe Whirlwind Co.Ltd(600172) : the product quality is excellent, and the gem grade cultivation drill Market is stable. In 2020, the sales volume of cultivation drill accounts for 20% of the global market, of which high-end quality accounts for more than 50%. Henan Liliang Diamond Co.Ltd(301071) : the capacity breakthrough is rapid and the growth momentum is strong. In the year of 21, the IPO raised and invested 320 new hexahedral top presses, the technology continues to iterate, and 2-10 carat high-grade cultivation drills can be produced in batch. It is suggested to pay attention to leading manufacturers with technical barriers: North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) , Beijing Worldia Diamond Tools Co.Ltd(688028) . The potential of cultivating diamond retail market is huge, and retailers that can resonate between brands and channels have more investment value. It is suggested to pay attention to the head jewelers who take the lead in laying out and cultivating diamond brands: Shanghai Yuyuan Tourist Mart (Group) Co.Ltd(600655) , Mclon Jewellery Co.Ltd(300945) .
Risk tip: industry competition intensifies; Limited capacity expansion; The terminal demand is less than expected.
