\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Artificial diamond industry: bright market. 1) Gem market: Diamond cultivation is in the ascendant. Benefiting from the short-term natural diamond supply gap and the continuation of long-term diversified consumer demand, it is expected that by 2025, the global cultivated diamond blank output will reach 19.02 million carats, the blank production scale will reach 20.9 billion yuan, and the CAGR will reach 42.19% in the next five years. 2) Industrial applications rebounded from the bottom, and new opportunities broke out in photovoltaic manufacturing: the imbalance of production line switching caused the supply gap of industrial diamond in the traditional infrastructure manufacturing industry, and the logic of short-term average price rise of diamond single crystal was established. The installed capacity of photovoltaic increases the demand for diamond wire saw cutting for inoculating silicon wafers. It is estimated that the scale of artificial diamond for industrial use in the world will reach 8.027 billion yuan by 2025, and the CAGR will reach 7.53% in the next five years.
Technology iteration drives production efficiency and quality improvement. The company has made remarkable progress in the preparation technology of HPHT and CVD. It can mass produce 2-10 carat large particle cultivation drill, which has comparable advantages in quality, stability and performance. In 2020, the proportion of the company’s sales revenue of cultivated diamonds with more than 3 carats increased to 28.34%. The improvement of carat number and quality promoted the increase of the average sales price. The ex factory price of cultivated diamonds in 2021q1 reached 657.08 yuan / carat, an increase of 141.08% over the end of the previous year; The manufacturing cost of unit cultivation drill is reduced to 90.43 yuan / carat, and the continuous improvement of production quality and efficiency can be expected in the future.
Capacity expansion was carried out in an orderly manner, and structural optimization continued. The company’s fund-raising projects are mainly used to expand the production of presses, and it is expected that at least 90% of the new production capacity will be used to cultivate diamond production. As of 2021h1, the installed capacity of the company’s six face top press has reached 483, an increase of 138 over the beginning of the year. According to the current installed speed, the total number of presses put into operation by the end of 2022 is expected to reach 803. The overall downstream demand of the industry is full, the performance growth is highly bound with capacity expansion, and the certainty of sales growth is clear. We estimate that from 2022 to 2024, the production capacity of diamond cultivation will reach 5090 / 8042 / 975400 carats respectively, with the corresponding growth rate of 93.3% / 58.0% / 21.3% respectively.
The business model is streamlined and the cost disturbance is limited. In 2021, the company’s overall expense rate was only 10.00%, with a year-on-year decrease of 0.21pct, including a year-on-year decrease of 0.34pct to 3.07% and a year-on-year decrease of 0.80pct to 1.10%. The company has a clear business model and good cost control ability. The proportion of direct materials in the cost decreased significantly, accounting for 46.04% in 2021 and only 1.10% in the production cost of cultivating diamonds.
Profit forecast and investment suggestion: the company is a pure artificial diamond manufacturer, with clear progress in capacity expansion and broad room for marginal benefit improvement. It is a high-quality target with both deterministic growth and imagination. It is estimated that the company will realize an operating revenue of RMB 814 / 1289 / 1693 million and a net profit attributable to the parent company of RMB 422 / 708 / 970 million from 2022 to 2024, corresponding to eps6.5 million 99 / 11.73/16.07 yuan / share. Comprehensive valuation of comparable peers, covering for the first time and giving “overweight” rating.
Risk tip: intensified industry competition, risk of technology iteration, limited capacity expansion, assumptions or errors
