Henan Liliang Diamond Co.Ltd(301071) (301071)
Deeply cultivate the field of artificial diamond, cultivate diamond leading enterprises, and give a “buy” rating for the first time
The company is a leading enterprise in the artificial diamond industry. It has the advantages of R & D technology and equipment to build a moat of product strength. Under the business cooperation, the profit is highly flexible. With the market development strategy focusing on direct sales, the demand side is highly deterministic. With the improvement of quality and continuous expansion of production capacity after the increase of R & D investment, it is expected to break through the bottleneck of production capacity and continuously improve the average price of high-grade products. Under the catalysis of volume and price, the market share of diamond cultivation is expected to increase, driving performance growth. We predict that the net profit attributable to the parent company from 2021 to 2023 will be RMB 233 / 442 / 672 million, corresponding to EPS of RMB 3.9 / 7.3 / 11.1, and the corresponding PE of the current stock price will be 71.1 / 37.5 / 24.6 times respectively. The “buy” rating will be given for the first time.
The demand for synthetic diamond is broad, and the east wind of diamond cultivation will set sail again
The physical and chemical properties of cultivated diamonds are the same as those of natural diamonds. Since 2019, the degree of standardization and market recognition have been greatly improved, and the advantages of high cost performance have been highlighted. It is expected that the demand for marriage and love substitution and self pleasing demand will push up the penetration rate. The value of the industrial chain presents a smile curve and the pattern is stable. China occupies an absolute advantage in the upstream. It is expected that by 2025, the scale of the global / China cultivated diamond rough market will reach 38 / 22.8 billion yuan, maintaining a compound growth of 15-20% per year in the medium and long term. The diamond single crystal and micro powder market continues to expand the downstream high potential application scenarios, and the market scale is expected to continue to expand.
Business synergy improves profit elasticity, and demand certainty is high under the acceleration of market development
(1) Advantage 1: the company has strong R & D awareness, perfect technical system and achieved technological breakthroughs in subdivided fields. The number of synthetic equipment with high unit yield accounts for more than that of the industry, which has both R & D and equipment advantages. Under business collaboration, high profit elasticity is reflected in: single crystal products are produced and used by themselves, and the added value and turnover rate are improved; Six sided press can flexibly switch single crystal and cultivate diamond production capacity to quickly respond to market demand; Multiple categories share R & D technologies and dilute R & D expenses. (2) Advantage 2: while the product strength is recognized by well-known customers, it focuses on direct selling and actively expands the market. The direct selling model has strong demand insight and service tracking, which is conducive to entering new customers and deepening cooperation with existing customers. Therefore, the company’s key customers have high viscosity, high contribution and close cooperation with new customers.
Future increment: optimizing product structure, raising prices, and cultivating diamonds after expansion will become the growth engine
(1) Price: there is a strong market demand for China’s medium and high-end products. With R & D investment and accelerated market development, the company’s medium and high-end products such as high-grade single crystal, high-end micro powder and large particle cultivated diamond are expected to enjoy a high premium; (2) In terms of quantity: the cultivation of diamonds is constrained by the capacity bottleneck, and the production and marketing rate and capacity utilization rate remain at a high level of 100% and 95% respectively. The company actively expands production capacity and equipment. After the installation of the remaining area of the East plant is completed, there will be nearly 850 presses. Under the catalysis of volume and price, the high-grade cultivation diamond business with high gross margin is expected to become a growth engine.
Risk prompt: supplier concentration risk; Risk of continuous R & D innovation; Capacity expansion was less than expected.
