\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Core view
Demand side: jewelry brands have successively joined the diamond industry, the penetration rate of the industry has increased steadily, and the medium and long-term growth space of the industry is broad. According to Bain consulting data, the global output of cultivated diamonds reached about 10 million carats in 2021, an increase of 45.0% over 2020, and the penetration rate further increased to about 8%. At the same time, the global retail scale also increased from 39.9 billion yuan to 72.1 billion yuan, a year-on-year increase of + 80.7%. By market, the sales volume of cultivated diamonds in the U.S. market increased by 50% year-on-year in 2021, and consumer recognition and recognition were at a high level; In China, with brands such as light mark, luccan and Mclon Jewellery Co.Ltd(300945) joining the diamond cultivation industry, Chinese consumers' awareness of diamond cultivation has also increased rapidly. According to our calculation, it is expected that in 2025, the scale of diamond rough market is expected to reach 15.7 billion yuan and the scale of retail end is expected to reach 232 billion yuan, with about five times the current growth space.
Supply side: the order fulfillment rate is still at a low level, the new capacity is relatively limited, and the high concentration of the industry under high barriers is expected to be maintained. According to the industrial research, the order fulfillment rate of the diamond industry is low, and the gap between supply and demand is obvious; Considering that the demand for new press will continue to increase by about 40% in 20222022, and the supply of new press will remain tight in 20222022. In the short-term dimension, due to the high unit price of the six sided press, the capital constitutes the main restriction for external "players" to enter the industry; In the medium and long term, as leading enterprises have established all-round advantages in technology, scale and channels, the high concentration is expected to continue.
Henan Liliang Diamond Co.Ltd(301071) : the newly-built production capacity has been steadily implemented. Both cultivated diamonds and industrial diamonds have the prospect of price increase, and the performance elasticity is worth looking forward to. According to industry research, it is estimated that the total number of six sided top presses of the company will be about 700 by the end of 2021, of which about 400 will be used for diamond cultivation, and it is expected to reach 1000 by the end of 2022; At the same time, in the context of the conflict between Russia and Ukraine, the continuous rise in the price of natural diamonds will provide a bottom and support for the cultivation of diamond prices; In addition, as the cultivation of diamonds seizes the production capacity of industrial diamonds and superimposes photovoltaic and consumer electronics to drive the demand for micro powder, there is also room for price increase of industrial diamonds. On the whole, the company's main products are expected to increase both volume and price in 2022, with sufficient performance flexibility.
Investment suggestion: it is estimated that the company will achieve EPS of 7.90, 12.13 and 16.95 yuan respectively from 2022 to 2024. The current share price (closing price on March 24, 2022) corresponds to PE of 37, 24 and 17 times respectively. Considering the clear business model, stable leading position and increasing profitability of the company, the superposition of high transfer will improve share liquidity and maintain the "recommended" rating.
Risk tip: the penetration rate of cultivated diamonds is lower than expected, the promotion of technology R & D is lower than expected, and the competition pattern of the industry is intensified.
