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Henan Liliang Diamond Co.Ltd(301071) : the main business is pure and enjoys the high bonus of cultivating the drilling industry
Henan Liliang Diamond Co.Ltd(301071) was founded in 2010, focusing on the R & D, production and sales of synthetic diamond products. In 2021, the downstream demand of the company was booming, and the income of main products increased significantly. The cultivation of diamond / diamond powder / diamond single crystal contributed 197 / 156 / 137 million yuan respectively, with a year-on-year increase of 428% / 55% / 38%; The gross profit margin was 81% / 50% / 58% respectively, with a year-on-year increase of + 15 / 10 / 18pct.
Diamond industry: new and old fields are developing at the same time, with high prosperity
1) cultivating diamonds: we predict that the global diamond jewelry market will reach US $13.1 billion in 2025, with a compound annual growth rate of 36%. Chinese manufacturers supply 40% of the global + cultivated diamond blanks. China Cr4 (Zhongnan diamond, Henan Huanghe Whirlwind Co.Ltd(600172) , Zhengzhou Huajing, Henan Liliang Diamond Co.Ltd(301071) ) accounts for about 80% of the market, which will significantly benefit from the high growth of downstream demand.
2) diamond single crystal: in 2019, the output of diamond single crystal in China was 14.2 billion carats, accounting for more than 90% of the total global output, of which the output of Cr4 in China accounted for 70% of the country. Since 2021, the overall increase of industrial diamond price has reached 50%, and the industry leaders have benefited significantly.
Advantages of the company: high growth target, increased capacity & technology investment to build a moat
According to the company’s fixed growth plan, the company will add more than 1800 six sided top presses in the next three years, with an installed capacity of more than 2500, an average annual production of more than 600, and an annual compound growth rate of nearly 40%. In 2021, the company’s R & D investment reached 5.3%, and the yield of diamond products and the proportion of large carats continued to increase. Among them, the proportion of first-class white diamonds reached more than 70%, and the overall average sales price increased by about 140% year-on-year.
Investment suggestion: Henan Liliang Diamond Co.Ltd(301071) ( Henan Liliang Diamond Co.Ltd(301071) . SZ), the three main businesses with booming production and sales, is increasing the production capacity layout and enjoying the high growth dividend of the industry, and the performance is expected to continue to improve rapidly. It is expected that the company will realize a net profit attributable to the parent company of 496 / 744 / 1 billion yuan from 2022 to 2024 respectively, corresponding to the current PE valuation of 35x / 23x / 17x, and give a “buy” rating.
Risk tip: the company’s production capacity is less than expected, the industry competition is intensified, and the downstream demand is less than expected.
