Industry perspective
Cultivating diamonds: the compound growth rate of demand from 2019 to 2021 is 107%; In 2021, the production penetration rate is about 7%, with large growth space
1) diamond cultivation is one of the few “immune” growth tracks less affected by the epidemic. At present, the demand is mainly in the United States. The industrial chain is presented as: China in the upper reaches, India in the middle reaches and the United States in the lower reaches. (1) Upstream: China basically monopolizes more than 90% of the global gem grade (large particle) cultivated diamond raw stone (blank) manufacturing (high temperature and high pressure method), with a gross profit margin of more than 60-70%. (2) Midstream: India accounts for about 95% of the global diamond polishing market, with a gross profit margin of about 10-15%. (3) Downstream: the United States is the main consumer area of cultivated diamond jewelry in the world, consuming more than 80% of cultivated diamond retail products in the world, and the gross profit margin of terminal retail exceeds 60-70%.
2) the import data of India’s cultivated diamond raw stones can basically reflect the industry demand: the annual import volume of India’s cultivated diamond raw stones from 2019 to 2021 was US $260 / 4.4 / 1.13 billion, and the CAGR was 107%; In the first quarter of 2022, it increased by 105% year-on-year. We estimate that the output penetration rate of cultivated diamonds in 2021 is about 7%, and the output penetration rate is 5%. There is a large room for growth in the future.
Demand: the main consumption in the United States and the new market in Europe and Asia. It is estimated that the compound growth rate of global cultivated diamond raw stones will be 35% from 2022 to 2025
1) we estimate that from 2022 to 2025, the global demand for diamond raw stones will increase from 14.3 billion yuan to 31.3 billion yuan, with a compound growth rate of 35%.
2) the global diamond retail market remained basically stable from 2011 to 2019. In 2021, the global diamond consumption hit the bottom and rebounded, with a year-on-year increase of 24% to US $84 billion; China’s per capita diamond consumption is low and developing rapidly. It will become one of the largest potential markets in the future.
3) cultivate the core drivers of diamonds: low price, real diamonds, environmental protection and new consumption. The production of natural diamonds is decreasing, the labor cost is high and the environment is not friendly; The general trend of diamond and jewelry consumption, such as satisfying oneself’s demand, cultivates diamonds to be loved by millennials + Z generation.
Supply: it is estimated that the supply will exceed the demand before 2025. Due to the limitation of equipment and technology, it will take time to cultivate and expand the production of diamond raw stones
1) manufacture of diamond raw stone cultivated by high temperature and high pressure method: there are 3 Xj Electric Co.Ltd(000400) 0 sets of press in stock, and the upper limit of annual expansion is about 1 Yihua Healthcare Co.Ltd(000150) 0 sets; The core factors of production expansion: the increase in the number of presses (the capacity of the hinge beam of the core parts is limited, resulting in the restriction of the annual expansion of the press), equipment upgrading (the elimination of 650 and other old models, the introduction of 850 or even larger models, the enlargement of the synthetic chamber, and the significant increase in the single output, with a year-on-year increase of about 120%), and process upgrading (the proportion of special products increases, the average price of single carat increases, and the gross profit margin increases).
2) competition pattern: North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) , Henan diamond supply China’s ultra-80% raw diamond cultivated by high temperature and high pressure method, and the top three supply about 75% of the share; In the later stage, with the continuous expansion of other small and medium-sized enterprises, the total market share of the above three enterprises is expected to decline to 70% by 2025.
3) high temperature and high pressure jewelry grade diamond raw stone Cultivation: according to the investment and expansion plan of each company, considering the bottleneck of equipment supply and process capacity, the total output value of the industry is expected to increase from 3.9 billion in 2022 to 11.3 billion in 2025, with a compound growth rate of 49%.
4) by 2025, the overall demand of the industry will be in short supply. In 2025, the demand satisfaction rate of cultivated diamond raw stones will be about 85%: as an industrial product with consumption attribute, the price of cultivated diamond raw stones will ultimately be determined by the supply and demand pattern. It is expected that the demand satisfaction rate of cultivated diamond raw stones made in China will increase from 68% to 85% from 2022 to 2025. The overall demand of the industry will be in short supply.
Competition pattern: North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) and other leaders dominate the cultivation of diamond raw stone market. We have compared the advantages and disadvantages of the three leaders in detail. See the text for details. We believe that North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) are underestimated: (1) North Industries Group Red Arrow Co.Ltd(000519) : strong risk resistance: state-owned enterprises + more cash, less debt + good process technology, the largest stock of presses (industrial diamond production capacity can be converted); Large room for improvement: improvement of press structure + improvement of business structure (increase in the proportion of net profit of cultivating diamonds) + process improvement. The long-term performance is flexible and obviously underestimated; (2) Henan Huanghe Whirlwind Co.Ltd(600172) : unloading of historical burden + cultivation of diamonds by fixed increase and expansion + strong technical strength and flexible performance; (3) Henan Liliang Diamond Co.Ltd(301071) : private enterprises have the advantages of flexibility, strong production expansion and large performance growth in the short term.
Investment suggestion: there is great room for the growth of raw stone leaders – North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) cultivate diamond low permeability and high growth, and focus on North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) cultivate diamond raw stone leaders.
(1) North Industries Group Red Arrow Co.Ltd(000519) : the global cultivation of diamond raw stone + industrial diamond double leaders will turn losses in military business and have great performance flexibility;
(2) Henan Huanghe Whirlwind Co.Ltd(600172) : the business is booming, the historical burden is gradually unloaded, the interest and impairment are expected to improve, and the performance is reversed upward;
(3) Henan Liliang Diamond Co.Ltd(301071) : cultivate the rise of diamond rookies, plan to increase production by 4 billion, and increase short-term performance greatly.
Risk warning: risks of changes in competition pattern, profitability fluctuation and sales system of cultivated diamond raw stones
