This week's special topic: the resumption of the history of diamond cultivation in China and the detailed explanation of the production capacity of various companies
Diamond Cultivation: China's diamond cultivation began in 2014 when Huajing took the lead in mass production, and then set off an upsurge. In 2019, Central South China took the lead in breaking through the 2-3 carat rough drill technology, and the process size of the broken large carat cultivation drill entered the mainstream range of the market (3 carat cultivation drill, rough drill, about 1 carat finished drill). Since then, China's cultivation drill has gradually moved to the field of consumer jewelry. The mainstream 3 carat technology of Central South China and the Yellow River will be stable in 2020. From 2020h2 to 2021 Henan Liliang Diamond Co.Ltd(301071) 2-5 carat technology breakthrough and stability, so that the average price of its products can achieve leapfrog growth. In the second half of 2020, the average price of cultivated drill with more than 3 carats increased by 111.6% month on month to 567 yuan / carat, and in 2021h1, the average price increased to nearly 670 yuan / carat. As for the source of enterprises, we believe that the breakthrough of dakla process is the main source for enterprises to obtain excess returns. For the same equipment, with the increase of cultivation carats, if the cost increases approximately linearly, the profit margin will increase exponentially. Technological progress has led to the growth of enterprise profits. In Henan Liliang Diamond Co.Ltd(301071) 2020, the gross profit margin will reach 66.9%, with a year-on-year increase of about 5.6pct. On the demand side, jewelry leaders have successively entered the market to cultivate diamonds, which has accelerated the cultivation of consumer cognition. As brands accelerate the laying of offline stores in 2022, we remain optimistic about the demand for diamond cultivation. On the supply side, India's import and export growth is highly related to China's supply, and the industry growth may be mainly restricted by supply. 7. In August, the flood in Henan dragged down China's supply of cultivated diamonds. India's imports of cultivated diamonds fell 33.6% month on month in August, with an interval of about one month. India's exports of cultivated diamonds fell 23.8% month on month in September. Then, as the impact of the flood subsided, India's imports recovered synchronously month on month. India's CVD production expansion, the market is generally worried that India's CVD production expansion will lead to overcapacity. Since September 2021, the year-on-year growth rate of India's cultivated diamond imports has always been higher than that of exports. The growth difference from September to November is 16.9, 15.9 and 12.7 PCT respectively. We believe that India has not reduced its cultivated diamond imports, which proves to some extent that India's current production capacity has not been greatly expanded. As for HPHT press equipment, the profitability of superhard material production enterprises depends on the breakthrough of dakla process on the one hand. On the other hand, it also depends on the cavity size of the press equipment
North Industries Group Red Arrow Co.Ltd(000519) : the production capacity is leading in the industry, and large-scale diamond is expected. The company mainly focuses on HPHT method, while stepping up R & D and CVD layout. In terms of existing production capacity, North Industries Group Red Arrow Co.Ltd(000519) cultivation diamond HPHT production capacity and technology are leading in the industry, which can stably produce large carat cultivation diamonds. It is estimated that by the end of June 2021, the company has about 3600 sets of production equipment with six side top presses. In terms of capacity planning, the company's capacity layout is in the middle and upper reaches, and the supply of raw materials is stable. In 2021, the company purchased a large number of 900 presses capable of producing 30 carat rough diamonds. It is expected that 120000 carat gem grade cultivation diamond production lines and equipment will be put into operation in 2022. In the future, the production capacity of large carat cultivation diamonds is expected to continue to increase.
Henan Huanghe Whirlwind Co.Ltd(600172) : the production capacity is second only to Zhongnan diamond, and a new mode of government enterprise cooperation is explored. The company focuses on HPHT method, and CVD is still in the R & D stage. At present, in terms of production capacity, the press stock is second only to Zhongnan diamond, and the cultivated diamond is full of production and sales. Based on the average revenue generated by the press and the company's equipment purchase expenditure, we calculated that the total number of presses in the company was about 2700 by the end of 2021q3. The company publicly replied that at present, it has maintained full production and sales, and the cultivation of drill has driven the overall gross profit margin to increase by 10.9pct in the first three quarters of 2021; In terms of capacity planning, the company explores a new mode of government enterprise cooperation, and the project with an annual output of 5 million carats is under construction. Through the estimation of cash expenditure of fixed assets, we get that q1-q3 company will purchase about 206 compressors through its own funds in 2021; At the same time, the company has added 300 presses outside the system through government enterprise cooperation projects Jifeng and xudrill. With the production of 5 million carats of HPHT and CVD projects and the promotion of digital transformation, the production capacity is expected to continue to expand and release.
Henan Liliang Diamond Co.Ltd(301071) : accounting for about 20% of the country's total production capacity, listing and fund-raising broke through the production capacity bottleneck. The company adopts HPHT method and CVD method to plan R & D. In terms of current production capacity, according to the prospectus, the company has 483 presses by the middle of 2021, an increase of 74.37% over the middle of 2020. In 2020, press models above 650 will account for 91.3%, accounting for 18.75% of the industry average. The company has maintained full production and sales for three consecutive years. In 2020, the diamond production capacity will be 141000 carats. The production capacity will continue to expand for three consecutive years, an increase of 120.5% over 2018, while the production capacity of diamond single crystal and micro powder will almost remain unchanged. The management of the company mentioned in an interview with the company conducted by China Central Television financial channel on November 18 that the company has a monthly production capacity of about 40000 carats of cultivated diamonds, accounting for about 20% of China's total production capacity. In terms of capacity planning, the company is listed for fund-raising and plans to invest all the raised funds of 274 million yuan in the intelligent chemical plant project. The construction of the intelligent chemical plant is expected to be completed in 2022, and 320 presses are planned to be purchased. The occupied area of a single press in the new plant is significantly reduced, and the planning, design and installation efficiency are significantly improved.
This week's view.
Household sector: in November, the national residential sales area decreased by 16.3% year-on-year to 127 million square meters, down 6.8% compared with the same period in 2019, and the monthly sales data continued to decline; In November, the completed residential area in China was 495 million square meters, a year-on-year increase of 13.23%, and the growth rate changed from negative to positive. And an increase of 9.51% over the same period in 2019. On December 8, the national development and Reform Commission proposed to encourage the implementation of subsidies for furniture and home decoration to the countryside, promote the upgrading of durable consumer goods for rural residents, and benefit the recovery of terminal demand in the home sector on the policy side. In addition, at the central economic work conference on December 10, it was once again emphasized that housing should not be speculation, accelerate the development of long-term rental housing market, promote the construction of indemnificatory housing, support the commercial housing market to better meet the reasonable housing needs of buyers, and promote the virtuous circle and healthy development of the real estate industry due to urban measures. With the gradual release of real estate credit risk and the recent reduction of reserve requirements by the central bank, the pessimistic expectation of the market for real estate will be alleviated, and the valuation of the home sector is expected to be repaired. Paper sector: (1) cultural paper: the price of cultural paper has remained stable in the near future. Large scale paper mills have strong willingness to support prices, but the downstream transactions are limited, the power to make up for price increases is insufficient, and the game situation between market supply and demand appears; Pulp price shock finishing, cost side support still exists. (2) Box tile paper: the price of box tile paper is affected by the cancellation of the price increase plan by the leader, and the market mentality is pessimistic. Recently, the demand for replenishment in the downstream is stable, and the packaging factory mainly digests the inventory. Subject to the no obvious improvement of downstream orders and the repeated local epidemic, there is great resistance to the rise of paper enterprises, and the rise of waste paper price has limited support for the cost side.
Textile and garment: (1) textile manufacturing: under the background of repeated epidemic, we believe that the textile manufacturing sector with high export prosperity and mainly export manufacturing may have structural opportunities, its overall prosperity is better than the brand clothing dominated by domestic demand, and the high prosperity of Q3 orders of the leading company continues. The overall expectation of the sector is relatively pessimistic + the fund is in a low position state + the current valuation of the sector is low and cost-effective. We think that the current market as a whole or the layout on the left side of the industry segmentation leader is a better time point. (2) Sports shoes and clothing: Recently, the epidemic situation in some areas has been repeated. Under the exogenous impact of short-term lack of catalysis + repeated epidemic situation, the valuation of brand clothing has continued to decline. We believe that the left layout can be appropriate at present. The overall prosperity of the follow-up sector needs to wait for the epidemic and the landing of economic catalysis. (3) Down jacket: according to the online data, the market share of Q4 down jacket online sales category will increase significantly in 2021, the concentration of head brands will increase, and the cold winter is expected to boost down jacket sales. (4) Outdoor sports: the growth of overseas outdoor sports demand has led to the improvement of China's export volume of corresponding products. The performance of professional outdoor sports equipment and product enterprises in China has been outstanding since 2020, and the industry boom has been upward.
Investment advice
Continue to recommend Quzhou Wuzhou Special Paper Co.Ltd(605007) , a leading enterprise of high growth paper-based materials in the era of replacing plastic with paper. Based on the high prosperity and large space track, the leapfrog improvement of production capacity opens the bottleneck. At present, the company's valuation is close to the historical low, with a high safety margin and large repair space. It is recommended that wood pulp is the leading papermaking industry Shandong Sun Paper Co.Ltd(002078) . The company is diversified and leading in cost control. The current valuation has been at the bottom of history. It is recommended to configure it on the left; In addition, it is suggested to pay attention to the box board leading Shanying International Holdings Co.Ltd(600567) with overseas production line layout and national waste channel construction.
It is recommended that Shantou Wanshun New Material Group Co.Ltd(300057) . Lithium battery aluminum foil is put into operation in the high boom window period and is still in a valuation depression in the industrial chain. The current market has poor expectations, and the bottom is firmly recommended. It is recommended to give priority to companies with strong ability to bring high growth through channel change and category expansion under the current industry background. It is recommended to pay attention to the leading Oppein Home Group Inc(603833) of customized home furnishings, maintain high growth of decoration income, continue to strengthen the front-end traffic entrance under the background of differentiation of home consumption traffic, and gradually smooth out the business model of new channels at present. Software home continues to recommend Jason Furniture (Hangzhou) Co.Ltd(603816) , and it is recommended to pay attention to Minhua holdings. Jason Furniture (Hangzhou) Co.Ltd(603816) the channel reform is gradually realized to the performance. Based on the original strong sofa channel, new categories such as mattresses and customized home began to increase; Minhua holdings is in the stage of continuous high-speed store opening in the domestic sales channel, the market share and performance are in a relatively strong upward channel, and there is still much room for improvement in the medium and long-term functional sofa penetration.
Risk tips
Macroeconomic growth is less than expected, resulting in the decline of residents' purchasing power; Severe real estate regulation has a negative impact on the downstream home demand. The intensified competition in the diamond industry led to price fluctuations, and the increase of industry penetration was less than expected.
