Investment advice
Under the influence of multiple factors such as US inflation and geopolitical situation, the uncertainty of natural diamond supply chain increases, which may promote the accelerated penetration of cultivated diamonds. In the short term, some supply chains in China will be affected by the epidemic, but the sunrise attribute of the industry will not be changed. It is recommended that North Industries Group Red Arrow Co.Ltd(000519) / Henan Huanghe Whirlwind Co.Ltd(600172) / Henan Liliang Diamond Co.Ltd(301071) / Sinomach Precision Industry Co.Ltd(002046) / Sf Diamond Co.Ltd(300179) .
Market Review
In recent months (2022.4.16 ~ 2022.5.16), the Shanghai Composite Index, Shenzhen Component Index and Shanghai and Shenzhen 300 fell 4.28%, 4.77% and 5.54% respectively, and the cultivated diamond sector fell 2.76%, outperforming Shanghai and Shenzhen Huachangda Intelligent Equipment Group Co.Ltd(300278) pct. Plate comparison shows that diamond cultivation is in the middle and upper reaches. In terms of individual stocks, Sf Diamond Co.Ltd(300179) , Sinomach Precision Industry Co.Ltd(002046) , Beijing Worldia Diamond Tools Co.Ltd(688028) led the gains, and Henan Huanghe Whirlwind Co.Ltd(600172) , Mclon Jewellery Co.Ltd(300945) led the declines.
Data tracking:
Cultivated drilling: in April of 22, India imported US $100 million of rough, with a year-on-year increase of + 25.1%, a month on month increase of – 50.6%, with a penetration rate of 7.1% (year-on-year increase of + 2.6pct), and exported US $148 million of bare drilling, with a year-on-year increase of + 64.95%, a month on month increase of + 8.0%, with a penetration rate of 6.4% (year-on-year increase of + 2.6pct). The month on month slowdown of India’s import growth in April was mainly due to the more holidays in India in April, the slowdown of processing progress, mainly digestion of bare diamond inventory, and the high growth of exports under the continuous strong downstream demand.
Price of raw materials for cultivation drilling: since April, the price of tungsten carbide powder has dropped slightly and eased, but it is still at a high level since 2019; Nickel price fluctuates at a high level (210000 yuan / ton – 240000 yuan / ton).
Natural drilling: India’s rough import / bare drilling export decreased by 22.8% and 2.8% respectively in April 22. In April, the export growth further slowed down to decline, which is expected to be: 1) monthly fluctuations caused by the off-season; 2) China’s epidemic demand weakened. In April, the decline of import growth rate was greater than that of export, mainly due to Alrosa (accounting for about 30% of global production capacity). Due to the continuous spread of US sanctions, the supply uncertainty increased, and the production capacity of Indian factories decreased. Russian rough diamonds are dominated by small particles, accounting for 40% of India’s diamond trade and 30% of the trade volume. The working hours of large processing plants in Surat have been reduced to 3-4 days a week, and small factories are shut down.
Price of natural drill: 1) rough drill: affected by the US sanctions against Russia Alrosa, the price of small particle rough drill has increased by more than 20% since March. 2) Natural diamond: IDEX index showed a downward trend in April, with a decrease of 2.1% in a single month, mainly due to the cautious attitude of dealers and retailers under the background of China’s epidemic, US inflation and the tense situation in Russia and Ukraine.
Industry dynamics
Industry news: 1) natural diamonds: the UK increases the Russian diamond import tax to 35%; 22q1 De Beers rough drill output increased by 25% at the same time; Affected by the US sanctions against Russia, endiama sharply reduced the diamond production to 10.05 million carats (13.8 million carats originally planned). 2) Nurturing diamonds: according to briteco, American consumers (especially young customers) have significantly improved their acceptance of nurturing diamonds and strong demand growth. In 2021, American nurturing diamonds accounted for 28.4% (+ 9.7pct) of engagement rings. The average expenditure of natural diamond engagement ring increased by 11.9% to US $8053 / cultivated diamond increased by 8.6% to US $4383; The average weight of natural diamond engagement ring increased from 1.16 carats to 1.25 carats / cultivated diamond increased from 1.34 carats to 1.49 carats.
Key announcement: Henan Huanghe Whirlwind Co.Ltd(600172) 22q1 revenue / net profit attributable to parent decreased by 4.04% and increased by 179% respectively Henan Liliang Diamond Co.Ltd(301071) 22q1 revenue increased by 126.88% and net profit attributable to parent increased by 147.81% Beijing Worldia Diamond Tools Co.Ltd(688028) 22q1 revenue decreased by 1.18% and net profit attributable to parent decreased by 55.56%.
Risk tips
The price of upstream expansion fell; Downstream consumer education was less than expected.
