Industry perspective
Industry development: technological breakthroughs promote the development of the whole industry chain, open downstream demand and promote industry prosperity
Upstream production: the head manufacturer has achieved technological breakthrough in 18 years, mass production and cost reduction in 20 years. The cost of cvd1 carat naked drilling decreased from $4000 in 2008 to $300-500 in 18 years. Henan Liliang Diamond Co.Ltd(301071) the unit cost of HTHP blank is 124.5/88.5/90.4 yuan / carat in 18-20 years.
Midstream trade: the retail price of bare diamonds has decreased from 80% of natural diamonds in 2016 to 35% in 20 years, and the wholesale price has decreased from 70% in 16 years to q42020%, which is 15pct more than that of natural diamonds, attracting traders.
Downstream brands: European and American head jewelers have changed from pressure to embrace, cultivating diamond producers / natural diamond miners / cutting-edge diamond brands; China's jewelry leader Zhou Dafu / Shanghai Yuyuan Tourist Mart (Group) Co.Ltd(600655) entered the Bureau.
Terminal consumption: brand education development space. The demand in the United States accounts for 80%, mainly for daily jewelry.
Industrial chain: breakthrough in mass production technology in 18 years and opening of downstream demand in 19 years
Industrial chain: the profits of cultivating diamond industrial chain are concentrated in upstream production and downstream retail. The price increase rate of products is about 10 times. The head manufacturer has technology / equipment / capital / cost advantages and the gross profit margin is 60% +, the gross profit margin of downstream brands is about 60%, and the gross profit margin of midstream processing is 10%.
Production side: the two technologies have different synthesis principles of HTHP + CVD, and the finished products focus on different terminal fields. Technological breakthroughs in 18 years brought double-digit growth in production capacity. In 20 years, the global blank production capacity was 7 million carats, including 3 million in China (accounting for 42%), 1 million in Singapore / the United States and 1.5 million in India. China is dominated by HTHP (accounting for 90%), and other countries are dominated by CVD.
Midstream processing: with reference to the midstream processing cycle theory of natural diamonds (successively experiencing upward growth / upward maturity / initial downward / late downward), as of 21.11, the import growth rate of midstream processing of cultivated diamonds was higher than that of exports, and it was still in the upward growth period, not reaching the maturity period, let alone the downward cycle.
Prospect: the supply and demand game determines the price, short cycle, sufficient long cycle supply and cost plus to build the price bottom
Supply estimation: without considering major technological breakthroughs, it is estimated that the global output of cultivated drilling blanks will be 46.04 million carats in 25 years and cagr43% in 21-25 years.
Demand measurement: 1) demand release speed: the penetration rate of cultivated drilling sales in the United States has increased from less than 1% in 17 years to 23.5% in 21.4-11 years, and the global penetration rate has increased by 10 PCT to 11% in 17-20 years. The pace of demand release in the United States is fast; 2) Ceiling: refer to artificial pearl / sapphire, and the penetration rate of diamond is 100% / 15%; 3) Supply and demand game: it is estimated that by 25 years, the penetration rate corresponding to the supply and demand balance point of global cultivated drill will be 36%, higher / lower than this level, or the price of cultivated drill will rise / fall.
Related companies: 1) North Industries Group Red Arrow Co.Ltd(000519) : dual wheel drive of military products and civil products, with a revenue of 1.36 billion yuan (+ 65%), accounting for 47% (+ 12pct). HTHP technology is the world leader and CVD reaches the international mainstream level. 2) Henan Huanghe Whirlwind Co.Ltd(600172) : the leader of superhard materials. The 20-year cultivated drill accounts for 20% of the global production capacity, and the high-grade accounts for 50% +. 1-3q21 turns losses into profits. 3) Henan Liliang Diamond Co.Ltd(301071) : as a mainstream supplier of superhard materials, the cultivation of drilling business has increased rapidly in the past 21 years, with 1h21 revenue of 89 million yuan, accounting for 41%. 4) Beijing Worldia Diamond Tools Co.Ltd(688028) : leader in superhard cutting tools, creating and cultivating its own brand of diamond, Andia; 1-3q21 has a revenue of 230 million yuan (+ 36%), a net profit of 50 million yuan (+ 20%), and its performance in 21 years has reached the inflection point. 5) Sinomach Precision Industry Co.Ltd(002046) : head supplier of hexahedral press, with sales revenue of 1h21 equipment exceeding 100 million yuan; The revenue of MPCVD production and cultivation drilling 1h21 is 10 + million yuan. In the past 20 years, benefiting from the high boom of downstream military industry / chip, the net profit has increased significantly.
Risk tips
Disorderly competition among upstream manufacturers; Fluctuations in India's import and export data; Consumer education was less than expected.
