Yellow River whirlwind: fixed increase project supports rapid growth in the next 3 years

Investment Highlights: The industry is in a boom cycle, but the low-end sector has been overcapacity. Supported by factors such as increasing downstream demand and active industrial policy guidance, the domestic synthetic diamond industry is currently in its boom cycle. The domestic production of synthetic diamond single crystals increased from 1.6 billion carats in 2001 to 11 billion carats in 2011, with a CAGR of 21.26% in the last 10 years and a CAGR of 31.84% in the last three years. In addition, the profitability of key companies in the industry has continued to remain high in recent years. The gross profit margin of sales has gradually increased from 28.60% in 2008 to 32.33% in the first quarter of 2012. The gross profit margin of Yu Diamond has also remained above 40% in the past five years. However, due to the low entry barriers in low-grade market technology and capital, the competitive environment in the low-end field of domestic synthetic diamonds has gradually deteriorated in recent years. The company's performance has entered a fast-growing road, and diamond production capacity will maintain steady growth. Since 2009, with the continuous adjustment of the company's business structure and the continuous expansion of production capacity, the company's profitability has continued to improve. In 2011, the operating income and net profit increased by 24.02% and 106.85%, respectively. With the continuous release of the production capacity of the two fixed-income projects, the company's super-hard composite materials business and metal powder business began to enter the harvest period. The company's 2012 business target is to increase operating income and net profit by 32.95% and 26.89% respectively. According to the company's strategic plan, while expanding and improving the industrial chain, the company will maintain stable growth of the artificial diamond business capacity through technological transformation and new supercharger measures. It is expected that the CAGR of production capacity will remain at around 15%. The fixed-income project will support the company's rapid growth in the next three years. The company's pre-alloy powder and drilling-grade super-hard composite materials are expected to be completed and put into operation at the end of May 2012. We expect the pre-alloy powder project to reach 5,500 in 2012-2014. Tons, 9,000 tons, 11,000 tons. The drilling grade super-hard composite project products mainly use composite sheets for coal mining, and also include a small number of composite sheets for oil drilling. It is estimated that the output of the project will reach 4.2 million, 6.3 million, and 10.5 million in 2012-2014, respectively. grain. According to the feasibility study report of the above-mentioned project, after the completion of the above two projects, the sales income in the normal years can be 1.176 billion yuan, and the total profit will be 306 million yuan. According to the current share capital, it is expected to increase the earnings per share by 0.54 yuan. Investment suggestion The synthetic diamond superhard materials and products industry belongs to the new material industry category and is currently encouraged by the state for development industries. While the company is developing its artificial diamond business steadily, it is actively expanding to the upstream and downstream of the industrial chain. The fixed investment project is expected to support the company's rapid growth in the next three years. It is estimated that the EPS of the company from 2012 to 2014 will be 0.54 yuan, 0.71 yuan and 0.86 yuan respectively, corresponding to 25.43 times, 19.34 times and 16.04 times of PE in 2012-2014. Considering that the industry is currently in the midst of its boom cycle and active industrial policies, it has given a "buy" rating for the first time.

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