Main points of investment
According to the final announcement issued by the US International Trade Commission (ITC) on October 3rd, Chinese mainland enterprises, including Sifangda, won the polycrystalline diamond compound337 case. On December 21, 2020, ITC decided to launch a 337 investigation on polycrystalline diamond compacts and their downstream products. The investigation was filed by American synthetic Company to the ITC Committee on November 20 in accordance with Section 337 of the United States Customs and tax Act of 1930, alleging that the above-mentioned products exported to, imported or sold in the United States infringed its patent rights, and requested the ITC Committee to issue a limited exclusion order and prohibition order. The company actively responded to the lawsuit and hired an international law firm to respond in an all-round way. On March 3, 2022, the ITC Committee tentatively ruled that American synthetic's rights against the three patents claimed by the company were invalid. We believe that the victory of the 337 case not only protects the company's interests in the US market, but also removes important obstacles for the company to further expand its market in the US, and overseas business is expected to accelerate.
The demand for oil composite films has recovered, and the precision processing business is full of resilience. CVD fosters diamond space large resource exploitation business: revenue in the first half of the year reached 150 million yuan, an increase of 32% over the same period last year; gross profit margin 63%, year-on-year + 0.13pct. The company's petroleum composite products continue to recover with the recovery of demand in the oil service industry, import substitution + major customer strategy continues to advance, and revenue is expected to return to the pre-epidemic level.
Precision processing business: revenue in the first half of the year was 90 million yuan, an increase of 29% over the same period last year; gross profit margin was 40%, year-on-year-1.39pct. The production of downstream new energy vehicles is affected by repeated epidemic conditions and other factors, the company's precision processing business is still tough, maintain rapid growth, import substitution + alloy substitution strategy continues to promote, open up the downstream market.
CVD nurturing diamond: domestic CVD nurtures one of the companies with the most advanced technology reserves, the largest expansion efforts and the highest quality; synthetic diamond is not only a cultivation of diamonds, the future is expected to cut into the field of new generation semiconductor materials. 1) the progress of production expansion: the first phase of 100000 carat cultivated diamond production line has entered the stage of commissioning and operation; the construction of the second phase of 100,000 carat production line has been started; the self-developed MPCVD equipment has fewer production bottlenecks, and the company's production capacity is expected to expand rapidly and effectively; 2) Product quality: breaking through the Eafer color nurturing diamond technology, it has been able to steadily produce large particles and high grade colorless CVD cultivated diamond raw stones, leading the industry. 3) layout of the whole industry chain:
Cooperate with Hainan Jewelry to demonstrate the possibility of establishing a joint venture company, building and cultivating diamond production capacity and the whole industry chain cooperation in Hainan Free Trade Port, which is expected to help the company expand production in the free trade zone and expand downstream sales channels.
Nurture the diamond industry: low penetration and high growth, close to 10% inflection point, equivalent to the low penetration and fast growth rate of the new energy vehicle industry in 2020. According to our in-depth report released in May, the global demand for cultivated diamond raw stones is expected to increase from 9.3 billion yuan in 2021 to 31.3 billion yuan in 2022-2025, representing a compound growth rate of 35%. In 2021, the penetration rate of cultivated diamond production is about 7%, the penetration rate of output value is 5%, which is close to the inflection point of 10%, which is expected to replicate the high growth of new energy vehicles. It is estimated that by 2025, the penetration rate of global cultivated diamond sales will reach 16%. The penetration rate of the United States as a major consumer will reach 23%.
Profit forecast and valuation
It is estimated that the company's home net profit in 2022-2024 is 1.7 billion yuan, an increase of 80%, 48%, 25%, and a compound growth rate of 49%, corresponding to the PE of 38-26-20, maintaining the "buy" rating.
Risk hint: cultivate diamond competition pattern and profit change, raw material price fluctuation risk