Sifangda: composite superhard material leader, develop CVD diamond business to achieve secondary growth. Sifangda was founded in 1997, mainly engaged in polycrystalline diamond (PCD) and its related products research and development, production and sales, is the domestic composite superhard material leading enterprises. Benefiting from the gradual recovery of downstream oil and gas production demand and the continued growth of precision processing business, the company achieved an operating income of 394 million yuan from January to September 2022, an increase of 27% over the same period last year, and a net profit of 129 million yuan, an increase of 83% over the same period last year. In June 2022, the company increased capital to acquire Tianxuan Semiconductor to develop high-purity CVD diamond business. The capital construction of the first phase of the CVD project has been completed, and the release of production capacity will contribute to the increment of performance.
Composite superhard materials: oil and gas exploitation & precision processing, high prosperity and high growth, broad space for domestic substitution.
The company's composite sheet is mainly used in the field of oil and gas exploitation and engineering construction. The four leading players in the downstream international oil service market account for 74% of the market share, and the state-owned oil service enterprises under the "three barrels of oil" in the domestic oil service market have a market share of 85%. And the high-end oil and gas composite market is mainly occupied by international giants such as element 6 and American synthetic. 70% of the company's precision super-hard tools are used in the automotive field, the domestic super-hard tool market is highly dispersed, and high-end products are mainly supplied by foreign enterprises. German, Japanese and American products account for 57% (2021) of China's imported super-hard tools. The company is based on the "import substitution + major customer strategy" of oil and gas mining products, while promoting precision machining "import substitution + alloy substitution", the R & D expense rate is maintained at more than 10%, and the initial products are developed through high R & D investment. Into the head customer supply chain, products are quickly released in a short period of time.
Cultivate diamonds: hundreds of billions of consumer market, broad prospects for industrial application. It is expected that the downstream consumer market of gem-grade cultivated diamonds will reach 100 billion (2025). At the same time, with its high thermal conductivity and other characteristics, diamond has a broad industrial application prospect. Tianxuan Semiconductor, a subsidiary of the company, has broken through the production process of CVD E-color diamond production, reaching the industry leading level; at the same time, it has accepted some of the diamond preparation and application technology for the R & D and preparation of functional diamond materials. After the construction of the production capacity of the second phase of the project, the company is expected to carry out industrial applications in high-end manufacturing and consumer fields such as semiconductors, power devices and nurturing drills in the future.
Investment suggestion: Sifangda, as a leader in the field of composite superhard materials in China, the downstream market of traditional oil and gas composite & superhard cutting tools is booming, and the company breaks the foreign monopoly by virtue of excellent technical strength to supply to the head big customers. the volume of business continues to grow rapidly. At the same time, the company focuses on cultivating CVD diamond business, acquires Tianxuan semiconductor card high increase track, and creates the second growth curve to contribute incremental performance. From 2022 to 2024, we expect the company to achieve a net profit of 1.56 RMB 2.28 billion RMB respectively, corresponding to the current PE valuation of 38x/26x/20x, giving the "overweight" rating for the first time.
Risk tips: capacity construction is not as expected, industry competition is intensified, downstream demand is not as expected.