Investment points recommendation logic: 1) Domestic core supplier of precision tools for superhard materials. The company's products have high technical content and strong profitability. The comprehensive gross margin has remained above 45% for a long time, and at its peak it has exceeded 60% for 3 consecutive years; 2) The company is the first domestic R&D and manufacturer of electroplated diamond wire cutting tools. Electroplated diamond wire is an important application in the field of photovoltaic silicon wafers and sapphires as a high-precision cutting tool. Among them, the downstream photovoltaic sector has become established to replace the original mortar cutting technology. Downstream demand is strong, and there is a large gap between supply and demand in the short term, and supply is in short supply; 3) The company is in a period of climbing production capacity for electroplated diamond wire, and the continuous expansion of production capacity is driving performance growth. The company has strong R&D capabilities and sufficient reserves of technical products. Core supplier of diamond tools: Diamond is mainly used in cutting, grinding and polishing processes of hard and brittle materials in industry, and is one of the core tools for the processing and manufacture of hard and brittle materials. The company first engaged in the R&D and production of diamond grinding wheel tools, and later was the first in China to cut into the research and production of electroplated diamond wire. The diamond tool industry has strong profitability. The company will continue to expand R&D investment in the future, especially in the diamond wire business, to maintain the dominant position in the electroplated diamond wire industry and meet the huge demand in the downstream market. The supply and demand gap in the diamond wire industry is significant: the downstream of the electroplated diamond wire industry is mainly used for silicon wafer slices and sapphire slices in the photovoltaic industry. The silicon wafer chip market accounts for about 80% of the total market. Currently, electroplated diamond wire is in the process of quickly replacing the mortar cutting process. According to estimates, with the continuous increase in penetration rate, the future market demand space will rapidly rise to the level of 270 to 29 million kilometers per year. Currently, the overall effective production capacity level in the country is at the level of 12 to 15 million kilometers. The gap between supply and demand is obvious, and the industry's prosperity will continue to rise. Product technology is rapidly being iterated and updated, and the company has strong technical research and development capabilities and large product reserves: Currently, diamond wire technology is being iterated very fast, and the overall product iteration direction of the industry is a four-way trend of refinement, wire saving, fast cutting, and low TTV. As the first enterprise to enter the electroplated diamond wire market, the company has long-term investment and technology accumulation in this field. R&D investment and share continue to increase, and its products cover all important downstream fields. The industry is in a period of rapid development, and the company's superior R&D capabilities and product reserves are conducive to its rapid position in the industry. Profit forecasting and investment advice. From 2017 to 2019, EPS was 1.24 yuan, 1.73 yuan, and 1.99 yuan respectively, and the corresponding PE was 39 times, 28 times, and 25 times, respectively. As the purest standard for diamond tools among listed companies, the company has a series of advantages such as high technical capabilities, complete product reserves, and extensive downstream coverage. We believe that the company's reasonable valuation is 48 times PE (corresponding to 17-year PEG of 0.68), corresponding to a target price of 59.52 yuan, covered for the first time, and gave it a “buy” rating. Risk warning: Risk of large fluctuations in upstream raw material prices; risk that industry sentiment may not continue to improve; risk that the progress and results of fund-raising projects fall short of expectations.