Key points: The polycrystalline composite sheet business is expected to grow more than expected in 2013. The leading position of the company's domestic super-hard materials is stable, orders are stable, and new products are developed smoothly. In the traditional business, the decline in economic growth has limited impact on the diamond monocrystalline boom, and the company's expansion is steadily progressing; the growth in 2013 will come from the polycrystalline composite sheet and pre-alloyed powder of the fund-raising project, and the polycrystalline composite sheet business is expected to grow more than expected. .
Polycrystalline composite sheets are the most valuable investment link in the diamond industry chain.
The upstream (diamond single crystal) expansion is carried out in an orderly manner with sufficient raw materials. China's single crystal diamonds experienced rapid growth in output from 2001 to 2011, with a compound growth rate of 21.3%. According to the expansion plans of major manufacturers, the supply will continue to grow by 10%-20% in the next three years. The orderly expansion of the upstream guarantees the stability of the supply and price of raw materials.
The demand space is vast, and natural gas mining brings a big market. China's natural gas shortage is expected. In 2015, China's natural gas demand gap will be expanded from 40 billion cubic meters in 2012 to 75 billion cubic meters. In 2020, the gap will reach 90 billion cubic meters. China's gas field mining environment is harsh, PDC bit will continue to replace cemented carbide bits. It is estimated that by 2015, the market for only oil and natural gas mining polycrystalline composite sheets in China will be 890 million.
The barriers to entry are high and the import substitution space is large. The business barriers of polycrystalline composite sheets are mainly technical barriers and certification barriers. Nearly 70% of PCD composites for petroleum geological drills are monopolized by American Synthetic, DI Company and Element Six, and domestic enterprises account for only 3%.
The polycrystalline composite sheet has grown at a high speed, and the traditional single crystal has been steadily expanded. With the release of production capacity and the increase in high-end orders, we expect polycrystalline composites to increase EPS by 0.07 yuan in 2013; traditional single crystal products will achieve steady growth, and it is expected to increase EPS by 0.03 yuan.
Risk warning: 1) The diamond boom is declining; 2) The progress of the investment project is lower than expected.
Investment suggestion: The company's 2013-2015 earnings per share is expected to be 0.43 yuan, 0.53 yuan, 0.64 yuan, corresponding to dynamic PE is 14X, 12X, 10X. The polycrystalline composite business will become the company's biggest profit growth point, and there is an upside potential for the current valuation level. We maintain the “Recommended†rating.