Abstract The company is expected to report earnings per share (EPS) of 0.43 yuan, 0.53 yuan, and 0.64 yuan in 2013, 2014, and 2015 respectively, with a corresponding dynamic P/E ratio of 14X, 12X, and 10X. The polycrystalline composite business is set to become the main driver of profit growth, and given the current valuation level, there is significant room for upward movement. We continue to maintain our “Recommended†rating on the stock.
Huanghe Cyclone’s EPS is projected to reach 0.43 yuan in 2013, rising to 0.53 yuan in 2014 and 0.64 yuan in 2015, with a declining P/E multiple reflecting improved profitability. The polycrystalline composite business is anticipated to be the key growth engine, and the current valuation appears undervalued. We remain optimistic about the long-term potential of the company.
Key Highlights:
In 2013, the polycrystalline composite sheet segment is expected to outperform expectations. The company maintains a strong position in the domestic super-hard materials market, with steady orders and smooth development of new products. In traditional operations, the slowdown in economic growth has had limited impact on the diamond monocrystal sector, while the company continues to expand steadily. Growth in 2013 will mainly come from the fundraising project, particularly the polycrystalline composite sheet and pre-alloyed powder segments, with the former likely to exceed expectations.
Polycrystalline composite sheets represent one of the most valuable links in the diamond industry chain.
The upstream diamond monocrystal production is expanding in an orderly fashion, ensuring a stable supply of raw materials. China's single crystal diamond output grew rapidly between 2001 and 2011, with a compound annual growth rate of 21.3%. Major manufacturers are planning further expansion, with supply expected to grow by 10%–20% over the next three years. This controlled growth ensures stability in both supply and pricing of raw materials.
The demand outlook is very promising, especially with natural gas exploration creating a large market opportunity. China is facing a growing natural gas shortage, with the demand gap expected to increase from 40 billion cubic meters in 2012 to 75 billion cubic meters in 2015, and reaching 90 billion cubic meters by 2020. Due to harsh drilling conditions, PDC bits are increasingly replacing cemented carbide bits. It is estimated that by 2015, the market for polycrystalline composite sheets used in oil and natural gas exploration in China could reach 890 million yuan.
High entry barriers and significant import substitution potential exist in the polycrystalline composite sheet market. Technical and certification barriers are the main obstacles. Currently, nearly 70% of PCD composites used in petroleum and geological drilling are dominated by U.S.-based companies such as Synthetic Diamond, DI, and Element Six, leaving only 3% of the market for domestic firms.
The polycrystalline composite sheet business is growing rapidly, while the traditional monocrystalline segment continues to expand steadily. As production capacity increases and high-end orders gain traction, we expect the polycrystalline composite segment to contribute an additional 0.07 yuan to EPS in 2013. Meanwhile, the traditional monocrystalline products are expected to deliver steady growth, adding approximately 0.03 yuan to EPS.
Risk Warning: 1) A decline in the diamond boom; 2) Slower-than-expected progress in the investment project.
Overall, the company is well-positioned to capitalize on the growing demand for polycrystalline composite sheets, driven by technological advancements and increasing energy exploration activities. With strong fundamentals and a clear growth trajectory, the stock offers attractive long-term investment potential.
Huanghe Cyclone’s EPS is projected to reach 0.43 yuan in 2013, rising to 0.53 yuan in 2014 and 0.64 yuan in 2015, with a declining P/E multiple reflecting improved profitability. The polycrystalline composite business is anticipated to be the key growth engine, and the current valuation appears undervalued. We remain optimistic about the long-term potential of the company.
Key Highlights:
In 2013, the polycrystalline composite sheet segment is expected to outperform expectations. The company maintains a strong position in the domestic super-hard materials market, with steady orders and smooth development of new products. In traditional operations, the slowdown in economic growth has had limited impact on the diamond monocrystal sector, while the company continues to expand steadily. Growth in 2013 will mainly come from the fundraising project, particularly the polycrystalline composite sheet and pre-alloyed powder segments, with the former likely to exceed expectations.
Polycrystalline composite sheets represent one of the most valuable links in the diamond industry chain.
The upstream diamond monocrystal production is expanding in an orderly fashion, ensuring a stable supply of raw materials. China's single crystal diamond output grew rapidly between 2001 and 2011, with a compound annual growth rate of 21.3%. Major manufacturers are planning further expansion, with supply expected to grow by 10%–20% over the next three years. This controlled growth ensures stability in both supply and pricing of raw materials.
The demand outlook is very promising, especially with natural gas exploration creating a large market opportunity. China is facing a growing natural gas shortage, with the demand gap expected to increase from 40 billion cubic meters in 2012 to 75 billion cubic meters in 2015, and reaching 90 billion cubic meters by 2020. Due to harsh drilling conditions, PDC bits are increasingly replacing cemented carbide bits. It is estimated that by 2015, the market for polycrystalline composite sheets used in oil and natural gas exploration in China could reach 890 million yuan.
High entry barriers and significant import substitution potential exist in the polycrystalline composite sheet market. Technical and certification barriers are the main obstacles. Currently, nearly 70% of PCD composites used in petroleum and geological drilling are dominated by U.S.-based companies such as Synthetic Diamond, DI, and Element Six, leaving only 3% of the market for domestic firms.
The polycrystalline composite sheet business is growing rapidly, while the traditional monocrystalline segment continues to expand steadily. As production capacity increases and high-end orders gain traction, we expect the polycrystalline composite segment to contribute an additional 0.07 yuan to EPS in 2013. Meanwhile, the traditional monocrystalline products are expected to deliver steady growth, adding approximately 0.03 yuan to EPS.
Risk Warning: 1) A decline in the diamond boom; 2) Slower-than-expected progress in the investment project.
Overall, the company is well-positioned to capitalize on the growing demand for polycrystalline composite sheets, driven by technological advancements and increasing energy exploration activities. With strong fundamentals and a clear growth trajectory, the stock offers attractive long-term investment potential.
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