Abstract The company's earnings per share (EPS) for 2013, 2014, and 2015 are projected to be 0.43 yuan, 0.53 yuan, and 0.64 yuan respectively, with corresponding dynamic P/E ratios of 14X, 12X, and 10X. The polycrystalline composite business is set to become the main driver of profit growth, and the current valuation appears undervalued. We maintain our "Recommended" rating.
According to recent estimates, Huanghe Cyclone Company is expected to see its EPS rise steadily over the next three years, reaching 0.43 yuan in 2013, 0.53 yuan in 2014, and 0.64 yuan in 2015. These figures correspond to a declining P/E ratio, indicating that the market may be pricing in strong future performance. The polycrystalline composite business, which is currently under development, is seen as the key growth area for the company. With its strong position in the super-hard materials sector and growing demand for advanced industrial tools, there is significant upside potential at the current valuation level.
Key highlights include:
- In 2013, the polycrystalline composite sheet business is expected to outperform expectations, driven by increasing demand from both domestic and international markets.
- The company maintains a stable leadership position in the super-hard materials industry, with consistent order flow and smooth product development.
- Traditional businesses, such as diamond monocrystal production, remain resilient despite broader economic slowdowns, with steady expansion ongoing.
- Growth in 2013 will primarily come from new projects, particularly the polycrystalline composite sheets and pre-alloyed powders, with the former showing above-expected growth.
Polycrystalline composite sheets represent one of the most valuable segments in the diamond industry supply chain. The upstream segment, including single crystal diamond production, is expanding in an orderly manner, ensuring sufficient raw material supply. China’s single crystal diamond output has grown rapidly since 2001, with a compound annual growth rate of 21.3%. Major producers plan to increase supply by 10%–20% over the next three years, supporting long-term stability in both supply and pricing.
On the demand side, the market for polycrystalline composites is expanding significantly due to the growing need for natural gas exploration. China is facing a rising demand gap for natural gas, which is expected to increase from 40 billion cubic meters in 2012 to 75 billion by 2015, and reach 90 billion by 2020. Given the challenging conditions in China’s gas fields, PDC bits are increasingly replacing traditional cemented carbide bits, creating a large opportunity for polycrystalline composite sheet manufacturers.
The industry is characterized by high entry barriers, mainly due to technical challenges and certification requirements. Currently, nearly 70% of PCD composites used in petroleum and geological drilling are dominated by U.S.-based companies like American Synthetic, DI, and Element Six, leaving limited room for domestic players. However, this also presents a significant import substitution opportunity.
In terms of financial performance, the polycrystalline composite business is growing rapidly, while the traditional single crystal segment continues to expand steadily. As production capacity increases and high-end orders grow, we expect the polycrystalline composite business to contribute approximately 0.07 yuan to EPS in 2013, while the traditional single crystal business could add around 0.03 yuan.
**Risk Factors:**
1) A decline in the diamond boom could impact overall profitability.
2) Delays in project implementation may affect growth projections.
Overall, the company is well-positioned to benefit from the expanding demand for advanced industrial materials, with a solid foundation in both traditional and emerging sectors. Pvc Sterilizer For Water,Pvc Ultraviolet Sterilizer For Disinfection,Uvc Pvc Sterlizer,Uvc Pvc Sterlizer For Aquarium
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