Yu Diamond: Single crystal and micro powder business growth is still optimistic

Abstract This section provides an overview of the current operational status of the single crystal business from a supply-side perspective. In 2012, lower equipment costs in Henan led to increased new production capacity, and demand for single crystals is expected to grow steadily. If new application areas emerge, there's a possibility that demand could exceed expectations. Given the industry's oligopolistic structure, a severe price war is unlikely, though there may be upward pressure on prices. At the company level, production in 2012 reached approximately 1.3 billion carats, with stable output during the single season. It is projected to increase to 1.7 billion carats in 2013. The 1.02 billion carat project contributed minimally in 2012, but with 200 presses currently installed, full completion of the project will bring total capacity to 2.5 billion carats. Meanwhile, single crystal prices have seen a slight increase since the third quarter, with low-end materials rising by 10% to 15%.
Single Crystal Business Operations

On the company level, the single crystal business maintained steady performance in 2012, with output reaching about 1.3 billion carats. Despite the industry’s concentrated structure, the likelihood of a major price war remains low, although pricing pressures are increasing. Looking ahead, the company expects its output to rise to 1.7 billion carats in 2013. The 1.02 billion carat project had limited impact in 2012, but with ongoing expansion, the company is preparing for significant growth. Currently, 200 presses are in operation, and once the project is fully completed, production capacity will reach 2.5 billion carats. Additionally, single crystal prices have risen slightly, particularly in the low-end segment, with increases ranging from 10% to 15%. Micro-Powder Business Operations

The micro-powder business did not fully ramp up in 2012 due to a combination of market conditions and internal challenges. The subsidiary faced initial production disruptions due to equipment relocation and the establishment of internal management systems. However, it has now stabilized and is moving forward. With the market showing signs of recovery in 2013, the company anticipates a significant increase in micro-powder production. By the fourth quarter of 2012, monthly output reached 40 million carats, representing a 20–30 million carat increase compared to the third quarter. The company is optimistic that monthly output will reach 100 million carats in 2013. New Business Expansion and Future Growth

The company has made strategic moves into new business areas, laying a solid foundation for future growth. In 2011, it entered the micro-powder sector through a joint venture. In 2012, it successfully replicated this model to expand into large-scale synthetic diamond (including jewelry-grade single crystals) and resin wire saw businesses. Micro-powder, distinct from crushed material, represents a key trend in the diamond industry, used in precision grinding and functional applications based on its thermal and optical properties. Its application potential is vast. Large single crystals are primarily used in tool manufacturing and are also entering the jewelry market, offering higher profitability than the company’s existing single crystal products. The resin wire saw, which has a much lower cost than electroplated wire saws, is gaining traction quickly and is expected to start generating profits in May and June 2013. Investment Recommendation: The company’s earnings per share (EPS) is projected to be 0.25 yuan in 2012, 0.33 yuan in 2013, and 0.42 yuan in 2014. Based on the current stock price, the P/E ratio for 2013 is around 16 times, and we maintain a strong recommendation rating for the stock. Risk Warning: There is a risk that the macroeconomic growth rate could fall below expectations, which might affect overall demand and profitability.

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