Yellow River Group recently announced its intention to enhance its stake in the company by up to 10 yuan per share over the next 12 months, starting from November 29, 2012. This move reflects their strong confidence in the company’s future growth trajectory. The增æŒstrategy aims to increase ownership by no more than 0.5% of the company's total shares, capped at 2%. Additionally, concerns over overcapacity in the monocrystalline industry, while valid, may be overstated. Over the past decade, China’s synthetic diamond production has surged from 1.6 billion carats in 2001 to 12.4 billion carats in 2011, reflecting an impressive annual compound growth rate of 22.72%. This growth has driven down costs, making diamonds a competitive alternative material across various industries, thus maintaining a balance between supply and demand.
The company’s recent announcement of reopening non-public fixed-income financing up to 773.5 million yuan aims to further expand its monocrystalline production capacity to approximately 1.4 billion carats. Despite market fears of overcapacity, historical data suggests this concern might be exaggerated. The company’s fixed-income projects have shown improvements in both output rates and product quality, leading to expectations of reduced costs and enhanced industry standing. Analysts predict the company’s economic performance will grow by around 30% annually, with Q4 operations expected to surpass Q3 results in 2012. By Q3, inventory levels rose by 13% year-over-year, lagging behind revenue growth of 17%, indicating healthy sales and operational conditions.
Technological innovation remains the cornerstone of the company’s consistent growth. Projects such as pre-alloyed metal powders, micro-powders, composite sheets, and gem-grade large monocrystals demonstrate forward-thinking strategies. The company is shifting towards a more sophisticated business model by balancing synthetic diamondæ·±åŠ å·¥products and monocrystals at a 50:50 ratio. Growth in 2013 is anticipated to stem primarily from doubled production in metal powders and composite films, with 2012 utilization rates projected at around 30% and expected to rise to 60-70% in 2013.
Looking ahead, the company’s fundraising initiatives appear promising, with smooth production progress. We forecast conservative earnings per share (EPS) figures of 0.33 yuan, 0.37 yuan, and 0.50 yuan for 2012, 2013, and 2014, respectively. Risks include uncontrolled capacity expansion leading to severe overcapacity and prolonged sluggish economic conditions affecting downstream demand. Investors should remain cautious but optimistic about the company’s long-term prospects given its technological edge and strategic adjustments.
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