Abstract Nanjing Sanchao New Materials Co., Ltd. is one of the leading materials for domestic electroplating diamond wire materials. The company's main business is the development, production and sales of diamond tools. The main products are electroplated diamond wire and diamond grinding wheel. As a new type of diamond material, electroplated diamond wire has been researched by the company for many years...
Nanjing Sanchao New Materials Co., Ltd. is one of the leading domestic electroplating diamond wire materials. The company's main business is the development, production and sales of diamond tools. The main products are electroplated diamond wire and diamond grinding wheel. As a new type of diamond material, the electroplated diamond wire has been small-scale sales in 2011 and has been mass-produced in 2012. In June 2007, Japan's Asahi Diamonds launched a mature diamond wire product. Japanese manufacturers have always occupied a high market share with their first-mover advantage. In recent years, domestic enterprises have launched domestically produced diamond wire products through independent research and development and introduction of technology. Now there is basically no gap between domestic and foreign products, and market competitiveness is gradually strengthened. In the market segment of sapphire cutting and silicon material cutting and cutting, as well as the monocrystalline silicon wafer market, Japanese manufacturers have gradually been replaced by domestic manufacturers. In 2016, the company's King Kong line product revenue was 126 million yuan, which is in the leading position in the domestic diamond line field. Photovoltaic installed capacity exceeded expectations, driving demand for silicon wafers to rise. In 2017, the scale of rushing to exceed the expectations and the upward adjustment of the “13th Five-Year Plan†of photovoltaic installation led to an increase in demand for wafers in the middle of the photovoltaic industry. In the global market, it is expected that the cumulative installed capacity of photovoltaics will exceed 400 GW in 2017-2020. At the same time, considering that the penetration rate of diamond wire in the photovoltaic field has increased from 32% in 2016 to over 80% in 2020, the accumulated market capacity of the diamond wire in the photovoltaic field will exceed 60 million kilometers, corresponding to more than 14 billion market space.
The diamond wire + black silicon technology is gradually maturing, and the field of polysilicon chipping is expected to be quickly replaced. In the market of single crystal silicon wafers, diamond wire cutting technology has occupied an absolute mainstream. Diamond wire cutting technology accounts for a small amount in the polysilicon wafer market, but is rapidly increasing. The main reason is that the silicon wafer cut by the diamond wire is difficult to be made at the battery end, which leads to the high reflectivity of the silicon wafer. With the rapid development of the black silicon technology, the problem of the high reflectivity of the polysilicon wafer has been gradually solved. After the use of diamond wire cutting technology, the production cost of polycrystalline silicon wafers will be further reduced. According to Solarzoom, the direct cost will drop by 0.8 yuan per piece, so the future diamond cutting technology will also be rapidly replaced in the field of polycrystalline silicon wafers.
The IPO was successfully completed and the capacity was further expanded. On April 21, 2017, the company successfully listed on the Growth Enterprise Market of the Shenzhen Stock Exchange, issuing 13 million new shares at a price of 14.99 yuan per share, raising funds of 195 million yuan, and raising funds of 176 million yuan after deducting the underwriting sponsorship fee. The company invested 125 million yuan to build a diamond wire saw project with an annual output of 1 million km. According to the company's 2017 semi-annual report, the project is expected to reach production in the third quarter of this year. The company's original diamond line capacity is 452,200 km/year. After the new project is put into production, the total production capacity is expected to reach 1.45 million km/year.
Earnings Forecast and Valuation: We believe that the company is a leading supplier of diamond fiber materials in China and directly benefit from the application of diamond wire in polysilicon cutting. We expect the company's net profit for the year 2017-2019 to be 0.74, 1.61, and 242 million yuan respectively, corresponding to EPS of 1.43, 3.09, and 4.66 yuan/share, respectively. The current stock price is 39, 18, and 12 times respectively. In 2018, the comparable company was valued at 32 times. We gave the company a 26-30x valuation in 2018, which is 40%-65% higher than the current share price. It is covered for the first time and is given a “Buy†rating.
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