Investment Highlights: The latest capacity and planning of the company's single crystal. The company's current production capacity is about 1.5 billion carats, and the 1.02 billion carat project will be put into production in the third quarter of next year, and then the expansion of single crystal capacity will be relatively slow. The total of 1.02 billion carats of the company requires 200 presses, and currently has 60 sets. The models are between 650 and 1000, which will further reduce the company's average synthetic cost. The company's competitive position in the single crystal industry is solid. The future of the single crystal industry is cost. Yu Diamond has the most advanced self-developed six-face press in the industry. The maximum cavity diameter is 1000mm, which is the only in the industry. At present, the commissioning of this type of press has stabilized. At present, the single crystal industry presents an oligopolistic pattern. For new entrants, due to the lack of large-cavity equipment and the accumulation of raw material formulating technology, it is at a disadvantage in competition and it is difficult to form a large scale. For the existing three giants, if there is a price war in the future, we have reason to believe that Yu Diamond, which has the lowest synthesis cost, will gain a larger market share. The reality is that there has been a certain tacit understanding between the three, maintaining the single crystal. Synthetic stable gross profit margin level, the probability of a vicious price war is not big. Future strategy to expand the downstream of the industrial chain: At present, the operation of the micro-powder joint venture Huajing micro-drill tends to normalize, and the output and gross profit margin will increase in the second half of the year. The diamond wire saw will also contribute to the performance in the third quarter, and the grinding wheel project will be put into production at the end of 2013. It is expected that the company will continue to expand other business areas with large development space in the industry chain in the future. Investment suggestion: We believe that Yu Diamond is the company with the largest development space in the diamond industry chain and the first outbreak of future performance. In an environment where the domestic macroeconomic climate continues to fall, the company will inevitably be affected, but with its own expansion and the continuous penetration of diamond applications, it will resist downside risks to a certain extent. With the continuous enrichment of the company's business structure, the volume of any future field (such as micro-powder, wire saw, etc.) will bring significant traction to the company's performance. As far as the current stock price is concerned, the recent shale gas concept promotes relative income. There is a certain pressure in the short-term continuous rise. It is recommended that investors pay attention to the company's development for a long time. We are optimistic about the company's future development potential. The 2012-2014 EPS is expected to be 0.32 yuan, 0.40 yuan, and 0.50 yuan respectively. The current stock price corresponds to 21 times PE in 2012, maintaining a strong recommendation rating. Risk warning: macroeconomic growth rate fell more than expected
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