**Abstract**
A recent research report on Jiang Drilling Co., Ltd. (000852) highlights the company's strong position in the domestic market for roller cone bits, where it holds a near-monopoly, while its diamond drill bit segment faces intense competition. With the number of gas wells currently not reaching a significant scale, the company is expected to remain a key player in oil drill bit production over the next 2–3 years. However, growth in oil drill bit sales is limited, and the gross profit margin for this product line is significantly higher than other core products. A decline in drill business revenue could negatively impact the company’s overall gross margin.
Looking ahead, the company’s roller cone bits are expected to see minimal sales growth in the short term. Despite having the world’s largest production capacity for these products, the market is saturated, and factors such as increasing competition from diamond bits, slow growth in gas well development, and high domestic market share have contributed to a low growth rate. Additionally, rising material and labor costs have further pressured margins.
The diamond drill bit market remains highly competitive, with the company currently holding a small market share. Although it has introduced advanced U.S. manufacturing technology to strengthen its high-end product positioning, expansion into this market remains challenging due to low gross margins and numerous local competitors. While diamond bits offer cost advantages by reducing drilling time, the industry entry barriers are relatively low, with many private manufacturers operating in the space.
Jiang Diamond’s high-end PDC bits are still dominated by a few players, with limited demand but high pricing. The company is working on localizing diamond composite chips, which are currently imported. In contrast, its CNG compressor products have shown strong growth, particularly during China’s pipeline construction phase. The company secured a major contract worth over 100 million yuan in the first quarter, boosting advance receipts significantly.
In the natural gas sector, the company continues to expand its automotive and industrial customer base, contributing to a 47% increase in CNG sales last year. However, the photovoltaic industry downturn has led to reduced operations at its subsidiary, Jiangtong Tianxiang, resulting in losses. The company remains optimistic about the bleaching powder market.
Beyond its core products, Jiang Diamond is expanding into new areas such as downhole power drills and marine oil and gas equipment. The former has already been tested in multiple fields, and analysts believe Sinopec’s support could enhance its competitiveness. The latter has made progress under the National 863 Program.
With the restructuring of Sinopec’s petroleum engineering division, the company may benefit from improved operational efficiency and strategic alignment. Analysts estimate earnings per share for 2013–2015 at 0.34, 0.38, and 0.43 yuan respectively, with current P/E ratios of 48.5, 43.3, and 38.3. Despite the high valuation, the company is seen as having potential growth driven by natural gas drilling and Sinopec’s reorganization. However, given the risks and limited growth outlook, a "neutral" investment rating is currently assigned.
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