Henan Huanghe Whirlwind Co.Ltd(600172) (600172)
Cultivating the diamond industry: with rapid demand growth and limited supply expansion, the benign pattern is expected to continue. Demand: cultivated diamonds and natural diamonds are the same material and have more price advantages. In addition to the substitution of wedding scenes, it is more expected to open the high-frequency accessories market in the future, and jewelers are accelerating the layout. Industry data show that the penetration rate of cultivated diamonds has been increasing rapidly since 2019. We predict that by 2025, the scale of the global cultivated diamond rough market will reach 20.5 billion yuan, with a five-year compound growth rate of 33%. Supply: due to the supply restriction of upstream press and the high barrier of blank production, the industry supply is still tight. At present, the leading players in the industry will give priority to the supply of press because of their perennial and stable cooperative relationship with the upstream and have technical capacity at the same time.
Henan Huanghe Whirlwind Co.Ltd(600172) is the leader of artificial diamond, and the large volume of superhard material business is expected to drive both volume and price. At present, the company has nearly 3000 presses in stock. In terms of production capacity and technical level, it is a leading enterprise in artificial diamond, and the business income of superhard materials and micro powder accounts for nearly 70%. Since the end of 2020, the price of superhard material products has continued to rise due to the contradiction between supply and demand. As of the first half of 2021, the parent company's income reflecting the real main business of the company has increased by + 54% year-on-year. The company continues to increase its investment in cultivating diamond business with higher gross profit margin, and the improvement of product structure will drive the gross profit margin to further increase in the future.
Profits are expected to release rapidly after revenue crosses the level at the breakeven point. Due to the drag of Mingjiang intelligent subsidiary and the impact of the epidemic in 2020 and the large amount of provision under the deterioration of sales prospects, there was a large loss in performance. In 2020, Mingjiang's business has been completely stripped off, and since the end of 2020, the sales of superhard materials have been hot, and the related asset impairment risk has subsided. At present, due to the high rigid cost, the company's income is still near the breakeven point, and the profit is sensitive to the fluctuation of income. Since 2021, the company has increased the purchase of press through its own funds and cooperation with the government, with a significant increase in production capacity. At the same time, with the increase in the price of superhard material products, the revenue is expected to start to grow rapidly in the fourth quarter. As of the first half of 2021, indicators with less operating or financial leverage, such as operating net cash flow, EBIT and EBITDA, have improved significantly, which further confirms the positive trend of the company's performance. Once the company crosses the income level at the breakeven point, profits are expected to release rapidly.
Investment suggestion: it is estimated that the operating revenue of the company from 2021 to 2023 will be 2.56 billion / 3.11 billion / 3.89 billion respectively, with a growth rate of 4.5% / 21.3% / 25.2% respectively; The net profit attributable to the parent company is 86 million yuan / 538 million yuan / 778 million yuan respectively, and the growth rate from 2022 to 2023 is 523% / 45% respectively (the loss will be reversed in 2021, and the growth rate will be omitted). With reference to the valuation of comparable companies in the industry, combined with the company's leading position in the number and technical level of presses, 50 times PE will be given in 2022, with a target price of 18.6 yuan, "Buy-A rating".
Risk tip: the acceptance of diamond cultivation is lower than expected; Deterioration of industry supply; Overseas epidemic situation affects midstream processing; The production of the company is less than expected; The assumptions in this paper are less than expected.
