\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
[key points of investment]
The company released its 2021 annual report, and achieved a revenue of 498 million yuan in 21 years, a year-on-year increase of + 103.5%; The net profit attributable to the parent company was 240 million yuan, a year-on-year increase of + 228.2%, with a bright performance increase; The net profit deducted from non parent company was RMB 229 million, a year-on-year increase of + 241.2%. In a single quarter, Q4 achieved a revenue of 154 million yuan, a year-on-year increase of + 96.3% and a month on month increase of + 22.5%; The net profit attributable to the parent company was 78 million yuan, a year-on-year increase of + 165.1% and a month on month increase of + 47.9%. At the same time, the company issued the profit distribution plan for 2021, which plans to distribute cash dividends of 10 yuan per 10 shares to all shareholders and increase 10 shares per 10 shares to all shareholders with capital reserve.
The cultivation diamond business grew rapidly, and the proportion of revenue increased to the first place. In terms of business, the revenue of the three major businesses of single crystal / micro powder / cultivated diamond in 2021 was 137 / 156 / 197 million yuan respectively, with a year-on-year increase of + 38.1% / + 54.5% / + 428.1% respectively. The cultivated diamond business achieved large volume and the revenue growth was bright; The revenue of the three businesses accounted for 27.5% / 31.3% / 39.6% respectively, with a year-on-year ratio of – 13.0 / – 9.9 / + 14.3pct respectively. Diamond cultivation has become the business with the highest revenue contribution. The plan of substantial production expansion was steadily promoted. The overall output in 2021 was 1.333 billion carats, a year-on-year increase of + 42.2%; The overall sales volume was 1.345 billion carats, with a year-on-year increase of + 33.0%. We continue to be optimistic about the subsequent capacity release. The technology has been continuously upgraded, and 2-10 carats of cultivated diamonds have been mass produced, and the laboratory stage has exceeded 30 carats.
Cultivate high gross profit margin of diamonds and improve the overall profitability of the company. In 2021, the company’s overall gross profit margin was 64.07%, with a year-on-year increase of + 20.7pct, mainly driven by the increase in the proportion of diamond cultivation business with high gross profit margin; The gross profit margin of single crystal / micro powder / cultivated diamond business was 57.93% / 50.02% / 81.38% respectively, with a year-on-year increase of + 18.5 / + 9.7 / + 14.6pct respectively. The high gross profit margin of cultivated diamonds is affected by both the market price and the improvement of the company’s product quality; In terms of industrial diamond, due to the improvement of the prosperity of the cultivation diamond industry and the transfer of the production capacity of mainstream manufacturers, the supply of industrial diamond is in short supply and the price rises.
The prosperity of the industry continues to rise, and the company’s production expansion is advancing steadily. The import and export volume and penetration rate of cultivated diamonds in India, the main market of midstream processing, continued to rise. The import volume of cultivated diamond rough diamonds in India in January 22 was US $153 million, a year-on-year increase of + 77.5% and a month on month increase of + 15.9%; The export volume of cultivated diamond bare diamonds was US $122 million, a year-on-year increase of + 69.0% and a month on month increase of + 18.4%. The import permeability of rough diamonds was 11.19%, with a year-on-year increase of + 4.8pct; The export penetration rate of bare drilling was 5.62%, with a year-on-year increase of + 4.3pct, which verified that the heat of the end consumer market was further improved. Technology upgrading + capital barrier + suppliers constitute the moat of the company. The construction of new factories and investment in new equipment continue to be promoted. It is optimistic that the common volume and price of diamond cultivation and industrial diamond business will rise at the same time.
[investment suggestions]
During the boom period of the diamond cultivation industry, the company focused on the diamond cultivation business as the follow-up development, effectively improved the production process, and increased the range and certainty of production expansion. Based on the increase of sales volume supported by the company’s production expansion and the rise of product prices driven by the high prosperity of the industry, we raised our forecast of the company’s operating revenue and net profit attributable to the parent company from 2022 to 2023. It is estimated that the company’s operating revenue will be 922 / 14.55 / 2.017 billion yuan from 2022 to 2024, with a year-on-year growth rate of 85.02% / 57.82% / 38.58% respectively; The net profit attributable to the parent company was 443 / 727 / 1015 million yuan respectively, with a year-on-year growth rate of 85.19% / 64.29% / 39.23% respectively; EPS is 7.35/12.07/16.81 yuan respectively; The corresponding PE is 38 / 23 / 17 times respectively, maintaining the “buy” rating.
[risk tips]
The production capacity is lower than expected;
The improvement of consumer awareness is less than expected;
Industry competition intensifies.
