\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Performance review
The company realized a net profit attributable to the parent company of 240 million yuan, a year-on-year increase of + 228% Henan Liliang Diamond Co.Ltd(301071) disclosed the annual report of 2021 on the evening of February 27, 2022. In 2021, the revenue was 498 million yuan, a year-on-year increase of + 103.5%, the net profit attributable to the parent was 240 million yuan, a year-on-year increase of + 228%, and the net profit not attributable to the parent was 229 million yuan, a year-on-year decrease of + 241%. On a quarterly basis, Q4 achieved a revenue of 157 million yuan and a net profit attributable to the parent company of 78.49 million yuan. The net cash flow from operating activities in a single quarter was as high as 160 million yuan. The company decided to pay a dividend of 10 yuan for every 10 shares and convert the provident fund into 10 shares of capital stock. A total of 60.37 million yuan of cash dividends were distributed, with a dividend rate of 25.2%.
The gross profit margin reached 64.1% year-on-year + 20.7pct, and the profitability increased significantly: the overall gross profit margin reached 64.1%, year-on-year + 20.7pct, and the net profit margin attributable to the parent company reached 48.1%, year-on-year + 18.3pct. The substantial increase in profitability is due to the significant increase in their gross profit margin due to the high prosperity of each business segment. On the other hand, due to the improvement of product structure, the proportion of diamond cultivation business has increased significantly.
In terms of segment business, both cultivated diamonds and industrial diamonds are in short supply: 1) the revenue of diamond single crystal is 137 million yuan, a year-on-year increase of + 38%, accounting for 27.55% of the revenue, and the gross profit margin is 57.93%, a year-on-year increase of + 18.5pct; 2) The income of diamond micro powder was 156 million yuan, with a year-on-year increase of + 55%, accounting for 31.25%, and the gross profit margin was 50.02%, with a year-on-year increase of + 9.7pct; 3) The revenue from cultivating diamonds was 197 million yuan, a year-on-year increase of + 428%, and the proportion of revenue increased to 39.57%, becoming the largest business contributing to the company’s revenue, with a gross profit margin of 81.4%, a year-on-year increase of + 14.6pct. The cultivation diamond business has increased significantly, and the supply is in short supply. The revenue contribution has also continued to increase, the gross profit margin has increased significantly, and the profit contribution is more obvious. In addition, the upstream equipment supplier has limited press supply. The diamond production enterprises have squeezed the traditional industrial grade diamond business to a certain extent due to the significant growth of diamond cultivation business, while the demand of the downstream terminal industry is rigid. Therefore, the price of industrial grade diamond shows an upward trend, resulting in the increase of the company’s industrial grade diamond business income.
There is strong terminal demand for cultivating the diamond industry, and the industry will maintain rapid growth and rapid penetration in the future. Cultivated diamonds are still in the stage of rapid increase in penetration. The import and export data of cultivated diamonds in India continue to verify the strong consumption demand in the downstream. Chinese manufacturers have a solid industrial foundation in the production path of high temperature and high pressure method. The leading manufacturers have technical and technological barriers and are still improving. We expect the company to continue to purchase new equipment and actively expand production in 2022, On the other hand, we will continue to build and deepen technological and technical barriers. With the progress of technology, we expect the average ex factory price to be “structurally improved” in the future and create more profits.
Profit forecast and investment rating: the company’s outstanding performance in 2021 not only maintained a high outlook for diamond cultivation, but also achieved double increases in volume and price in the industrial diamond sector, with a significant increase in profitability. Diamond cultivation is still in the stage of rapid increase in penetration, and the supply of high-quality products is in short supply. The data from Q4 also verified that the prosperity of diamond cultivation continues to remain high, The company’s performance is in line with our expectations. We maintain the company’s net profit attributable to the parent company of about 460 / 630 million yuan in 202223, and it is expected that the net profit attributable to the parent company will be 850 million yuan in 2024. For PE in 202224, it will be 38 / 27 / 20 times respectively, maintaining the “buy” rating.
Risk tips: macroeconomic and market demand fluctuations, intensified market competition, raw material price fluctuations, R & D risks, etc.
