\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Event: the company released its 2021 annual report on February 27. During the reporting period, the company achieved a total operating revenue of 498 million yuan, a year-on-year increase of + 103.50%; The net profit attributable to the parent company was 240 million yuan, a year-on-year increase of + 228.17%. At the same time, the company also issued the announcement of the high transfer plan and profit distribution plan in 2021. It plans to distribute a cash dividend of 10 yuan for every 10 shares to all shareholders, and increase 10 shares for every 10 shares to all shareholders with the capital reserve.
The three main businesses achieved high boom growth, and the revenue of diamond cultivation business exceeded 4 times year-on-year. Throughout the year, the total operating revenue of the company increased by + 103.50% to 498 million yuan year-on-year, and the net profit attributable to the parent company increased by + 228.17% to 240 million yuan year-on-year, all of which more than doubled. In terms of splitting, the three main businesses of the company have achieved high boom growth, among which the revenue of diamond cultivation business is + 428.11% to 197 million yuan year-on-year, the revenue of diamond single crystal business is + 38.14% to 137 million yuan year-on-year, and the revenue of diamond micro powder business is + 54.54% to 158 million yuan year-on-year. Cultivating diamond business is the core driving force for the company to achieve rapid growth. We expect that with the continuous and intensive promotion of consumer education of terminal brands, the continuous improvement of consumer awareness and recognition will continue to drive the industry to maintain high growth. As an industry leader, the company is expected to enjoy the long-term expansion dividend of the industry.
The profitability has increased significantly. In 2022, we will continue to be optimistic about the prospect of raising the price of diamond + single crystal. The company’s overall profitability increased significantly in 2021, in which the sales gross profit margin increased from + 20.48 PCT to 64.07% year-on-year, and the sales net profit margin increased from + 18.26 PCT to 48.07% year-on-year. We believe that the substantial increase in the company’s profitability is mainly due to the improvement of product structure driven by the increase in the proportion of cultivation diamond business, and the increase in the average price of products driven by the high boom of cultivation diamond and diamond single crystal industry. In 2022, we continue to be optimistic about the prospect of raising the price of diamonds and diamond single crystals. In terms of diamond cultivation, under the current geographical conflict, European and American countries impose sanctions on Russian natural diamonds or increase the price due to insufficient supply. Due to the anchoring relationship between the price of cultivated diamonds and natural diamonds to a certain extent, the increase in the price of natural diamonds is expected to bring good support and underpinning to the price of cultivated diamonds; At the same time, the decline in the supply of natural diamonds is also expected to drive some demand to cultivate diamonds, thus driving the accelerated penetration of cultivated diamonds. In terms of diamond single crystal, as the newly added hexahedral press in the industry will still be mainly used to cultivate diamond production, it is expected that industrial diamond will still be in short supply, and the product price is expected to remain high in 2022.
Sales / management expenses were well controlled, and R & D expenses increased from + 1.26 PCT to 5.33% year-on-year. In 2021, the company’s sales expense ratio was – 0.8 PCT to 1.12% year-on-year, and the management expense ratio was – 0.33 PCT to 3.07% year-on-year. The overall control was good. The company continued to increase R & D investment, and the R & D expense rate increased from + 1.26 PCT to 5.33% year-on-year. We believe that the company’s continuous high investment in R & D is conducive to continue to optimize the product structure and increase the proportion of large carat, high color and high purity cultivated diamond products, so as to further drive the upward profitability.
With the steady landing of raised investment capacity + the development of new press suppliers, the elasticity in 2022 is worth looking forward to: since Q4 in 2021, the company’s raised investment capacity has gradually landed, and the cultivation of diamond capacity has entered a rapid and large-scale stage. Although the overall supply of the six sided press, the production equipment for cultivating diamonds, is relatively tight, the company has established a long-term and stable cooperative relationship with the head supplier with outstanding technical and financial advantages. At the same time, it has actively explored new press suppliers and made positive progress. Therefore, we judge that under the background of maintaining high economic growth in the industry, the performance elasticity and certainty of the company in 2022, as the industry leader, are worth looking forward to
Investment suggestion: it is estimated that the company will achieve EPS of 7.95, 12.19 and 17.02 yuan respectively from 2022 to 2024, and the current share price corresponding to PE is 36, 23 and 17 times respectively. Considering the clear business model, stable leading position and increasing profitability of the company, the superposition of high transfer will improve the share liquidity and maintain the “recommended” rating.
Risk tip: the industry demand is lower than expected, the price of raw materials rises sharply, and the competition pattern deteriorates.
