\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Comments on 2021 annual report:
Event: the company released its annual report for 2021. During the reporting period, the company achieved a 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%, close to the upper limit of performance forecast.
Key investment points:
Downstream demand is strong, and the company’s core business revenue is growing rapidly. In a single quarter, Q1-Q4 achieved operating revenue of 85 million yuan (+ 106.33%) / 134 million yuan (+ 154.18%) / 123 million yuan (+ 82.32%) / 157 million yuan (+ 105.42%) respectively in 2021. In terms of business, diamond single crystal / diamond micro powder / cultivated diamond series achieved operating revenue of 137 million yuan (+ 38.14%) / 156 million yuan (+ 54.54%) / 197 million yuan (+ 428.11%) respectively. In order to cope with the high-profile situation of the industry, the company actively expanded its production capacity and boosted its performance to usher in explosive growth. Among them, the revenue from cultivating diamond products increased significantly, becoming the business with the largest proportion of revenue.
The price increase and volume increase, and the gross profit margin increased significantly. The gross profit margin of the company in 2021 was 64.07%, with a year-on-year increase of 20.69pct. The gross profit margins of the main products diamond single crystal, diamond micro powder and cultivated diamond were 57.93% (+ 18.49pct) / 50.02% (+ 9.66pct) / 81.38% (+ 14.56pct) respectively. The increase of product price led to a significant increase in gross profit margin and improved the overall profitability of the company.
The cost rate is stable and well controlled, and the core competitiveness is improved by “reducing cost and increasing efficiency + focusing on R & D”. The overall cost rate of the company is properly controlled. The sales cost rate, management cost rate and financial cost rate are 1.12% (- 0.81pct), 3.01% (- 0.26pct) and 0.49% (- 0.33pct) respectively, while the R & D cost rate has increased significantly to 5.33% (+ 1.26pct). By continuously enhancing the core technology level, consolidating the business core and actively responding to the strong demand of the downstream market.
Diamond cultivation is in short supply, and the industry has broad prospects for development. According to Bain data, in 2021, the sales volume of rough cultivation diamonds in China was only 1.4 million carats (11 million carats in the world), and the penetration rate of cultivation diamonds was 6.7% (8% in the world); It is estimated that by 2025, the sales volume of rough cultivation drill in China will be 4 million carats (26 million carats in the world), and the penetration rate of cultivation drill will be 13.80% (15.8% in the world), with great room for improvement.
Investment suggestion: the company’s business precision is outstanding, its profitability is excellent, and its core business takes advantage of the wind, which is expected to continue to boost the high growth of the company’s performance. Therefore, we raised the company’s net profit attributable to the parent company from 2022 to 2024 to RMB 448 / 679 / 980 million, EPS to RMB 7.42 / 11.25 / 16.24 respectively, and the corresponding three-year PE to 37x / 25X / 17x respectively, maintaining the “buy” rating.
Risk warning: consumer acceptance is less than expected, the impact of epidemic disturbance, and the promotion of technology research and development is less than expected.
