\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Event: on March 25, the company issued the plan for issuing A-Shares to specific objects in 2022. It plans to issue no more than 120744 million A-Shares to no more than 35 specific objects, raising no more than 4 billion yuan. After deducting the issuance expenses, it will be used for the “construction project of Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and cultivating diamond smart factory” “Power phase II diamond and cultivation diamond intelligent chemical plant construction project” and supplement working capital. The shares of this offering subscribed by the issuing object shall not be transferred within 6 months from the date of the end of this offering.
The diamond industry is expected to continue to grow and enjoy high productivity dividends. In this fixed increase investment project, the production capacity construction project of “Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and cultivation diamond intelligent factory construction project” uses the raised funds of about 2.06 billion yuan, and the “power phase II diamond and cultivation diamond intelligent chemical plant construction project” uses the raised funds of about 1.6 billion yuan. In the above two projects, the total equipment purchase cost for capacity expansion is about 3.01 billion yuan. According to what we said in “revisiting” Cara freedom “and cultivating the supply of three questions and three answers in the diamond industry”, the price of a single six sided press is about 1-2 million. If the median value is 1.5 million, the equipment purchase cost in this fixed increase fund-raising corresponds to about 2000 sets of six sided presses. At the same time, according to our discussion in the outgoing report mentioned above, at present, there are about 3500 stock six sided top presses used to cultivate diamond production in the industry. If the raised and invested capacity is successfully implemented, it is expected to significantly improve the company’s market share and industry voice, so as to continue to enjoy the industry expansion dividend.
The boom cycle is expected to bring more positive diamond production flexibility. In the “power phase II diamond and cultivation diamond intelligent chemical plant construction project” invested by the company, in addition to improving the cultivation diamond production capacity, industrial diamond is also under planning. According to the industry survey, the price of industrial diamond has increased by 40% – 50% since 2021. The main reasons include: 1) industrial diamond and cultivated diamond share a six sided top press. Due to the high prosperity of cultivated diamond, some production capacity has shifted to cultivated diamond, resulting in the decline of industrial diamond production capacity and tight supply; 2) The traditional downstream application of industrial diamond, building materials and other fields have relatively rigid demand. At the same time, as the raw material of diamond powder, it is indirectly driven by high boom industries such as photovoltaic and consumer electronics. As the new booster in the industry is mainly used to cultivate diamond production, the capacity elasticity of industrial diamond is limited, so the price has increased significantly. We believe that the company’s expansion of diamond single crystal production capacity through fixed increase is expected to drive the rapid growth of industrial diamond and diamond micro powder businesses at the same time, so as to bring more significant performance flexibility.
Fixed raising and investment to enhance R & D strength, improve efficiency or bring the possibility of performance exceeding expectations. The R & D center project of “Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and the construction project of cultivating diamond intelligent factory” plans to use the raised fund of 130 million yuan. Increasing R & D investment is expected to improve the company’s diamond production efficiency and product yield. At present, there is room for a large improvement in the overall yield in the industry. If a technological breakthrough is achieved, it is expected to bring the possibility of performance exceeding expectations for the company.
Investment suggestion: cultivate the diamond industry to maintain high economic growth and have broad medium and long-term prospects. As a leader in cultivating diamonds, the company actively expands production through fixed increase projects, consolidates its competitive advantage, and is expected to continue to benefit from the expansion dividend of the industry. We expect the company to achieve EPS of 7.90, 12.13 and 16.95 yuan respectively from 2022 to 2024. The closing price corresponding to PE on March 25 is 36, 24 and 17 times respectively, maintaining the “recommended” rating.
Risk tips: fixed value-added projects are not approved or passed, the industry demand has declined sharply, and the competition pattern has deteriorated
