\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Matters:
Item 1: it was announced on March 25, 2022 that the company plans to issue no more than 120744 million shares to specific objects, and the total amount of funds raised is no more than 4 billion yuan. The net amount of funds raised after deducting the issuance expenses is used for: 1) Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and the construction project of cultivating diamond intelligent factory (2.191 billion yuan); 2) Power phase II diamond and cultivation diamond intelligent chemical plant construction project (1.599 billion yuan); 3) Supplement working capital (210 million yuan).
Item 2: on March 27, the company released the performance forecast for the first quarter of 2022. It is expected that the net profit attributable to the parent company in 22q1 will be 93-103 million yuan, with a year-on-year change of + 127.89% – 152.40% and a month on month change of + 18.49% – 31.23%. The continuous high growth of performance is mainly due to the significant increase in the proportion of cultivated diamond sales of high gross profit products and the simultaneous rise in volume and price under the strong demand for industrial diamonds.
Guoxin’s view: 1) the company is a leading manufacturer of superhard materials in China. There is strong demand for industrial diamonds in the downstream field, and the price continues to rise + the demand for diamond cultivation has increased explosively. The company’s performance has increased significantly, and the production capacity continues to be in short supply. Solving the production capacity problem has become a top priority. The company plans to raise no more than 4 billion yuan this time, which will effectively solve the capital problem of capacity expansion and promote the faster growth of the company’s business, It is expected to fully benefit from the high prosperity of the industry. We maintain the company’s net profit attributable to the parent company in 202224 at RMB 461 / 709 / 1028 million, corresponding to pe38 / 25 / 17 times, and maintain the rating of “overweight”. 2) Risk warning: industry competition intensifies; Downstream demand is lower than expected; Capacity expansion was less than expected.
Comments:
A fixed increase of 4 billion yuan: for Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and the construction project of cultivating diamond intelligent factory, the construction project of phase II diamond and cultivating diamond intelligent chemical factory, and supplement working capital
The total amount of funds raised by the company’s proposed non-public offering of shares shall not exceed 4 billion yuan, and shall not exceed 20% of the company’s total share capital before the issuance. Among them, 2.191 billion yuan was invested in Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and the construction project of cultivating diamond intelligent factory (hereinafter referred to as “cultivating diamond intelligent factory”), 1.599 billion yuan was invested in the construction project of phase II diamond and cultivating diamond intelligent chemical plant (hereinafter referred to as “artificial diamond and diamond intelligent factory”) and 210 million yuan was used to supplement working capital. Through this additional issuance, the company can further expand the production capacity of synthetic diamond and improve the market share; Optimize product structure and enhance profitability; Play a large-scale role and improve product quality and delivery capacity; Continue to carry out technological innovation and enhance core competitiveness.
The focus of additional issuance is to cultivate and expand the production of diamonds, improve the production capacity of diamond single crystals and strengthen their own R & D capabilities
1. Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and diamond intelligent factory construction project (capacity construction)
The construction period is three years, and the total planned investment is about 2.191 billion yuan. It is planned to build a new diamond production base, including the construction of a new artificial diamond production plant, the purchase of intelligent and automatic hexagonal top diamond synthesis press and corresponding supporting production, testing and auxiliary equipment, and the expansion of production team. The main investment is the purchase of equipment, with an amount of 1.637 billion yuan. After the completion of the project, the company can further improve the product structure, improve the market share of cultivated diamonds and maintain the market competitive advantage.
2. Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and the construction project of cultivating diamond intelligent factory (R & D center)
The construction period is two years and the total planned investment is about 139 million yuan. The R & D center integrates R & D, experiment and testing. On the one hand, it can enhance the R & D capacity of the original core products, and also provide technical support for the enrichment of the company’s product structure and the improvement of its core competitiveness in the future.
3. Power phase II diamond and cultivation diamond intelligent chemical plant construction project
The construction period is three years and the total planned investment is about 1.72 billion yuan. It is planned to build a new diamond single crystal and cultivate a diamond production base. The specific planning is similar to that of “cultivating a diamond smart factory”. The capital is mainly invested in the purchase of equipment, with an amount of 1.374 billion yuan. After completion, it will help the company deepen the development of its main business, improve the sales scale and profitability, enhance the market share of leading products and enhance the company’s comprehensive competitiveness.
The funds raised by the additional issuance are mainly used to increase production equipment. After being put into operation, the production capacity is expected to increase to about 5 times of the current level. The additional investment plan shows that the total equipment purchase cost is about 3.011 billion yuan. If the equipment purchase and installation cost in Henan Liliang Diamond Co.Ltd(301071) the prospectus is 364 million yuan, corresponding to 320 sets / set of six face top presses, it is expected to add about 2650 presses of the same model, including 1440 “cultivating diamond intelligent factory” and 1210 “artificial diamond intelligent factory”, corresponding to the company’s current total of about 600700 presses, The overall production capacity will be increased to 4.8-5.4 times of the current level in three years.
Benefiting from the cultivation of diamond high prosperity, the performance has continued to grow and the profitability has been significantly improved
A leading producer of rapidly growing synthetic diamonds. The company was listed on the gem in September 2021, and its main business is to cultivate diamonds, diamond micro powder and diamond single crystal. 1) Cultivating diamonds: as a leading diamond enterprise, the company has started the construction of new plant area in early 2020. In 2021, the equipment in the new plant area will be put into operation successively, and the company’s production capacity will increase rapidly, supporting the steady growth of performance; 2) Diamond micro powder: Diamond micro powder has a wide range of downstream applications. At present, diamond wire saw has replaced mortar cutting technology in the field of photovoltaic new energy, and has broad application prospects in emerging industries such as consumer electronics and semiconductors. The company’s fine powder for wire saw is in a leading position in the industry, and its business is expected to continue to grow; 3) Diamond single crystal: in the early stage, some six sided top presses were converted to the production and cultivation of diamonds, adding that the slow construction progress of new production capacity has improved the pattern, and the strong demand in the downstream has led to an obvious rise in prices under the condition of short supply.
In 2021, the revenue / net profit attributable to the parent company was + 103.50% / + 228.17% year-on-year, and in 2022q1, the net profit attributable to the parent company was + 127.89% – 152.40% year-on-year. The company achieved a revenue of 498 million yuan in 2021, 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%. In a single quarter, the net profit attributable to the parent company of 21q1-q4 was 0.41/0.67/0.53/0.78 billion yuan respectively, with a good trend in the whole year. The high growth rate of performance is mainly due to the high growth of revenue driven by the company’s grasp of the high prosperity opportunity of cultivating the diamond industry and the accelerated expansion of production capacity. Since 2022, the industry has maintained a high momentum. The company’s net profit attributable to the parent company in 22q1 was 93-103 million yuan, a year-on-year increase of + 127.89% – 152.40% / month on month increase of + 18.49% – 31.23%. The continuous high growth in performance is mainly due to the increase in the proportion of cultivated diamond sales and the simultaneous rise in volume and price under the strong demand for industrial diamonds.
The company’s profitability has increased significantly. In 2021, the gross profit margin / net profit margin of the company were 64.07% / 48.07% respectively, with a year-on-year increase of + 20.48/18.26 PCT. The substantial increase in profitability was mainly due to the significant increase in the proportion of cultivation diamond revenue with higher profit margin and the significant increase in the price of diamond products under the background of hot demand in the diamond industry; The company’s sales / management / Finance / R & D expense ratio was 1.12% / 3.07% / 0.49% / 5.33% respectively, with a year-on-year increase of -0.81 / – 0.34 / – 0.33 / + 1.26 PCT, and the R & D expense ratio increased slightly, mainly due to the company’s increased R & D investment.
The cultivation of diamonds has maintained a high boom and the industrial trend is good
The cultivation diamond industry has witnessed explosive growth since 2018. In 2021, the rough market has reached US $1.13 billion, a year-on-year increase of + 157%. India is the distribution center of global diamond processing, accounting for more than 90% of the global diamond processing share. Its import and export data can fully reflect the latest demand for diamond cultivation. According to GJEPC statistics, under the natural year caliber, the import volume of Indian rough diamonds in 20192021 was USD 263 / 440 / 1130 million respectively, with a year-on-year increase of + 66.89% / 156.99% in 2020 / 2021 and a CAGR of 107.10% in 19-21; From 2019 to 2021, the export volume of India’s bare diamonds was USD 381 / 529 / 1144 million respectively, with a year-on-year increase of + 38.91% / 116.05% in 2020 / 2021 and a CAGR of 73.24% in 19-21. According to the latest data, the import volume in February 2022 was 155 million US dollars, a year-on-year increase of + 85.01%, another record high in a single month; The export volume was 126 million US dollars, a year-on-year increase of + 113.55%, and the industry still maintained a high momentum.
Investment suggestion: benefiting from the cultivation of high prosperity in the diamond industry, the expansion of production capacity will drive the improvement of performance and maintain the “buy” rating
Cultivate a high-profile and continuous verification of the diamond industry. This additional issuance provides capacity support for the steady growth of performance. At the same time, it strengthens the company’s R & D capacity and provides financial guarantee for the company’s sustainable operation and development. It is expected to continue to benefit from the high prosperity of the industry in the future. Optimistic about the capacity improvement and product structure optimization brought by this fixed increase, we expect the net profit attributable to the parent company in 202224 to be RMB 461 / 709 / 1028 million, corresponding to pe38 / 25 / 17 times, maintaining the “overweight” rating.
Risk tips
Industry competition intensifies; Downstream demand is lower than expected; Capacity expansion was less than expected.
