\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Event: the company released the performance forecast of 2022q1 on March 27. During the reporting period, the company expects to realize the net profit attributable to the parent company of 93 ~ 103 million yuan, a year-on-year increase of + 127.89% ~ + 152.40%; It is expected to realize a net profit of 90 ~ 100 million yuan after deducting non-profit, with a year-on-year increase of + 128.71% ~ + 154.12%, and the performance is basically in line with our expectations.
The implementation of raised investment capacity superimposed the optimization of income structure, and the performance increased month on month in 2022q1. The company expects to realize a net profit attributable to the parent company of 93 ~ 103 million yuan in 2022q1, with a month on month ratio of + 18.49% ~ + 31.23%, continuing the high growth trend. On the one hand, since the listing of the company, the raised and invested capacity has been gradually implemented. It is expected that 2022q1 will enter the stable production stage after 2021q4 installation and climbing period; On the other hand, the proportion of diamond revenue from the cultivation of high gross margin products increased, and the price of superimposed industrial diamond products continued to rise, driving the company’s profitability to increase.
The brand is accelerated into the catalysis of superimposed geographical conflicts, and the cultivation of diamonds is expected to rise both in volume and price Mclon Jewellery Co.Ltd(300945) launched the “Muccan” brand in March 2021 and announced to join the diamond cultivation industry. Zhou Shengsheng also disclosed the establishment of “Shidai e-commerce (Guangzhou) Co., Ltd.” in the 2021 annual report to actively lay out the diamond cultivation industry. We believe that the addition of terminal brands will help quickly improve Chinese consumers’ awareness of cultivating diamonds, so as to ensure the sustainability of the high boom at the demand side of the industry. In addition, in the context of the conflict between Russia and Ukraine, the United States and other western countries have taken sanctions against Russian diamonds. The latter’s natural diamond production capacity accounts for a high proportion in the world, resulting in a significant rise in the price of natural diamonds since the beginning of the year. Considering the anchoring relationship between cultivated diamond prices and natural diamonds, cultivated diamond prices are expected to remain stable in the short term. On the whole, the company’s diamond cultivation business is expected to keep both volume and price rising in 2022.
High demand for industrial diamond + weak elasticity of supply continue to be optimistic about the prospect of price rise. On the one hand, benefiting from the “steady growth” policy, the demand for building materials and other traditional downstream applications of industrial diamonds has maintained a steady growth; On the other hand, as the raw material of diamond powder, the demand of diamond single crystal is driven by high growth industries such as photovoltaic, so the demand side maintains a high boom; At the same time, in the short term, the newly added six sided top press in the industry will still be mainly used to cultivate diamond production, so the supply elasticity of industrial diamond is weak. Under the combined action of the above factors, the prospect of industrial diamond price increase in 2022 is promising, and the company’s performance is expected to fully benefit.
Increase the diamond production capacity layout with fixed size, and the medium and long-term performance elasticity may be more prominent. Previously, the company issued the plan for issuing A-Shares to specific objects in 2022, and planned to raise no more than 4 billion yuan. Among them, about 3.01 billion yuan is the equipment purchase cost for capacity expansion. According to our comments on the fixed increase plan for Henan Liliang Diamond Co.Ltd(301071) ( Henan Liliang Diamond Co.Ltd(301071) ) 2022: it is proposed to raise no more than 4 billion yuan and strengthen the layout of diamond cultivation business, the above equipment purchase cost corresponds to about 2000 sets of six face presses, while the current number of six face presses used for diamond cultivation in the industry is about 3500. Considering that the current capacity scale of the company is relatively small compared with its peers, if the fixed increase project is successfully implemented, the medium and long-term performance elasticity will be more prominent.
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 eps7.5 from 2022 to 202490, 12.13 and 16.95 yuan. The closing price of PE on March 25 was 36, 24 and 17 times respectively, maintaining the “recommended” rating.
Risk tip: sharp decline in industry demand, deterioration of competition pattern, fixed increase projects or failure, etc.
