\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
[matters]
On March 26, the company issued the plan for issuing A-Shares to specific objects in 2022, which plans to issue no more than 12.07 million shares to no more than 35 specific objects, and raise no more than 4 billion yuan for Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and diamond intelligent plant cultivation project, phase II diamond and diamond intelligent chemical plant cultivation project and supplement working capital.
The company released the performance forecast for the first quarter of 2022. It is estimated that the net profit attributable to the parent company in Q1 is 93-103 million yuan, with a year-on-year increase of 127.89% – 152.40%; The net profit deducted from non parent company was 90-100 million yuan, with a year-on-year increase of 128.71% – 154.12%.
[comments]
It is proposed to increase fund-raising, invest in production expansion and R & D, and the number of presses is expected to expand significantly. In the “Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and cultivating diamond smart factory construction project”, the production capacity construction and R & D center are expected to use the raised funds of 2.06 billion yuan / 130 million yuan respectively. The construction period of the production capacity construction project is 3 years, the internal rate of return is 34.78%, and the total investment payback period is 4.73 years; “Power phase II diamond and cultivation diamond intelligent chemical plant construction project” is expected to use 1.6 billion yuan of raised funds. The construction period of the project is three years, the internal rate of return is 30.90%, and the total investment payback period is 4.87 years. Among them, the total purchase cost of the equipment to be used for production expansion is 3.01 billion yuan, corresponding to about 2000 six sided top presses. After the equipment is put into operation, the company’s production capacity is expected to be greatly improved, make up for the production capacity gap under the background of strong downstream demand of the industry, and improve the market share of the company’s diamond cultivation and industrial diamond business.
Q1 performance in 2022 is expected to increase year-on-year and month on month. In 2022, the net profit attributable to the parent company of Q1 company is expected to increase by 127.89% – 152.40% year-on-year and 18.49% – 31.23% month on month; The net profit of Q1 deduction from non parent company is expected to increase by 128.71% – 154.12% year-on-year and 23.97% – 37.74% month on month. It is mainly due to the further increase in the sales proportion of cultivated diamonds with high gross profit. At the same time, the price rise is caused by the tight supply and demand in the industrial diamond market. The company’s production expansion project is steadily promoted, the production and operation is in good condition and the profit structure is continuously optimized.
The prosperity of the industry continues, and the price of cultivated diamonds is expected to rise. According to GJEPC data, India’s import of cultivated diamond rough diamonds in February was US $155 million, a year-on-year increase of + 85.1%, and the import end penetration rate was 7.0%; The export volume of cultivated diamond bare diamonds was US $126 million, a year-on-year increase of + 133.6%, and the export penetration rate was 6.0%. The supply and demand sides of the industry still maintained a high growth trend. On the other hand, due to the global epidemic and geopolitical factors, the supply of natural diamonds has been limited and the price has increased significantly since 2022. According to IDEX data, as of March 28, the price index of natural diamonds has increased by 26.43% year-on-year and 10.81% year-on-year. Based on the pricing system of cultivating diamonds to anchor the price of natural diamonds, its price is expected to rise. In addition, the increase in the proportion of high-quality rough diamonds of the company is expected to lead to a structural rise in the price of products.
[investment suggestions]
The prosperity of the cultivation diamond industry continues to rise, and the trend of short supply continues. The company actively expands its production, complies with the high dividend increase of the industry, and the cultivation diamond and industrial diamond business are expected to increase both. As the company’s production expansion plan exceeded expectations, we raised our forecast of the company’s operating revenue and net profit attributable to the parent company from 2022 to 2024. It is expected that the company’s operating revenue will be RMB 951 / 1553 / 2349 million respectively from 2022 to 2024, with a year-on-year growth rate of 90.74% / 63.35% / 51.28% respectively; The net profit attributable to the parent company was 483 / 802 / 1216 million yuan respectively, with a year-on-year growth rate of 101.55% / 66.10% / 51.60% respectively; EPS is 8.00/13.28/20.14 yuan respectively; The corresponding PE is 36 / 22 / 14 times respectively, maintaining the “buy” rating.
[risk tips]
The production capacity is lower than expected;
The improvement of consumer awareness is less than expected;
Industry competition intensifies.
