\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Performance exceeded the expected growth: the company released the performance forecast and realized the net profit attributable to the parent company of 93 million yuan – 103 million yuan in 2022q1, with a year-on-year increase of 127.89% – 152.40%; The net profit of non post tax was RMB 90-100 million, with a year-on-year increase of 128.71% – 154.12%. The main reasons are as follows: 1) the proportion of cultivated diamond products with high gross profit margin has increased significantly; 2) The industrial diamond market is in short supply, and the price has increased significantly year-on-year; 3) The company’s raised investment projects have been put into operation one after another, and the output has increased rapidly.
Changes in supply and demand continue to interpret the high outlook of the synthetic diamond industry. 1) Cultivate the diamond industry: the popularity of downstream retail demand remains unchanged. Since 2022, the import and export growth of cultivated diamonds in India has been high. In February, the import volume of cultivated diamonds increased by 84.4% and the export volume of cultivated bare diamonds increased by 114.6%, with the corresponding import and export penetration of natural diamonds reaching 7.0% and 6.0% respectively. The terminal demand continues to be hot, the development of the industry is still limited by capacity expansion, and there is broad room for the release of the performance of Zhongyou manufacturing business. 2) Industrial diamond: the application of diamond single crystal in traditional infrastructure and the application of micro powder cut by photovoltaic wire saw have increased significantly. The supply gap caused by the imbalance of industrial capacity switching has continued to widen. Since 2021, the supply of industrial diamond has been tight and the price has increased significantly.
Boost capacity expansion projects. In 2022, the company plans to issue 120744 million additional shares to no more than 35 specific objects, raising a total of 4 billion yuan for the construction project of Henan Liliang Diamond Co.Ltd(301071) science and technology center and cultivation diamond intelligent factory in Shangqiu, Henan Liliang Diamond Co.Ltd(301071) phase II diamond and cultivation diamond intelligent factory construction project and supplementary working capital. Among them, the equipment purchase cost reached 3.065 billion yuan. The overall plan is to purchase 1800 six sided top presses, of which 1500 are used to cultivate the construction of new diamond production capacity. Under the high prosperity of the industry, performance growth is bound to the landing height of production capacity. It is expected that the company’s cultivated drilling capacity will exceed 1.5 million carats by 2024.
The logic of structural rise of average price continues. Under the large capacity of the supply side, the average ex factory price of the company’s overall blank still has structural improvement opportunities. Since 2020, the proportion of more than 3 carats of blanks in the product structure of the company has continued to increase. The average production price of 21q1 blanks has reached 657 yuan / carat, a significant increase of 141% over the beginning of the year. The improvement of large carat product structure and the improvement of single carat quality are the main paths of average price adjustment. The Shangqiu Henan Liliang Diamond Co.Ltd(301071) scientific research center project under investment and construction is expected to make a breakthrough in synthetic technology relying on the core R & D capabilities such as the provincial functional diamond engineering technology research center and the gem grade large single crystal synthesis engineering laboratory. The iteration of core technology can lead to the expected rise of average price, and the logic of price increase in the future will be established for a long time.
Profit forecast and investment suggestion: the company is a pure manufacturer of synthetic diamond. It plans to raise funds and invest to accelerate the progress of capacity expansion. There is broad room for improvement of marginal benefits in the future. It is a high-quality target with both deterministic growth and imagination. Based on the performance of the first quarterly report and the expectation of fixed growth projects, we adjusted the company’s revenue from 2022 to 2024 to RMB 950 / 1402 / 2022 million respectively, and realized the net profit attributable to the parent company of RMB 492 / 745 / 1094 million, corresponding to eps8.5 14 / 12.35/18.12 yuan per share. Maintain the “overweight” rating based on the performance of the first quarterly report and the expectation of fixed increase projects.
Risk tips: intensified industry competition, risk of technology iteration, limited capacity expansion, impact of the epidemic, and lower downstream demand than expected
