\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
Event: the company released the 2022q1 performance forecast on April 1. During the reporting period, the company is expected to realize a net profit attributable to the parent company of 240 ~ 280 million yuan, a year-on-year increase of + 148.14% ~ + 189.50%. The company also released the performance express for 2021. During the reporting period, the company achieved a revenue of 7.514 billion yuan, a year-on-year increase of + 16.26%; The net profit attributable to the parent company was 472 million yuan, a year-on-year increase of + 71.93%; The net profit deducted from non parent company was 471 million yuan, a year-on-year increase of + 95.78%.
Q1 cultivate the diamond industry to maintain high economic growth, or continue to thicken the company’s performance. The net profit attributable to the parent company of 2022q1 is expected to be + 148.14% ~ + 189.50% year-on-year. We speculate that cultivating diamond business may be the main elastic source. Since the beginning of the year, the cultivation diamond industry has maintained high economic growth. From the data of cultivation diamonds in India, the cumulative import of cultivation diamonds in India from January to February was + 80.8% year-on-year, and the cumulative export was + 89.7% year-on-year. The penetration rate also showed a steady increase. In the follow-up outlook, we believe that the high outlook of the diamond cultivation industry is expected to be maintained. On the one hand, the conflict between Russia and Ukraine may lead to a tight supply of natural diamonds, which is expected to accelerate the substitution process of diamond cultivation; On the one hand, in addition to the establishment of China’s e-commerce brand in March, it is expected to gradually promote the establishment of China’s e-commerce brand, and gradually promote the growth of China’s e-commerce market. As a leading diamond cultivation enterprise in China, the company has obvious advantages in technical level, capacity scale and channel construction. In the medium and long term, the performance is expected to fully benefit from the expansion of industry scale.
The price of industrial diamond is expected to rise strongly, and the annual performance of superhard materials business is expected. In addition to cultivating diamonds, the company’s industrial diamond business is also expected to contribute considerable performance increment. On the supply side, due to the shift of some production capacity in the industry to cultivation diamond production, the industrial diamond production capacity has decreased, resulting in a relative shortage of supply; On the demand side, the demand for building materials, oil and gas exploitation and other fields is relatively stable and rigid. At the same time, as a raw material of diamond micro powder, it is driven by high boom industries such as photovoltaic, and the overall demand shows a steady growth trend. Under the background of short supply, the price of industrial diamond has increased by more than 40% since 2021. Considering that the new production capacity of the industry will continue to be used to cultivate diamond production, it is expected that the current situation of tight supply of industrial diamond will not be changed significantly in the short term. The expectation of further price rise is strong, and the annual performance of the company’s superhard materials is worth looking forward to.
The auto + special equipment sector can turn losses around, and the profitability of defense assets is expected to improve. 2022 is the closing year of the three-year action plan for the reform of state-owned enterprises. Turning losses into profits in the automobile and special equipment sector of the company began to be put on the agenda. In the automotive sector, the company achieved good loss reduction results by reducing costs and improving efficiency, and its subsidiary Galaxy power has reversed its losses year-on-year in the first three quarters of 2021. In the special equipment sector, with the gradual implementation of the new pricing mechanism reform, the overall profitability of the company’s defense assets is also expected to be gradually improved.
Investment suggestion: the company is a leading enterprise in superhard materials, benefiting from the high prosperity of diamond and industrial diamond industry. At the same time, the automobile and special equipment sector is also expected to turn losses into profits. It is estimated that from 2022 to 2023, the company will achieve revenue of 9.00 billion yuan and 10.883 billion yuan respectively, with a year-on-year increase of + 19.8% and + 20.9% respectively; The net profit attributable to the parent company was 1.001 billion yuan and 1.426 billion yuan respectively, with a year-on-year increase of + 112.2% and + 42.5% respectively; Realize eps0 72 and 102 million yuan. The closing price of PE on March 31 was 31 and 22 times respectively, maintaining the “recommended” rating.
Risk tip: the industry demand is lower than expected, the price of raw materials rises sharply, and the competition pattern intensifies.
