\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
Core view
In 21 years, the net profit attributable to the parent company was 485 million yuan, a year-on-year increase of + 76.77%. The company achieved a revenue of 7.514 billion yuan in 2021, a year-on-year increase of + 16.26%; The net profit attributable to the parent company was 485 million yuan, a year-on-year increase of + 76.77%, which was mainly due to the high boom and high gross profit margin of the cultivation diamond industry, the substantial growth of the cultivation diamond business, and the diamond enterprises transferred part of their production capacity to the cultivation diamond, resulting in the short-term short supply of industrial diamond and the sharp rise in the price of products. The subsidiary Zhongnan diamond realized a net profit of 657 million yuan, a year-on-year increase of + 60.18%, becoming the main contributor to the company's performance.
The profitability was improved, and the expense rate during the period was stable as a whole. The gross profit margin / net profit margin of the company was 20.74% / 6.46% respectively, with a year-on-year change of + 3.16 / + 2.21 PCT, and the profitability was significantly improved; The company's sales / management / Finance / R & D expense rates were 0.83% / 6.96% / - 0.79% / 4.59% respectively, with a year-on-year change of + 0.11 / + 0.36 / - 0.12 / - 0.23 PCT, and the overall control of the expense rate was stable during the period.
The diamond industry maintained a high boom, and the net profit of the subsidiary Zhongnan diamond was + 60% year-on-year. By product, the revenue of superhard materials / special equipment / special vehicles / auto parts was 24.07/43.88/398320 million yuan respectively, with a year-on-year change of + 25.21% / + 15.05% / - 5.52% / + 5.04%, accounting for 32.03% / 58.40% / 5.30% / 4.26% of the revenue respectively. 1) Superhard materials: the revenue of the subsidiary Zhongnan diamond in 2021 was 2.407 billion yuan, a year-on-year increase of + 25.21%; The net profit was 657 million yuan, a year-on-year increase of + 60.18%, and the net interest rate was 27.29%, a year-on-year increase of + 5.96 PCT, which fully benefited from the explosive growth of industrial diamond price rise and high gross margin diamond business. According to the latest import and export data of India, the drilling and export volume of cultivated diamond blanks in India was US $203 million in March 2022, with a year-on-year increase of + 157.08% and a month on month increase of + 30.97%. The import volume from January to March 2022 was US $511 million, with a year-on-year increase of + 105.39%. The high prosperity of the industry has been verified since 2020. 2) Special equipment: the company's related revenue increased steadily, and the loss of profit was mainly due to the subsidiary northern Hongyang's revenue of 888 million yuan in 2021, a year-on-year increase of + 80.23%, and the net profit loss of 243 million yuan, which dragged down the overall performance. From the latest situation, the company's contract liabilities were 945 million yuan, a significant increase of 199.05% over the same period, reflecting the sharp improvement of the company's orders, We believe that in terms of special equipment business, the company undertakes the R & D and mass production of many national key models of products, and its production capacity is at the advanced level in China. With the continuous expansion of business scale, the profitability is expected to improve.
Risk warning: industry competition intensifies; The expansion of diamond production capacity is less than expected; Downstream demand was lower than expected.
Investment suggestion: the company is a leader in the superhard material industry and will fully benefit from the high outbreak of the diamond industry. The short-term drag on the performance of the special equipment business makes the company significantly underestimated, and the later profit is expected to be gradually repaired. We expect the net profit in 202224 to be 1.175/15.46/1.902 billion yuan respectively, with a corresponding PE value of 25 / 19 / 15 times, maintaining the "buy" rating.
