\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
Core view
The company's net profit attributable to the parent company in 2021 increased by 77% year-on-year, with good cash flow and the main performance contribution of Zhongnan diamond
The company released its 2021 annual report, realizing an operating revenue of 7.5 billion yuan, a year-on-year increase of 16%; The net profit attributable to the parent company was 490 million yuan, a year-on-year increase of 77%; From 2019 to 2021, the compound growth rate of revenue was 19%, and the compound growth rate of net profit attributable to parent company was 37%. In terms of single quarter, Q1-Q4 of the company achieved operating revenue of 1.36 billion, 1.52 billion, 1.97 billion and 2.67 billion respectively in 2021; Net profit attributable to parent company of RMB 100 million, 230 million, 280 million and loss of RMB 120 million; Among them, the loss in the fourth quarter alone was 120 million, 66 million more than that in the fourth quarter of 2020.
The net operating cash flow of the company at the end of 2021 was RMB 1.57 billion, of which Q4 achieved RMB 1.21 billion, and the annual net cash ratio was 3.2, indicating that the company is in good operating condition and healthy cash flow, which is conducive to resisting risks, sustainable production and expanding operation; It is predicted that the net profit attributable to the parent company in the first quarter of 2022 will be 240280 million yuan, with a year-on-year increase of 148% - 190%, and the first quarter has a good start.
Central South Diamond: in 2021, the net profit was 660 million, with a year-on-year increase of 60%. The world's largest supplier of cultivated diamond + high-grade industrial diamond continued to grow at a high rate
Zhongnan diamond is the main profit source of the company. In 2021, it achieved an operating revenue of 2.4 billion, a year-on-year increase of 25%; The net profit was 660 million, a year-on-year increase of 60%; From 2019 to 2021, the compound growth rate of net profit was 41%. Cultivate the diamond industry with low penetration and high growth. In the future, the company is expected to benefit from multiple drivers such as the expansion of the number of presses + the increase of the single capacity of large-scale equipment + the increase of the average price of single carat of technology upgrading products, so as to achieve high growth of diamond cultivation performance; As a global leader in industrial diamonds, the company's industrial diamonds benefit from the strong demand of downstream photovoltaic and other industries, and the orders are full. Due to the extrusion of production capacity by cultivated diamonds, the price of products continues to rise. It is expected that the profitability of cultivated diamonds is expected to be in line with that of cultivated diamonds in the future.
India's imports of cultivated diamond raw stones increased by 157% year-on-year in March 2022, and the CAGR of cultivated diamond imports from 2019 to 2021 was 107%, with a year-on-year increase of 105% in the first quarter of 2022. The high growth of "diamond processing Empire" confirms the high demand and prosperity of the industry; In order to cultivate an important supply source of diamond raw stones in China, the orders and performance of leading enterprises will be in large quantities.
Military industry: North Hongyang lost 240 million yuan in 2021. The improvement of product structure and price adjustment in the later stage are expected to turn around the loss. As one of the main suppliers of special equipment under the company, North Hongyang subsidiary had an operating revenue of 890 million yuan and a net profit loss of 240 million yuan in 2021, with losses for three consecutive years. The subsidiary Jiangji Special Machinery Co., Ltd. had an operating revenue of 2.1 billion and a net profit of 110 million in 2021. As the rare listing platform of intelligent ammunition of ordnance industry group, the company undertakes the research and production of key batch production models of equipment. In the later stage, with the price adjustment of military products, the increase of demand and the improvement of structure, the company's military business is expected to turn losses into profits.
Investment suggestion: cultivate diamond + industrial diamond leader, intelligent ammunition leader of Ordnance Group, dual drive of military and civil products North Industries Group Red Arrow Co.Ltd(000519) for global cultivation of diamond raw stone + industrial diamond leader, intelligent ammunition leader of Ordnance Group and dual drive of military and civil products in the future. It is estimated that the net profit from 2022 to 2024 will be 1.06/14.9/2 billion, with a year-on-year increase of 118% / 40% / 35%, a compound growth rate of 60%, and the PE will be 27 / 20 / 15 times, maintaining the "buy" rating.
Risk tip: the competition pattern and profit changes of diamond cultivation, new technology iteration, and military products are not as expected.
