\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
Revenue grew steadily and profit performance exceeded expectations. In 2021, the company achieved revenue of 7.514 billion yuan (YoY + 16.26%), net profit attributable to parent company of 485 million yuan (YoY + 76.77%), and non net profit attributable to parent company of 471 million yuan (YoY + 95.78%). The overall gross profit margin increased by 3.16 PCTs to 20.74% and the sales expense ratio decreased by 0.11 PCT to 0.83%; The rate of administrative expenses increased by 0.36 PCT to 6.96% at the same time; The R & D expense rate decreased by 0.23pct to 4.59% at the same time, and 1681 people (accounting for 19.60%) were engaged in R & D at the end of the period, which was mainly due to the company’s continuous investment in the R & D of new products of diamond and special equipment. In conclusion, the net profit margin attributable to the parent company increased by 2.21pcts to 6.46% at the same time. Among them, Q4’s single quarter revenue was 2.665 billion yuan (YoY + 4.04%), the net profit attributable to the parent company was – 121 million yuan, and the net interest rate decreased by 2.41pct to – 4.55%. At the end of the period, the net operating cash flow decreased by 12.75% to 1.573 billion yuan. The company plans to pay a cash dividend of 0.50 yuan (including tax) for every 10 shares, with a total dividend of 70 million yuan.
The position of superhard material industry is stable: the annual sales volume of the subsidiary Zhongnan diamond exceeds 5 billion carats, ranking first in the industry in terms of production, sales and market share in the world, realizing a revenue of 2.407 billion yuan (YoY + 25.21%), accounting for 32.03% of the total revenue, a net profit of 657 million yuan (YoY + 60.18%), and a gross profit margin of 6.14 PCTs, 43.45%. 1) Consumption field: the company can stably produce gem grade cultivated diamond single crystals within 30 carats, and batch supply gem grade cultivated diamond products above 3 carats. Large-scale cultivated diamonds still occupy a dominant position in technology. 2) Industrial field: the breakthrough in the application of new diamond tools and the transfer of industrial capacity breed the short-term supply gap in the industrial market. The company has strong technical force, and the industrial diamond and cubic boron nitride take the lead.
Special equipment adheres to the first responsibility of strengthening the Army: the company undertakes the R & D and mass production of many national key products, and its production capacity is at the advanced level of China. In the future, it will vigorously promote collaborative innovation and realize the remote, intelligent and efficient development of military equipment. The total revenue of special equipment increased to RMB 820.05 billion (pcyot + 4.05% YoY), accounting for 1.05% of the total revenue of the same period. Among them, the subsidiary of Jiangji Special Machinery Co., Ltd. has a revenue of 2.143 billion yuan (YoY + 14.87%) and a net profit of 113 million yuan (yoy-11.72%); Northern Hongyang had a revenue of 888 million yuan (YoY + 80.23%) and a loss of 243 million yuan.
There are broad prospects for the development of special-purpose vehicles: the national economy has made steady progress, accelerating the specialization and diversified demand of special-purpose vehicles in various industries. The subsidiary Hongyu special-purpose vehicle takes the van type vehicle products as the pillar, the market share of blasting equipment transportation vehicles ranks first in the industry, and the market share of refrigerated and insulated vehicles ranks first. In 2021, the special purpose vehicle sector achieved a total revenue of 719 million yuan (yoy-1.09%), accounting for 9.57% of the total revenue, and the gross profit margin increased by 0.21 PCT to 6.00%.
Profit forecast and investment suggestions: the prosperity of the diamond industry will continue, and there is broad room for the improvement of consumer market and penetration North Industries Group Red Arrow Co.Ltd(000519) as a leader in superhard material manufacturing, it has strong overall R & D strength and leading high-temperature and high-pressure synthesis technology. It has a solid position in the diamond cultivation industry and has a clear certainty of benefits. The turning point of military product profit recovery has been realized. The reform of military product procurement policy continues to benefit the long-term development of military industry business, which can effectively enhance the awareness of cost reduction and efficiency increase and accelerate the release of performance. Based on the performance of the annual report, we expect the company to achieve an operating revenue of RMB 8.736/10.167/12.002 billion from 2022 to 2024, a net profit attributable to the parent of RMB 928/13.19/1.805 billion, a target price of RMB 26.80, corresponding to 40 times PE in 22 years, and a “buy” rating.
Risk tip: downstream demand is less than expected, industry competition intensifies, and technology iteration risks.
