\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
Key investment points
The net profit attributable to the parent company is RMB 485 million, Q4 may be affected by the rhythm of revenue recognition. The company released its annual report for 2021 on the evening of April 18, 2022. The revenue in 2021 was 7.51 billion yuan, a year-on-year increase of + 16.3%, and the net profit attributable to the parent was 485 million yuan, a year-on-year increase of + 76.8%, which was higher than the net profit attributable to the parent disclosed in the performance express and reached the upper limit of the net profit attributable to the parent disclosed in the performance forecast. Deduct 470 million yuan of net profit not attributable to the parent company, a year-on-year increase of + 96%. Quarterly, the revenue of Q1 / Q2 / Q3 / Q4 in 2021 will be 1.4 billion yuan / 1.5 billion yuan / 2 billion yuan / 2.7 billion yuan respectively; The net profit attributable to the parent company was 96.72 million yuan / 230 million yuan / 280 million yuan / loss of 120 million yuan respectively.
The revenue of superhard materials was + 25%, and the profit margin benefited from the double boom of industrial diamond and cultivated diamond, which was significantly improved on a month on month basis: the annual revenue of superhard materials in 2021 was 2.41 billion yuan, a year-on-year increase of + 25%, and the net profit was 660 million yuan, a year-on-year increase of + 60%. Among them, the revenue of 2021h1 is 1.36 billion and that of 21h2 is only 1.05 billion (2021h2 is lower than that of 2021h1 and 2020h2 year-on-year). In terms of profit margin, the gross profit margin of superhard materials in 2021 was 43.5%, an improvement of 6.1% year-on-year, of which the gross profit margins of 2021h1 and H2 were 36% and 53% respectively. The gross profit margin of H2 increased significantly month on month in 2021, which continued to verify the high prospect of industrial diamond and diamond cultivation industry. The net profit margin of superhard materials in 2021 also reached 27%, an improvement of 6pct year-on-year.
The military industry sector still has a small loss, waiting for the performance to recover. In 2021, special equipment achieved a revenue of 4.4 billion yuan, a year-on-year increase of + 15%, of which H1 and H2 revenue were 1.15 billion yuan / 3.24 billion yuan respectively, with a year-on-year growth rate of – 2% / + 23% respectively. Special equipment (considering the loss offset between segments) suffered a total loss of 174 million yuan (mainly H2 loss of 160 million yuan). From the two main military industrial companies of northern Hongyang and Jiangji special, northern Hongyang 21 suffered a loss of – 230 million yuan (2020 loss of – 240 million), Jiangji Special Machinery Co., Ltd. made an annual profit of 110 million (130 million in 2020), and is expected to turn losses into profits in the future.
Profit forecast and investment rating: North Industries Group Red Arrow Co.Ltd(000519) is the leading enterprise in China’s artificial diamond industry, leading the industry in industrial technical barriers. The performance in 2021 was affected by the loss of the military industry, which was lower than the market expectation. However, the superhard material sector benefited from the prosperity of the industrial diamond and diamond industry. The profitability was greatly improved and the rapid profit growth was achieved. We maintained the net profit attributable to the parent company of 1.11/1.53 billion yuan in 202223, The net profit attributable to the parent company in 2023 was 1.99 billion yuan, and the latest share price was 26 times that of PE in 2022, maintaining the “buy” rating.
Risk tip: the expansion of diamond production capacity is not as expected, and there is still a risk of loss in the military industry and automobile business, repeated epidemics, etc
