\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
[key points of investment]
The company released the annual report of 2021, and the net profit attributable to the parent company was + 77% year-on-year. In 2021, 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 485 million yuan, a year-on-year increase of + 76.77%, better than the previous performance express; Deduct the net profit not attributable to the parent company of 471 million yuan, a year-on-year increase of + 95.78%. Among them, Q4 achieved a revenue of 2.665 billion yuan in 2021, a year-on-year increase of + 4.04%; The net profit attributable to the parent company lost 121 million yuan and 55 million yuan in the same period in 2020. In addition, the company issued a quarterly forecast, and it is expected to realize a net profit attributable to the parent company of 240280 million yuan in Q1 2022, with a year-on-year increase of 148.14% – 189.50%.
Optimize the structure and improve the overall profitability. In 2021, the company’s overall gross profit margin was 20.74%, with a year-on-year increase of + 3.16pct, mainly benefiting from the high growth of diamond cultivation business and the improvement of profitability driven by the optimization of product structure. During 2021, the expenses were well controlled, and the rates of sales / management / R & D / financial expenses were 0.83% / 6.96% / 4.59% / – 0.79% respectively, with a year-on-year increase of + 0.11 / + 0.36 / – 0.23 / – 0.12pct respectively. In 2021, the company’s advance payment from customers increased, and the contract liabilities at the end of the year increased by + 199.05% year-on-year to 945 million yuan. The company’s orders were in good condition.
The gross profit margin of superhard materials business was + 6.14pct to 43.45% year-on-year. Zhongnan diamond, a subsidiary mainly engaged in superhard materials, achieved a revenue of 2.407 billion yuan (YoY + 25.2%) in 2021, accounting for 32.03% (YoY + 2.3pct), and a net profit of 657 million yuan (YoY + 60.2%). The company’s annual sales volume of superhard materials exceeds 5 billion carats, and its production and sales volume ranks first in the world. 1) The prosperity and penetration rate of the cultivation diamond industry continued to rise. According to GJEPC data, the import volume of India’s cultivation diamond rough diamonds in March was US $203 million (YoY + 157.7%), and the penetration rate at the import end was 9.1% (YoY + 3.7pct); The export volume of cultivated diamond bare diamonds is 137 million US dollars (YoY + 58.5%), and the permeability at the export end is 5.9% (YoY + 2.0pct). The company plans to continue to invest in the production expansion of large hexahedral press. With the upgrading of production technology, the cultivation of diamond business is expected to rise both in volume and price. 2) The company’s industrial diamond and cubic boron nitride business are in a leading position in the industry. Affected by the transfer of industrial diamond production capacity and the demand of downstream manufacturing industry, the product price is expected to continue to rise.
The production capacity of special equipment business is at the advanced level of China. The company undertakes the R & D and mass production of many national key models of products. The annual revenue of special equipment business is 4.388 billion yuan (YoY + 15.05%), accounting for 58.40% (yoy-0.62pct) and the gross profit margin is 10.70% (YoY + 0.82pct). Among them, the subsidiary Jiangji Special Machinery Co., Ltd. achieved a revenue of 2.143 billion yuan (YoY + 14.9%) and a net profit of 113 million yuan (yoy-11.7%) in 2021; The subsidiary northern Hongyang achieved a revenue of 888 million yuan (YoY + 80.2%) and a net profit loss of 243 million yuan in 2021, which was a drag on the overall performance of the company. The company will vigorously promote the rapid development of military equipment in the direction of remoteness, intelligence and high efficiency, and wait for the subsequent turnaround of special equipment business.
[investment suggestions]
The company has a solid leading position in the industries of industrial diamond, cultivated diamond and cubic boron nitride. It is expected to continue to benefit from the shortage of supply in the cultivated diamond industry. We expect that from 2022 to 2024, the company’s operating revenue will be RMB 9.029104.57/12.074 billion respectively, with a year-on-year growth rate of 20.17% / 15.81% / 15.47% respectively; The net profit attributable to the parent company was 1.063/14.08/1.837 billion yuan respectively, with a year-on-year growth rate of 118.94% / 32.49% / 30.51% respectively; EPS is 0.76/1.01/1.32 yuan / share respectively, and the corresponding PE is 27 / 21 / 16 times respectively, which is rated as “overweight”.
[risk tips]
Capacity expansion is less than expected;
The demand for diamond cultivation is less than expected;
Industry competition intensifies.
