\u3000\u3 Guocheng Mining Co.Ltd(000688) 028 Beijing Worldia Diamond Tools Co.Ltd(688028) )
Event: the company released its annual report for 2021. In 2021, the company achieved a revenue of 330 million yuan, a year-on-year increase of 34.7%; The net profit attributable to the parent company was 54 million yuan, a year-on-year increase of 10.0%. Q4 achieved a revenue of RMB 90 million in a single quarter, with a year-on-year increase of 30.2% and a month on month increase of 13.1%; The net profit attributable to the parent company was 05 million yuan, a year-on-year decrease of 40.7% and a month on month decrease of 74.4%.
The strong demand for superhard cutting tools has driven the growth of the company’s overall revenue. In terms of business segments: 1) superhard cutting tools: the company achieved a revenue of 180 million yuan, a year-on-year increase of 42.5%. The company’s superhard cutting tools are positioned at the middle and high end, benefiting from the strong demand of downstream; 2) Ultra high precision cutting tools: the revenue was 100 million yuan, with a year-on-year increase of 23.2%. Ultra high precision cutting tools are mainly used in the field of display cutting and grinding. Driven by other emerging fields such as consumer electronics and vehicle display, the demand will grow steadily; 3) Superhard composite materials: the revenue was 30 million yuan, with a year-on-year increase of 35%. Superhard composite materials belong to the upstream raw materials of tools such as cutting tools. At present, medium and high-end products are heavily dependent on imports and have good development prospects.
The comprehensive gross profit margin increased slightly, and the business layout resulted in a significant increase in the expense rate during the period and a decline in the net profit margin. In 2021, the company’s comprehensive gross profit margin was 49.2%, with a year-on-year increase of 1.4 percentage points, of which the superhard cutting tools increased by 3.5 percentage points to 47.4%; Q4 single quarter gross profit margin was 46.2%, down 2.6 percentage points year-on-year and 2.1 percentage points month on month. In 2021, the company’s expense ratio was 31.7%, with a year-on-year increase of 6.7 percentage points; Q4 was 40.3% in a single quarter, with a year-on-year increase of 2.6 percentage points and a month on month increase of 11.4 percentage points. The company’s expenses increased significantly in 2021 and Q4, mainly due to the diversified layout of products, resulting in a large increase in labor costs. In 2021, the company’s net interest rate was 16.7%, a year-on-year decrease of 3.8 percentage points; Q4 was 5.2% in a single quarter, with a year-on-year decrease of 6.2 percentage points and a month on month decrease of 17.8 percentage points.
The cutting tool business continues to be arranged, and the cultivation of drill is waiting for flowering. The company is a leading enterprise of superhard cutting tools in China, with strong product competitiveness. Under the background of increasing demand of superhard cutting tools industry, the development prospect is good; The market scale of cemented carbide NC blades is large, and domestic substitution is in full swing. The company will fully benefit from investing in the production capacity of 28 million pieces of cemented carbide and cermet NC blades; In addition, Jinquan company plans to improve the layout of precision cutting tool industry. At present, there is a strong demand for diamond cultivation, and the products are in short supply. The company uses many years of experience in artificial diamond production to invest in the construction of 200000 carat CVD diamond cultivation capacity. The project is advancing in an orderly manner and is worth looking forward to.
Profit forecast and investment suggestions. It is estimated that the net profit attributable to the parent company from 2022 to 2024 will be RMB 110 million, RMB 170 million and RMB 220 million respectively, and the compound growth rate of net profit attributable to the parent company in the next three years will be 59.8%. Considering the flexibility and strong growth of the company’s performance, the company is given 30 times PE in 2022 and the target price is 40.20 yuan, which is adjusted to the “buy” rating.
Risk warning: macroeconomic downside risk; Risk of technology R & D failure; The demand for diamond cultivation is lower than the expected risk.
