\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Key investment points
The net profit attributable to the parent company was 101 million yuan, reaching the upper limit of performance forecast. On April 26, 2022, the company disclosed the first quarterly report of 2022. In 2022, Q1 company achieved revenue of 192 million yuan, a year-on-year increase of + 127%, net profit attributable to parent company of 101 million yuan, a year-on-year increase of + 148%, a chain growth rate of 28.8% compared with Q4 in 2021, deducting non attributable net profit of 97.24 million yuan, a year-on-year increase of + 147%, and a chain growth rate of 33.9% compared with Q4 in 2021. Among them, the profit side basically touched the upper limit of previous performance forecast. We believe that the high growth of the company's performance is mainly due to the double boom of cultivating diamonds and industrial diamonds.
The gross profit margin increased significantly year-on-year and month on month, driving the net profit margin to increase significantly: in 2022, the gross profit margin of Q1 company was 69.2%, increased by 5.4pct year-on-year and 2.8pct month on month. We expect that this is also due to the increase in the proportion of cultivation diamond business with high gross profit margin, as well as the tight supply of industrial diamond, which drives the increase of profit margin. In terms of expense ratio, Q1 company's sales expense ratio was 0.7% and management expense ratio was 3.0% in 2022, which had a certain degree of improvement year-on-year. In 2022, the net profit margin of Q1 company to its parent company reached 52.8%, with a year-on-year increase of 4.5pct and a month on month increase of 1.9pct.
The production capacity of industrial diamond and cultivated diamond is basically saturated, and the high prosperity in the downstream drives the business volume and price to rise simultaneously. In 2021, the sales volume of diamond single crystal, diamond micro powder and cultivated diamond of the company were 850 million carats / 440 million carats and 312000 carats respectively, with a year-on-year growth rate of 80% / 36% / 128% respectively. The average ex factory price of cultivated diamonds reached 632.5 yuan per carat. The capacity utilization rate of the three types of products has reached more than 95%. Cultivated diamonds are still in the stage of rapid increase in penetration. According to the import and export data of India in Q1 2022, the year-on-year growth rate of cultivated diamond exports has reached more than 70%, and the penetration rate has reached 6%, which is still in the process of rapid increase. Industrial diamond and cultivated diamond business are linked and share the same set of equipment. With the rapid expansion of cultivated diamonds, industrial grade diamonds may also maintain the trend of price increase and usher in the simultaneous rise of volume and price.
The company maintained a positive trend of capacity expansion, and new equipment was in place one after another. At the end of the first quarter of 2022, compared with the end of 2021, the fixed assets of the company increased by about 80 million yuan, the construction in progress increased by about 25 million yuan, and the purchased machinery and equipment are also in place. The company's fixed increase plan has been released, and the total amount of funds to be raised is no more than 4 billion yuan, which is mainly used to cultivate diamonds and expand production capacity. The fixed increase plan is currently in the plan stage, and it needs to be adjusted according to the specific situation in the future. If the fixed increase is implemented in the future, it will contribute to the company's future production capacity expansion and process improvement, and the market share is expected to increase under the high prospect of the industry.
Profit forecast and investment rating: the company maintained a high growth rate in Q1 in 2022 on a month on month basis, cultivated a double boom of diamonds and industrial diamonds, and new equipment was in place one after another. We maintained the company's net profit attributable to the parent company of 480 million yuan / 700 million yuan / 920 million yuan from 2022 to 2024. The latest closing price was 29 times that of PE in 2022, maintaining the "buy" rating.
Risk tip: the capacity expansion of diamond cultivation is less than expected, and the epidemic situation is repeated
