\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
The company released the first quarter report of 2022: in 2022q1, the company realized an operating revenue of 1.382 billion yuan, a year-on-year increase of 1.15%; The net profit attributable to the parent company was 281 million yuan, a year-on-year increase of 191.03%. Benefiting from the hot demand in the downstream market of cultivated diamonds and industrial diamonds, the sales price of the company’s products increased significantly, and the current performance improved significantly.
The proportion of superhard materials business increased and the profitability improved: in 2022q1, the company’s gross profit margin was 36.76%, with a year-on-year increase of + 16.11pct and a month on month increase of + 23.37pct; The sales expense rate / management expense rate / financial expense rate were 0.91% / 6.77% / – 0.84% respectively, with a year-on-year increase of -0.26 / – 0.16 / + 0.02pct. The substantial increase in gross profit margin is mainly due to the increase in the proportion of cultivated diamond and industrial diamond products with high gross profit.
Cultivate diamond industry leaders and enjoy industry dividends through capacity conversion: the market share of diamond products in South Central China, a subsidiary, has steadily ranked first in the world for many years. The sales volume of superhard materials exceeded 5 billion carats in 2021. It is gradually converting capacity and expanding diamond production. The company takes the lead in large carat technology in the field of diamond cultivation, has been able to stably produce cultivated diamond blanks within 30 carats, and can batch supply high-quality cultivated diamond blanks of more than 3 carats. Since the end of 2021, the company has invited tenders for a number of 900 large chamber presses to cultivate diamond production. It is expected that the proportion of rough products above 6ct will reach 95%, and the production capacity of cultivated diamonds will continue to improve. At the same time, the average sales price of products is expected to rise structurally, and the profitability will be further enhanced.
Investment suggestion: the company’s main product cultivation Diamond & industrial diamond is in short supply. The production expansion project is selected into the “982” project in Henan. After the capacity is improved, the performance is expected to continue to grow. It is expected that the company will realize the net profit attributable to the parent company of RMB 1.038/12.43/1.425 billion from 2022 to 2024, corresponding to the current PE valuation of 28x / 23x / 20x respectively, and will be rated as “buy”.
Risk tip: the demand for cultivation drilling is less than expected, the industry competition is intensified, and the special equipment business continues to suffer losses.
