\u3000\u30 Shenzhen Fountain Corporation(000005) 19 North Industries Group Red Arrow Co.Ltd(000519) )
Core view
The performance in the first quarter exceeded the upper limit of the notice, the net profit deducted from non parent company increased by 200% year-on-year, and the profitability improved significantly
Net profit excluding non parent company increased by 200% year-on-year: the company released the first quarterly report of 2022, realizing an operating revenue of 1.38 billion yuan, a year-on-year increase of 1.2%; The net profit attributable to the parent company was 281 million yuan (exceeding the upper limit of previous performance forecast), with a year-on-year increase of 191%; The net profit deducted from non parent company was 279 million yuan, with a year-on-year increase of 200%. In terms of single quarter, the company achieved operating revenue of 1.36 billion yuan, 1.52 billion yuan, 1.97 billion yuan, 2.67 billion yuan and 1.38 billion yuan from 2021q1 to 2022q1 respectively; The net profit attributable to the parent company was RMB 100 million, RMB 230 million, RMB 280 million, RMB 120 million and RMB 280 million.
Substantial increase in gross profit margin: the company's gross profit margin in Q1 in 2022 was 37%, an increase of 16 percentage points over Q1 in 2021; The net profit margin of sales is 20%, an increase of 13 percentage points over Q1 in 2020. The substantial increase in gross profit margin and net profit margin indicates that the company's revenue from cultivating diamond, industrial diamond and other superhard materials with high gross profit products continues to increase. The profit growth brought by the improvement of business structure in the later stage of the company is expected to exceed the revenue growth rate.
Cultivating diamonds: the compound growth rate of demand from 2019 to 2021 is 107%; In 2021, the production penetration rate is 7%, with large growth space
1) diamond cultivation is one of the few "immune" growth tracks less affected by the epidemic. At present, the demand is mainly in the United States. The demand for cultivated diamonds is driven by core factors such as "low price, real diamonds, environmental protection and new consumption". It is estimated that the global demand for cultivated diamond raw stones will increase from 14.3 billion yuan to 31.3 billion yuan from 2022 to 2025, with a compound growth rate of 35%; China's per capita diamond consumption is low and developing rapidly. It will become one of the largest potential markets in the future.
2) the import data of Indian cultivated diamond raw stones can basically reflect the industry demand: the annual import volume of Indian cultivated diamond raw stones from 2019 to 2021 is cagr107%; In the first quarter of 2022, it increased by 105% year-on-year. We estimate that the output penetration rate of cultivated diamonds in 2021 is about 7%, and the output penetration rate is 5%. There is a large room for growth in the future.
Zhongnan Diamond: one of the world's largest suppliers of cultivated diamond + industrial diamond, which is significantly underestimated at present
The company is one of the largest suppliers of cultivated diamond raw stones in the world. The diamond cultivation business is expected to expand with the press + equipment upgrading + process upgrading, and is expected to increase rapidly; The company ranks first in the global industrial diamond market. In the later stage of industrial diamond, the company's performance is expected to continue to grow with the large-scale demand of downstream high-end manufacturing + the rise in the price of industrial diamond.
Performance flexibility is large and obviously underestimated: the company (1) has strong anti risk ability: state-owned enterprises + more cash and less debt + good process technology, with the largest stock of presses (industrial diamond production capacity can be converted); (2) There is much room for improvement: improvement of press structure + improvement of business structure (increase in the proportion of net profit of cultivating diamonds) + process improvement, with large elasticity of long-term performance.
Investment suggestion: cultivate diamond + industrial diamond leader, intelligent ammunition leader of Ordnance Group, dual drive of military and civil products North Industries Group Red Arrow Co.Ltd(000519) for global cultivation of diamond raw stone + industrial diamond leader, intelligent ammunition leader of Ordnance Group and dual drive of military and civil products in the future. It is estimated that the net profit from 2022 to 2024 will be 1.06/14.9/2 billion, with a year-on-year increase of 118% / 40% / 35%, a compound growth rate of 60%, and PE of 23 / 16 / 12 times, maintaining the "buy" rating.
Risk tip: the competition pattern and profit changes of diamond cultivation, new technology iteration, and military products are not as expected.
