\u3000\u3 Jiangsu Eastern Shenghong Co.Ltd(000301) 071 Henan Liliang Diamond Co.Ltd(301071) )
Key investment points
The company released the first quarterly report of 2022, and the profit is close to the upper limit of the notice. In Q1 2022, the company realized an operating revenue of 192 million yuan, a year-on-year increase of + 126.88%; The net profit attributable to the parent company was 101 million yuan, a year-on-year increase of + 147.81%; The non net profit deducted was 972377 million yuan, a year-on-year increase of + 147.10%. In 2021, Q4 company realized non net profit deduction of 72.6 million yuan, with rapid growth month on month. In Q1, the company realized a net cash flow from operating activities of 84.984 million yuan, a year-on-year increase of + 167.3%. The net profit attributable to the parent company was close to the upper limit of the notice, and the performance exceeded the expectation.
The company’s product structure has been greatly improved, and each business is expected to achieve significant growth. From the performance of the whole year of 2021, the revenue and profitability of the company’s three main businesses have achieved growth exceeding market expectations. In 2021, the company’s diamond single crystal business achieved an operating revenue of 137 million yuan, a year-on-year increase of + 38.14%, and the gross profit margin increased to 57.93%, an increase of 18.49 PCTs compared with 2020; The diamond micro powder business achieved an operating revenue of 156 million yuan, a year-on-year increase of 54.54%, and the gross profit margin increased to 50.02%, an increase of 9.66 PCTs compared with 2020; The cultivation diamond business enjoyed a substantial increase in industry dividends, with an operating revenue of 197 million yuan, a year-on-year increase of 428.11%, a gross profit margin of 81.38%, and an increase of 14.55 PCTs on the basis of the high gross profit margin in 2020. The gross profit margin of the company’s overall sales of products was 64.07%, an increase of 20.69pcs. In 2022, Q1 company’s operating revenue was + 24.2% month on month, and its net profit attributable to parent company was + 28.85% month on month. Both month on month and year-on-year increased rapidly, showing strong performance growth. Mainly due to the sharp increase in the proportion of high gross profit products; Diamond products have strong market demand and tight supply, and the price has increased significantly compared with the same period last year. At the same time, the company has actively put into operation under the industry dividend, and the production capacity has achieved rapid growth.
On March 25, the company announced that it planned to implement private placement, and the company actively expanded its production to demonstrate its growth confidence. The company announced that this additional issuance will not exceed 20% of the total share capital before issuance, that is, no more than 12.074 million shares; At the same time, the amount of funds raised shall not exceed 4 billion yuan. The raised funds will be used for two construction projects of intelligent factories related to diamond cultivation. Among them, 2.19 billion yuan is expected to be used for the construction project of Shangqiu Henan Liliang Diamond Co.Ltd(301071) science and technology center and the cultivation of diamond intelligent factory; The raised funds of 1.6 billion yuan were used for the construction of phase II diamond and diamond intelligent chemical plant. If the fixed increase project is successfully implemented, the company plans to put into operation 1800 sets of equipment increment with raised investment within three years. The annual number of equipment put into operation by the company is expected to nearly double on the basis of this year Henan Liliang Diamond Co.Ltd(301071) due to the technical barriers and capital advantages in the short and medium term, it is expected to realize the rapid investment recovery of investment equipment and jump to the forefront of the industry in terms of production capacity.
In March, Henan Province issued the implementation plan of “982” project to make up for deficiencies in 2022, which plans to promote the construction of many man-made diamond projects. In the implementation plan of “982” project in Henan Province, it is indicated to make special investment and vigorously promote the industrial application and consumption application of artificial diamond. Among them, in the field of diamond cultivation, Henan provincial government has six pure diamond cultivation production projects with a total investment of about 6.92 billion yuan; In the field of industrial diamond, a total of 13 projects have been invested. From the implementation plan, we can see the determination of Henan provincial government to vigorously promote the development of artificial diamond projects. It is expected that with the help of large capital expenditure, the layout of upstream and downstream industrial chains related to artificial diamond in the province will be more perfect, so as to reduce the information cost of enterprise operation and cultivate diamond upstream production enterprises.
Cultivating the diamond industry is a high growth track under the recovery of optional consumption. 1) India’s diamond import and export data continue to verify the high prosperity of the industry. The demand for cultivated diamonds during the Christmas holiday in 2021 is rising. In October, the export volume of cultivated diamonds increased by 80.6% year-on-year, the import volume increased by 96.5% year-on-year, and the export volume reached a record high. After the replenishment before Christmas, the import and export volume fell briefly in November and resumed rapid growth from December to March. India’s diamond rough import data verify that the penetration rate of cultivated diamonds in natural diamonds has gradually increased, from only about 1% in 19 years to 9.1% in March 2022. 2) Global diamond consumption showed an unexpected recovery. According to the diamond industry report 20202021 of Bain consulting, the global retail sales of diamond jewelry in 2021 was US $84 billion, an increase of 29.23% over that in 2020. The rapid recovery of the industry has led to significant growth in the revenue of all links of the industrial chain. The revenue of the upstream increased by 62%, that of the middle reaches increased by 55%, and that of the downstream retail increased by 29%. At the same time, the reserves of the upstream decreased, resulting in an increase in the average price of rough diamonds by 21%; Under the cycle of accelerating the release of optional demand, it can realize the rapid improvement of penetration rate and the increase of track volume in the future.
Investment suggestion: at present, the most valuable opportunity to cultivate the diamond sector still appears in the upstream diamond producers. From the medium-term perspective, there are capacity barriers and technical barriers at the supply side of the industry, and it is difficult for new entrants to catch up in the short term in terms of core equipment procurement, product quality and yield. The demand side of the industry continues to verify the boom, so the tight balance between supply and demand can still be maintained. The growth path of the leader is clear. The company issued the additional issuance plan, defined the future production expansion plan, and inclined the enterprise production to the cultivation of diamond business. We maintain the profit forecast of Henan Liliang Diamond Co.Ltd(301071) and suggest to focus on the investment opportunities of Henan Liliang Diamond Co.Ltd(301071) . It is predicted that the company’s profit in 2022 / 2023 / 2024 will be 527 / 827 / 980 million yuan, maintaining the “buy” rating.
Risk warning: macroeconomic fluctuation risk; Market competition intensifies risks; Risk of new technology substitution; The risk that the expansion project fails to meet the expectations; Cultivate the risk of sharp fluctuations in diamond prices.
