1-3Q22 performance is lower than market expectations
Zhongbing Hongjian announced its results for the first three quarters of 2022: operating income of 4.839 billion yuan, down 0.2% from the same period last year, net profit of 881 million yuan, an increase of 45.2% over the same period last year, deducting 855 million yuan of non-net profit, an increase of 49.2% over the same period last year, which is lower than the market and our expectations. we expect to be mainly affected by the price fluctuation of Q3 superhard material products and the delivery rhythm of special equipment business.
On a quarterly basis, 1Q/2Q/3Q22 's revenue reached 1.882 million yuan, which was + 1.2%, 20.2%, 16.8%, respectively, and its net profit was 2.81 million, 420, 179 million yuan, and + 191.0%, 82.5%, 35.9%, respectively. The net profit of deducting non-return to home reached RMB 2.79 million, respectively, with a year-on-year decline of + 200.3%, 85.8%, 33.4% and 33.4%, respectively.
Trend of development
1. Cultivate the proportion of diamond business, increase the profitability of the company. The company's 1-3Q22 gross profit margin reached 33.3%, with the same increase in 8.5ppt. We believe that the proportion of diamond business nurtured by high gross margin continues to increase. The sales expense rate decreased from 0.2ppt to 0.9%, and the management + R & D expense rate increased from 1.8ppt to 12.2%. This is mainly due to the increase in R & D investment, the continuous progress of research and development of technical routes such as CVD, the reduction of financial expense rate from 0.5ppt to-1.5%, and the increase of net interest rate to 18.2% under the combined impact. Profitability has gradually improved.
2. Cultivate diamond penetration to continue to rise, and maintain high demand at home and abroad. 1) permeability continued to increase: from April to September 2022, the import / export volume of cultivated diamonds in India maintained a rapid growth, with a cumulative total of US $719 million, 60.6% compared with the same period last year, accounting for 7.1% of diamond jewelry and 7.2% of diamond jewelry, with the same increase of 1.3/2.7ppt. 2) the US market has maintained rapid growth: according to Tenoris, diamond jewelry sales fell 26.6% in September from a year earlier, but nurture diamond sales increased by 53.6%. The proportion of professional jewellers in the United States involved in nurturing diamond jewelry sales has risen from 27% at the beginning of the year to 70%. 3) the Chinese market is ready to start: according to Magic Mirror data, the sales of Amoy cultivated diamonds increased by 78.4% to 498 million yuan from January to September this year, while the permeability increased by 12.1ppt to 20.6% compared with the same period last year.
3. The company develops industry and research at the same time to consolidate its leading position. 1) R & D side: the company announced in September 2022 that it intends to invest 520 million yuan in the technical transformation of industrial diamond production line, and at the same time, "superhard material R & D center construction project"
In October, the company has successfully completed the acceptance and continuously consolidated the advantages of product quality and efficiency. In addition, the company has successfully broken through the large carat high-grade CVD to cultivate diamond batch preparation technology in June, and the product level is in the forefront of the industry; 2) the production end: the company's "982" project construction is steadily advancing, with a total planned investment of 1.15 billion yuan, of which 500 million yuan is planned to be completed in 2022, with a steady release of production capacity and a leading scale.
Profit forecast and valuation
Taking into account the fact that the company's special equipment business is still adjusting and the price of superhard material products has declined in the short term, we have lowered the 2022max 2023 net profit forecast for 2023 homing by 20% to 1.85 billion yuan. The current share price corresponds to 2022max, 28p, 23x P, E, 2023. Maintain the outperform industry rating, based on earnings forecast adjustment and market style changes caused by the loosening of superhard material prices, the target price will be lowered by 35% to 26 yuan, corresponding to 27 times Pmax E in 2022 and 2023, which has 18% upside compared to the current stock price.
Risk
The demand for nurturing drill is not as expected; the production capacity is not as expected; and the competition in the industry is intensified.