Power Diamond Releases 2022 Annual Report:

(1) 2022: The company achieved operating income of 906 million yuan/ +81.85%, achieved net profit of 460 million yuan/ +92.12%, and achieved net profit of 437 million yuan/+90.53% after deducting non-attributable net profit of 437 million yuan/+47.36%; (2) 2022Q4: the company achieved operating income of 232 million yuan/+47.36%, achieved net profit of 110 million yuan/+40.55% after deducting non-return mother's net profit; (3) the company issued a profit distribution plan to distribute to all shareholders every 10 shares A cash dividend of 10 yuan (tax included) was discovered, and a total cash dividend of 145 million yuan (tax included) was distributed. The capital provident fund was used to transfer 8 shares to all shareholders for every 10 shares.

All three major businesses achieved strong growth, and the share of high-margin diamonds cultivated continued to rise.

In 2022, the company effectively overcame the impact of the epidemic, and production capacity was gradually released. By business, demand for diamond cultivation is strong, with revenue of 389 million yuan/+97.12%, accounting for 42.89%. Affected by increased industry supply and fluctuations in downstream demand, the decline in sales prices led to gross margin of -2.62pcts to 79.25%; there is broad space for emerging applications, and demand for diamond single crystals and micropowders has maintained a high boom, driving steady growth in performance. The diamond single crystal business revenue is 174 million yuan/ +27.04%, and the rise in raw material prices has led to gross margin of -9.03pcts to 52.70%; diamond micropowder Revenue was 316 million yuan/+103.03%, and the increase in sales prices led to a gross margin of +7.95pcts to 54.00%.

Expense rates are well controlled, investment in R&D continues to increase, and profitability is enhanced.

In 2022, the company's consolidated gross margin declined slightly, to -0.78pct to 63.29% year on year. High revenue increased and diluted expenses. The company's sales expense ratio in 2022 was 0.67% /-0.45pct, and the management expense rate was 1.84% /-1.23pcts; the financial expense ratio under the increase in interest income was -1.73% /-2.22pcts; continued to increase investment in R&D, the R&D cost rate was 4.86% /-0.47pct. By the end of 2022, the company had obtained 51 authorized patents, including 8 invention patents. Large-grained high-grade cultured diamonds under 15 carats have been mass-produced at the laboratory technology research stage Over 30 carats. Taken together, the company's net interest rate increased 2.71 pcts to 50.78% in 2022. We believe that the improvement of the company's R&D capabilities will lead to improvements in product quality and production efficiency. In particular, it will expand the cultivation of technological advantages in the diamond field and further enhance profitability.

With the expansion of production capacity and optimization of the product & customer structure, the company's performance is expected to continue to be released.

In 2023, the company will make every effort to ensure that the second phase of power and the Shangqiu power construction project are put into operation quickly, continue to introduce new forged six-sided top presses, increase the conversion rate and high grade rate, and rapidly expand the scale of production capacity; further expand the proportion of cultivated diamond business, guarantee the supply of core customers of diamond monocrystalline products, guarantee the leading edge of diamond powder in the field of photovoltaic new energy, optimize the product & customer structure; promote the construction of terminal diamond retail channels to open up the upstream and downstream of the industry chain.

Investment advice:

Increased holdings - A investment rating. Production and sales of the company's three main businesses are booming, and performance continues to be unleashed. We expect the company to achieve net profit of 711/938/1,145 million yuan in 2023-2025, +54.38%/+31.96%/+22.17% over the same period last year. Maintain the target price of 170.89 yuan for 6 months, corresponding to 35xPE in 2023.

Risk warning: demand for cultivating diamonds falls short of expectations; fund-raising projects do not achieve expected benefits; insufficient supply of six-sided pressure presses, etc.