The company released the first quarter report of 2023. The company achieved revenue of 160 million million/ -14.2% in 2023Q1; achieved net profit of 0.7 million/ -26.2%, with a net interest rate of 45.4% /-14.0pct; and net profit of 60 million/ -35.0% after deducting non-return to the mother. The company's Q1 performance was disrupted by downstream demand in the short term; however, in the medium to long term, there is wide room for diamond cultivation to penetrate, and terminal demand is expected to recover after market education is strengthened. At the same time, the company's layout of cultivating diamond retail terminals is also expected to accelerate the sales transformation of the company's products, making the company more profitable. Maintain a “Highly Recommended” rating.
The company's Q1 performance declined due to disrupted terminal demand. The company achieved revenue of 160 million million/ -14.2% in the first quarter of 2023; achieved net profit of 0.7 million/ -26.2%, with a net interest rate of 45.4% /- 14pct; and achieved net profit of 0.6 million/ -35.0% after deducting non-return to the mother. The company's Q1 performance was mainly disrupted by terminal demand and downstream prices.
Gross margin has declined, and various expense ratios have been declining steadily. 23Q1 The company's gross margin was 53.0% /-16.2pct. In terms of expense ratio, the 23Q1 company's sales expense ratio was 0.5% /-0.2pct, the management expense ratio was 2.7% /-0.3pct, the financial expense ratio was -2.2% /-1.4pct, and the R&D expense ratio was 5.5% /-1.6pct; among them, the decline in the sales expense ratio was mainly due to a decrease in business personnel performance due to a decline in revenue.
Make full use of production capacity advantages to develop the diamond retail sector. The company announced on April 26 that it plans to invest 100 million yuan to set up a wholly-owned subsidiary “Hainan Power Diamond” in Hainan, invest in establishing its own brand in Hainan, enter the retail field of cultivating diamonds, and promote cultivating diamond products in the global market; making full use of the company's production capacity advantages to develop the company into a world-leading cultivating diamond enterprise integrating the production and retail of cultivated diamonds. The subsidiary is funded by the company's own capital and is 100% owned by the company.
The company previously had a presence on both domestic and foreign retail, strengthening the integration of the industrial chain, and future performance flexibility can be expected.
1) Previously, the company joined hands with Chao Hongji to jointly invest in the establishment of “Born to Shine”, participated in the creation and operation and cultivation of a diamond jewelry brand, and actively promoted and nurtured the domestic diamond retail market. 2) Set up a subsidiary in the US to expand overseas markets, and invest in the establishment of Power Diamond New York Limited through the wholly-owned subsidiary Power Diamond Hong Kong Co., Ltd. The domestic and international retail side layout will strengthen the integration of the company's industrial chain, which is expected to bring higher flexibility to the company's future performance and growth.
Investment advice: The company's Q1 performance is disrupted by downstream demand in the short term; however, in the medium to long term, there is wide room for diamond cultivation to penetrate, and terminal demand is expected to recover after market education is strengthened. At the same time, the company's layout of cultivating diamond retail terminals is also expected to accelerate the sales transformation of the company's products, making the company more profitable. We expect the company's net profit of 23E/24E/25E to be 57/70/83 million respectively, maintaining the “Highly Recommended” investment rating.
Risk warning: terminal demand falls short of expectations, production expansion falls short of expectations, industry competition intensifies, etc.