The performance maintained a high growth rate, in line with market expectations. In 2022, the company achieved revenue of 906 million yuan (yoy+ 81.85%) and net profit of 466 million yuan (yoy +92.12%); of these, the Q4 2022 single quarter achieved operating income of 232 million yuan (yoy +50.36%), and net profit of 110 million yuan (yoy +40.55%). The overall gross margin in 2022 was 63.29%, down 0.78 pct from 2021, mainly due to the impact of declining sales of nurturing diamonds. The sales expense ratio fell 4.37pct to 5.63% during the period; the management expense ratio fell 1.23pct to 1.84%; and the net interest rate increased 2.71 pct to 50.78%.
The business of cultivating drills and diamond micronized diamonds grew significantly. By business sector, the revenue of Cultivating Diamond and Diamond Micro Powder in 2022 was 389 million yuan and 316 million yuan respectively, up 97.12% and 103.03% year-on-year, accounting for 42.89% and 34.89% of total operating revenue respectively, which was the main driving force for the company's revenue growth. The company continues to consolidate its technical strength in the field of cultivating drills. Currently, there are 80 R&D personnel, accounting for 13.45% of the total number of employees. 51 patents have been granted (including 8 invention patents), and can mass-produce high-grade large-grain cultivation drills of 15 carats or less. Large grain cultivation drills in the laboratory technology research stage have exceeded 30 carats. The company leads the domestic market share of micronized powders for wire saws, and is the first to achieve mass production of special special-shaped octahedral diamond spinels for IC chip superfinishing.
The retail side layout of downstream brands has begun. In 2022, the company established a subsidiary, Shenzhen Kemei Diamond Technology Co., Ltd., into cultivating drill retail, and established a joint venture with Chao Hongji to create Shining Technology (Shenzhen) Co., Ltd. At the same time, LI LIANG DIAMOND USA INC was established in the US to develop cultivating drill business in the US. Through the opening up of the entire industry chain, it is beneficial for the company's brand strength to be further strengthened.
Short-term disturbances do not alter the release of long-term production capacity. At present, the company's fixed capital is in place, and the number of six-sided top presses reached more than 1,000 at the end of 2022. With the accelerated restoration of production order after the epidemic, disruptive factors such as power outages did not change the long-term production capacity increase trend, the release of production capacity boosted performance without worry.
Profit forecast and investment advice: Affected by fluctuations in diamond prices and European and American demand in the second half of 2022, the previous interim profit forecast was revised. The net profit returned to the mother for 2023-2025 is estimated to be 67.5/1.15 billion yuan respectively, with year-on-year increases of 44.9%/42.5%/21.4% respectively. The corresponding PE is 27x/ 19x/ 15x respectively, maintaining the “buy” rating.
Risk warning: production expansion falls short of expectations, product prices fall, performance forecasts and valuation judgments fall short of expectations