2023Q1's performance came under pressure, laying out the downstream retail sector, boosting confidence, and maintaining the “buy” rating company's 2023Q1 results. 2023Q1 achieved revenue of 164 million yuan (-14.2%), net profit of 75 million yuan (-26.22%), net profit of 75 million yuan (-26.22%), and net profit of 63 million yuan (-34.96%) after deducting non-return mother's net profit. Short-term performance was disrupted by downstream demand and prices. We lowered our profit forecast. The estimated net profit for 2023-2025 was 541/680/853 million yuan (the original value was 683/90/1,150 million yuan), the corresponding EPS was 3.73/4.69/5.89 yuan. The current stock price corresponding to PE is 22.3/17.7/14.1 times, but the company's buyback has strengthened confidence. The proposed repurchase capital is no more than 180 yuan/share. According to price upper estimates, the number of shares to be repurchased is estimated to be about 83- 1.66 million shares, accounting for about 0.58%-1.15% of the company's total share capital, will all be used for employee stock ownership plans or equity incentives; in addition, the company's production capacity has been steadily expanded and deployed in the downstream retail sector to maintain the “buy” rating.
The boom in the nurturing diamond market declined in the short term. The company actively laid out the downstream retail sector and looked at midstream demand. India's import and export growth rate of cultivated diamond rough was relatively fast, and the penetration rate continued to increase. 2023Q1 was affected by inventory and downstream demand, and the overall prosperity of the industry was weak. India's import and export amounts of cultivated diamond rough changed -42.28%/-10.50% year-on-year, respectively. The import and export penetration rate was 6.6%/6.1%, respectively, and the year-on-year change was -2.1/+0.3pct. Judging from the company's layout, the company plans to invest in the establishment of Hainan Power Diamond, a subsidiary. In the future, it will make full use of the company's production capacity advantages, combine the Hainan Free Trade Port policy, invest in the construction of a diamond jewelry processing and production base in Haikou, establish its own brand, and enter the field of cultivating diamond retail.
2023Q1's profitability and operating capacity are under short-term pressure, waiting for profitability to pick up: 2023Q1 gross margin fell 16.2pct to 52.98%, net interest rate fell 7.4pct to 45.39%; the cost ratio for the period was 6.53% (-2.0pct), and the year-on-year change in the sales/management/R&D/finance expense ratio was -0.2/-0.3/-0.1/-pc1.4t, mainly due to declining revenue, reduced performance of business personnel and increased bank deposit interest. Operating capacity: 2023Q1 net cash flow from operating activities was $37 million (-56.0%). As of the end of 2023Q1, the inventory size was $235 million (+67.5%), and the number of inventory turnover days was 256 days (+51 days compared to +51 days).
Risk warning: Production capacity investment falls short of expectations, demand for cultivated diamonds falls short of expectations, and market competition intensifies.