Core viewpoints
The company's 23Q3 revenue is-11.4% year-on-year and month-on-month + 2.4%, which is better than 23Q1 and 23Q2 quarter by quarter. The net profit of 23Q3 homing is-18.2%, with a narrowing decline, mainly due to the month-on-month increase in the price of diamond blanks cultivated during the peak season of 23Q3 (which is expected to be down 70% from the 22-year high). The proportion of revenue of 23H1 diamond powder, diamond single crystal and cultivated diamond is 39.3%/+8.9pct, 28.9%/+10.7pct and 28.4%/-21.2pct, while diamond powder and diamond single crystal drive growth. Looking forward to the follow-up, 1) photovoltaic, semiconductor boom, diamond powder is expected to continue rapid growth; 2) the profitability of the diamond industry has declined significantly, it is expected that the number of entrants will be greatly reduced, the company as a cultivation diamond leader in the hands of cash sufficient company cash, 23Q3 currency funds + trading financial assets of about 4 billion yuan.
Event
The company released three quarterly results for 2023: 23Q1-3 revenue of 561 million yuan /-16.7%, net profit of 263 million yuan /-24.9%, net profit of 215 million yuan /-36.8% deducting net profit of 215 million yuan /-36.8%; net cash flow of operating activities of 210 million yuan /-19.2% (basic) of 1.01 yuan / share /-37.3% 4.98%/-26.7pct (weighted).
Brief comment
Q3 revenue decline narrowed year-on-year, month-on-month increase, is expected to benefit from a month-on-month rebound in product prices and capacity release. 23Q3's revenue was 201 million yuan,-11.4% year-on-year and + 2.4% month-on-month, which was better than that of 23Q1 and 23Q2 of 164 million yuan /-14.2% and 196 million yuan /-23.4% quarter by quarter. The net profit of 23Q3 homing is 0.91 billion yuan /-18.2%, which is narrower than that of 23Q1 and 23Q2 of 0.75 billion yuan /-26.2% and 0.98 billion yuan /-29.2%. Among them: 1) the average blank price of the cultivated diamond industry during the peak season of 23Q3 is about 20-25 US dollars / carat, which is higher than that of 23Q2, and is expected to decline by about 70% compared with the 22-year high. 2) gradually promote the steady production of cultivated diamonds under the expansion of production.
23Q3 profitability remains stable. The gross profit of 23Q1-3 company is 51.92%, which is 51.92% and 13.1 PCT of 23Q1-3 is 53.39%/-5.3pct, which is higher than that of 23Q1 and Q2, which is 52.98% and 49.52%, respectively. It is expected that the price of cultivated diamonds will rise somewhat. The net interest rate of 2023Q1-3 is 46.83% 45.14%/-3.8pct, and the net interest rate of 23Q3 sales, management, R & D and financial expenses is 1.11%, 2.88%, 5.52% and-1.02%, respectively, + 0.11%, + 1.41%, + 0.98% and + 2.84pct.
Diamond powder and diamond single crystal driven growth, cultivated diamond revenue declined significantly.
The revenue of 23H1 diamond powder, diamond single crystal and cultivated diamond is 142 million yuan / + 4.0%, 104 million yuan / + 28.3%, 102 million yuan /-53.9% respectively, the revenue proportion is 39.3%/+8.9pct, 28.9%/+10.7pct, 28.4%/-21.2pct, and the gross profit margin is 56.1%/+3.7pct, 44.0%/-14.0pct, 54.7%/-28.8pct. Among them, the downstream of micro-powder is mainly photovoltaic, semiconductors, etc., the price is stable and upward under the high demeanor of the industry; the price of industrial diamond single crystal has declined and remains basically stable at present. It is expected that the high boom in completion (the completed area in January-September 23 is + 20% compared with the same period last year) will lead to a steady and good demand for single crystals; the price of cultivating diamond blanks has dropped significantly due to oversupply in the industry.
The profitability of the diamond industry has declined significantly, and it is expected that the number of entrants will be greatly reduced. As a leader, the company has sufficient cash on hand and 23Q3 currency funds + transactional financial assets of about 4 billion yuan. With the continuous decline in the price of nurtured diamonds, the profitability of the industry has declined sharply (the net interest rates of 23H1 Zhongbing Red Arrow, Yellow River Cyclone and Huifeng Diamond are 5.5%/-12.7pct,-21.8%/-27.3pct and 15.2%/-6.2pct respectively). It is expected that the number of new entrants will decrease significantly and the pace of production expansion will slow down gradually. After the completion of the fixed increase, the company has become the most abundant capital for production expansion among its peers, with 23Q3 currency funds of 2.396 billion yuan and transactional financial assets of 1.632 billion yuan. As of 23Q3, the company's fixed assets are 1.589 billion yuan, an increase of 591 million yuan compared with 22Q4. It is estimated that 23Q3 company has about 1500 presses (most of them are 800,850 models).
Gradually lay out the downstream retail brand, cultivate the diamond peak season and improve the demeanor. The company gradually distributes the downstream retail brand end, realizing the layout of the whole industry chain upstream and downstream. In 2022, the company set up a wholly-owned subsidiary in Shenzhen, Shenzhen Kemei Diamond Technology Co., Ltd., and set up a joint venture with Chao Hongji in August 22.
Establish and operate the diamond brand, set up Sheng and Yao Technology (Shenzhen) Co., Ltd., and set up Sun Company LILIANGDIAMONDUSAINC, which is mainly responsible for the development of nurturing diamond business in the United States. According to GJEPC data, India's imports of cultivated diamond blanks in September 23 were US $85 million /-23.1%, month-on-month compared with-37.3%; exports of cultivated diamond bare diamonds were worth US $133 million /-25.3%, with a month-on-month ratio of + 12.9%. India's cultivated diamond rough exports are growing month-on-month compared with three months, mainly due to an improvement in the lower scene of the peak season of cultivated diamonds.
Profit forecast: due to the decline in the price of cultivated diamond blanks, the profit forecast is lowered. The estimated revenue in 2023-2025 is 7.85,9.94 and 1.21 billion yuan, which is-13.3%, + 26.6% and + 21.7% compared with the same period last year. The net profit of the mother is 3.52,4.41 and 530 million yuan,-23.5%, + 25.1% and + 20.2% respectively, corresponding to 23, 18 and 15 times of PE, maintaining the "buy" rating.
Risk tips: 1) nurturing diamond demand is not as expected: 80% of nurturing diamond demand in the United States, the United States has been experiencing high inflation for 22 years, if inflation persists, it may have an impact on end demand; 2) Competition exacerbates the decline in gross profit margin: the superhard material industry has grown significantly under the influence of the rise of nurturing diamonds, photovoltaic new energy, consumer electronics and other industries. At present, under the influence of the rapid growth of demand in industries such as the cultivation of diamonds, photovoltaic new energy, consumer electronics and other factors, the company's product prices have risen in an all-round way, and the industry is in a period of high prosperity. With the continuous expansion of the production capacity of competitors in the industry, the increase in the number of new entrants to the industry, the slow growth of the nurturing diamond market and other factors, the company's products are at risk of falling prices.