Net profit also increased 41% in 24Q1, and performance recovery was strong. 1) The company's performance in 2023 was under pressure, achieving revenue of 752 million yuan (yoy -17.0%), net profit of 364 million yuan (yoy -21.0%), after deducting non-net profit of 308 million yuan (yoy -29.5%), of which Q4 revenue in a single quarter was 190 million yuan (yoy -17.88%) and net profit of 101 million yuan (yoy -8.64%). The overall gross margin decreased by 11.6 pcts to 51.7% due to the decline in the prices of cultivated diamonds and diamond single crystals throughout the year. The ability to control expenses during the period was excellent. The R&D/management/ sales expenses ratio reached 5.83%/3.50%/0.86%, and the annual net sales margin decreased by 2.4 pcts to 48.4%. The company plans to distribute cash of 0.5 yuan per share based on 260 million shares, for a total of 130 million yuan. Dividends account for 35.7% of net profit to mother.
2) Strong rebound in 24Q1 performance: achieved revenue of 238 million yuan (yoy +45.0%), net profit to mother of 106 million yuan (yoy +42.2%), deducted non-net profit of 89 million yuan (yoy +41.1%), and reached 2,098 billion yuan in monetary capital in 24Q1.
Short-term sales prices have declined, putting pressure on the profits of cultivating drills and single crystals. The gradual release of early fund-raising capacity led to sales growth. On the price side, prices declined due to demand for single diamond crystals and cultivated diamonds, and short-term profitability was under pressure. By product, 2023:1) Diamond single crystal: achieved revenue of 205 million yuan (yoy +17.7%), gross margin decreased 9.9 pcts to 42.8%; 2) Diamond powder: achieved revenue of 296 million yuan (yoy -6.5%), and price increases led to a gross margin increase of 5.8 pcts to 59.8%; 3) Cultivating diamonds: achieved revenue of 228 million yuan (yoy -41.5%). Weak global diamond consumer demand and declining sales prices led to a gross margin drop of 26.6 pcts to 52.7%.
Demand for cultivated diamonds improved month-on-month, focusing on inflection points in the inventory cycle. Referring to India's GJEPC and Diamond Watch statistics, the import value of 2024Q1 rough diamonds from India reached US$353 million, an increase of 19.77%, and the export value of loose diamonds reached US$377 million, an increase of 7.68%. Overall demand performance improved markedly. Among them, rough imports in March reached US$87 million (yoy -12.4%), the penetration rate in diamond imports reached 5.9%, and the penetration rate of loose diamonds reached US$124 million (yoy +11.0%), with a diamond export penetration rate of 9.6%. Although there is still some inventory pressure in the midstream channel, with downstream consumer education continuing to drive demand, terminal demand is gradually picking up, and we are optimistic about inventory inflection point opportunities within the year.
While volume and price repairs are carried out, the process continues to be upgraded iteratively. The improvement in industry demand since 24Q1 stimulated the company's production capacity expansion and profit recovery. During this period, the company insisted on strengthening R&D and refining internal skills. R&D expenses for the full year 2023/2024Q1 reached 0.44/011 million yuan, accounting for 5.8%/4.7% of total revenue. Currently, the company has a wealth of synthetic diamond processes and technology, and has obtained 83 authorized patents and 9 invention patents, including 1) in the consumer sector: it can mass-produce high-grade cultivated diamonds of up to 30 carats, and cultivated diamonds in the laboratory research stage have exceeded 50 carats; 2) in the industrial sector: to achieve batch production of special special-shaped octahedral diamond spines for IC chip ultra-fine processing, and can perform ultra-high precision processing of 400 mesh to 1000 mesh ultra-fine diamonds with an error range of 0.3 μm to 0.03 μm.
Profit forecast and investment advice: Power Diamond is the leading manufacturer of synthetic diamonds in China, and responds quickly to market demand with a highly coordinated structure of single diamond crystal+fine powder+cultivated diamond. Currently, cultivating channel stocks in the diamond industry has entered the digestion stage, and a new round of demand cycles has stimulated a strong recovery in the company's performance. We expect the company to achieve revenue of 9.68/12.20/1,512 billion yuan in 2024-2026, up 28.8%/26.0%/23.9% year on year, and net profit of 4.49/5.67/ 727 million yuan, up 23.5%/26.2%/23.9% year on year. Currently, it corresponds to 19 times PE in 2024, and maintains a “buy” rating.
Risk warning: Production capacity expansion falls short of expectations, weak terminal demand, sharp drop in sales prices