Incident: The company released its 2023 & 24Q1 results. In 2023, performance was pressured by falling prices for cultivated diamonds. 24Q1 benefited from the expansion of production and the recovery of industry sentiment, and both revenue and profit improved significantly. In 2023, we achieved revenue of 752 million yuan, a decrease of 17%; net profit attributable to mother of 364 million yuan, a decrease of 21%; net profit after deducting non-return to mother of 308 million yuan, a decrease of 30%; and net cash flow from operating activities of 281 million yuan, a decrease of 14%.
24Q1 achieved revenue of 238 million yuan, an increase of 45%; net profit attributable to mother was 106 million yuan, an increase of 42%; net profit after deducting non-return to mother was 89 million yuan, an increase of 41%. In 2023, the company plans to pay a cash dividend of 5 yuan (tax included) for every 10 shares.
Comment:
Changes in gross margin were mainly affected by changes in sales prices. Prices of single crystal and cultivated diamonds fell in 2023, and the price of fine diamond powder rose. By product, 2023 diamond single crystal/diamond micron/cultured diamond achieved revenue of 2.05/2.96/228 million yuan respectively, +18%/-7%/-41%, gross margin of 42.82%/59.81%/52.67%, year-on-year, -9.88/+5.81/-26.58PCT, accounting for 27%/39%/30% of revenue, respectively, and cultured diamond revenue decreased by 13 PCT. At present, the company has mass-produced high-grade, large-grain cultivated diamonds below 30 carats. Large-grain cultured diamonds under 30 carats have surpassed 50 carats in the laboratory technology research stage.
The company further expanded production in 2023, and both production and sales increased significantly. In 2023, production and sales of non-metallic mineral products were 3.58 billion carats and 3.0 billion carats, up 79% and 56% year-on-year. The company sold 834,400 carats of cultivated diamonds in 2022. We estimate that sales of cultivated diamonds and diamond single crystals are expected to grow rapidly in 2023 as production capacity expands.
In 2023, due to a decline in the share of revenue from cultivating diamonds and a decline in gross margin, the comprehensive gross profit margin and net profit margin declined. The comprehensive gross profit margin in 2023 was 51.67%, down 11.62 PCT; the sales/management/R&D/finance expense ratio was 0.86%/3.50%/-4.32%/5.83%, +0.19/+2.59/+0.97PCT, respectively, and the net sales margin was 48.37%, down 2.41 PCT year on year. Among them, the management expense ratio increased a lot, with management expenses of 0.26 million yuan in 2023, an increase of 58%, mainly due to increases in personnel, depreciation, travel and office expenses due to the increase in personnel, depreciation and office expenses due to the full commissioning of the new factory area. Other travel and business hospitality fees/agency fees/asset depreciation and amortization expenses in the 2023 management expenses segment increased 54%/53%/96%/32%/83%, respectively; the further optimization of the financial expenses ratio mainly came from interest income growth.
2024Q1's comprehensive gross profit margin was 48.87%, down 4.11PCT year on year, sales/management/R&D/finance expense ratio 0.75%/2.42%/-0.42%/4.74%, +0.21/-0.3/+1.76/-0.71PCT, net sales margin 44.5%, down 0.89PCT year on year.
Profit forecast: We expect the company's revenue for 2024-2026 to be 11.9/1,48/1.66 billion yuan, up 58%/25%/12%; net profit to mother will be 5.01/6.36/ 722 million yuan respectively, up 38%/27%/14%, EPS will be 1.93/2.44/2.78 yuan respectively, corresponding to the closing price of April 19 PE is 17/14/12X, respectively.
Risk factors: Prices of cultivated diamonds, diamond single crystals, and diamond powder fell, production capacity expansion fell short of expectations, capacity utilization and production and sales rates fell short of expectations.