Net profit in the first three quarters of 2022 was + 45.21% compared with the same period last year. The company released a report for the third quarter of 2022, with revenue of 4.839 billion yuan, down 0.18% from the same period last year, and net profit of 881 million yuan, an increase of 45.21% over the same period last year.

In a single quarter, the company's Q3 achieved revenue of 1.636 billion yuan, down 16.84% from the same period last year, and its net profit was 179 million yuan, down 35.87% from the same period last year. In terms of profitability, the gross profit margin / net profit margin in the first three quarters of 2022 was 33.30% / 18.21%, respectively, compared with the same period last year, with a year-on-year increase of 5.69 pct. In terms of period expenses, the sales / management / finance / R & D expense rates are 0.85%, 6.52%, 1.54% and 5.64%, respectively, compared with the same period last year. The rate of R & D expenses increased significantly as a result of the company's increased investment in R & D, and remained basically stable in the rest of the period. To sum up, the profitability of the company increased significantly in the first three quarters of 22 compared with the same period last year, and we judged that it was mainly due to the increase in the proportion of superhard materials business, and the decline in revenue and performance in the third quarter alone or the loss of weapons and equipment business was a drag on the company's overall operation.

The import / export volume of nurtured diamonds from January to September 2022 is + 56% and 65% compared with the same period last year, and the potential market is huge under the increase in permeability. India's imports of cultivated diamond blanks totaled US $110 million in September 2022, up 8.28% from a year earlier, down 2.22% from a month earlier, according to GJEPC data from India, while Indian exports of cultivated diamonds totaled US $178 million, up 85.55% from a year earlier and 24.20% from a month earlier. From January to September 2022, imports totaled US $1.231 billion, an increase of 55.72% over the same period last year, while exports totaled US $1.329 billion, up 65.08% over the same period last year. In terms of permeability, the import permeability of cultivated diamond rough drills from 2018 to 2022.1-9 was 0.90% 2.07% 4.56% 6.26% 8.37% respectively, showing a steady improvement trend. At this stage, the industry is still in the early stages of the outbreak, and the market volume maintains a high growth rate. According to India's natural diamond rough import volume, it is estimated that the global natural diamond rough market in 2021 is nearly 20 billion US dollars. Under the rising diamond penetration, the potential market is huge.

The development goal of superhard materials is clear, and it is expected to support the company's high-quality and steady growth. The company attaches importance to the development of superhard materials business, and puts forward the development goal of "ensuring the basic position of industrial diamond brand first, focusing on accelerating the cultivation of diamond supply-end brand first construction". On September 15, the company announced that its subsidiary Zhongnan Diamond plans to carry out the technical transformation project of the industrial diamond production line, with a total investment of 520.8 million yuan, of which 2 million yuan is planned for 2022; on October 14, the construction project of Zhongnan Diamond "superhard material R & D Center" has been completed and officially completed and put into production. The company has sufficient confidence in the development of superhard materials, short-term benefits to cultivate the diamond industry high growth performance steady growth, long-term CVD technology has made a major breakthrough, can look forward to a larger industrial application space.

Risk tips: lower-than-expected demand; increased competition in the industry; and a sharp decline in nurturing diamond prices.

Investment suggestion: as the leader of the superhard material industry, the company is in the leading position in the market position, product quality and production capacity. The company attaches importance to the business development of superhard materials and has a positive layout of technology and production capacity. It is expected to fully benefit from the high growth rate of the industry. Short-term operations or dragged down by the weapons and equipment business, we downgrade the net profit for 2022-24 to 10.57, 15.28 and 18.72 million yuan (the previous value is 12.96, 16.25 and 19.92 million), corresponding to the PE value of 26-18-15, maintaining the "buy" rating.