Incidents:
On April 28, 2023, the company released its report for the first quarter. The company's operating income reached 776 million, a decrease of 43.83% over the previous year; the net profit returned to the mother was -34 million, a decrease of 112.18% over the previous year; net profit after deducting non-return to the mother reached -37 million, a decrease of 113.41% over the previous year.
On April 10, 2023, the company released its 2022 annual report. The company's operating revenue reached 6.714 billion, a decrease of 10.65% over the previous year; achieved net profit of 819 million yuan, an increase of 68.76% over the previous year; net profit after deducting non-return to the mother reached 774 million, an increase of 64.53% over the previous year.
2023Q1 performance was under pressure, delivery of special equipment slowed, and the volume and price of superhard materials fell to 2023Q1 revenue of 776 million, a decrease of 43.83% over the previous year; realized large-scale net profit of -34 million, a year-on-year decrease of 112.18%, from profit to loss. The pressure on performance was mainly due to (1) special equipment being affected by upstream supporting enterprises, production progress was slow, and product delivery declined sharply year on year; (2) superhard materials were affected by changes in demand and market competition in the downstream market, and product volume and price declined. The overall gross margin of 2023Q1 fell 11.91% to 24.85%, due to a decrease in product prices for superhard materials under changes in the supply and demand pattern; the cost rate during the period increased, and management expenses increased 30.09% year on year, due to an increase in expenses such as repair costs; sales expenses fell 47.61% year on year, and R&D expenses increased 6.27% year on year. The company's net interest rate fell sharply by 24.79% to -4.42%.
The price performance of superhard materials in 2022 was impressive. Looking at the profit improvement segment of special equipment, the company's superhard materials business achieved revenue of 2.68 billion yuan in 2022, an increase of 16% over the previous year, accounting for 39.97% of revenue; gross margin increased 7.5% to 50.95%. As the world's leading superhard materials company, the future will fully benefit from the driving demand for downstream modern industrial diamonds and the gradual recognition of diamond cultivation concepts. The special equipment business achieved revenue of 2.68 billion yuan, a decrease of 19% over the previous year, accounting for 52.88% of revenue; gross margin increased by 5.43% to 16.13%, further improving profitability. In the future, with the acceleration of certain types of special equipment, the company is expected to fully benefit. On the cost side, the cost rate for the period increased by 2.41% to 13.98%, mainly due to the increase in management expenses and R&D expenses. The sales/management/financial expenditure/R&D expenses ratio in 2022 was 0.94%/8.63%/-1.64%/5.79%, respectively, +0.11%/+1.67%/-0.59%/1.20% compared with the same period last year.
National defense construction accelerates ammunition demand, and special equipment is expected to create a second growth curve. In 2022, special equipment subsidiary Jiangji Special Equipment Company was 2.18 billion, up 1.82% year on year; net profit was 120 million yuan, up 0.81% year on year; subsidiary Beifang Hongyang achieved operating revenue of 4.6 billion yuan, down -48.42% year on year, and net profit loss of 150 million yuan compared to last year's loss of 93 million. As the country further strengthens the importance and urgency of national defense construction, China Bing Hongjian, as the only listed ammunition company under the Ordnance Group, is an important target for smart ammunition. In the future, the company's smart ammunition business is expected to continue to benefit from both “ammunition expendable supplementation” and “the finalization and production of new types of equipment”, compounded by turbulent world patterns and a hot foreign trade market, which will further drive the company's performance to continue to grow.
The increase in shareholders' holdings shows confidence in development and boosts long-term development. In November 2022, Zhongbing, the second largest shareholder of the company, invested 2.91 million shares in the company, accounting for 0.2090% of the company's total share capital. After this increase in holdings, Zhongbing Investment held 201243978 million shares of the company, accounting for 14.4514% of the company's total share capital. This increase in holdings shows shareholders' confidence in the company's future development and recognition of the long-term value of the company's shares. We believe that in the future, the company will fully benefit from cultivating further development of the diamond market and accelerated dividends from the installation of special equipment. In 2022, the company invested 550 million dollars in R&D, an increase of 28.20% over the previous year. It was mainly used for the development of new models of special equipment, industrial diamonds, and the conquest of key technologies for cultivating diamonds to ensure the company's long-term development in the future.
Investment advice and profit forecasting
As the company's process technology for cultivating diamonds improves and the scale expands, along with the release of intelligent ammunition, the company will significantly benefit from the development of the industry. It is estimated that in 2023-2025, the company's net profit attributable to shareholders of the parent company will be 980, 11.96 and 1,474 billion yuan respectively. According to the latest share capital estimates, the corresponding basic earnings per share are 0.70, 0.86 and 1.06 yuan/share, respectively. According to the latest stock price estimates, the corresponding PE valuations are 26.97, 22.10 and 17.93 times respectively, giving the company a “buy” investment rating
Risk warning
Special equipment falls short of expectations, changes in the competitive pattern for cultivating diamonds, industry demand falls short of expectations