Zhongnan Diamond invested 512 million yuan to renovate and upgrade the industrial diamond production line: The company disclosed on the evening of September 15, 2022, that its subsidiary Zhongnan Diamond will invest a total of 512 million yuan to carry out technical transformation projects for industrial diamond production lines, of which it plans to invest 2 million yuan in 2022.
Production line transformation is expected to improve the company's industrial diamond and cultured diamond production efficiency and switching efficiency:
The production process for industrial diamonds and cultivated diamonds uses a set of six-sided top press equipment. Currently, the industry's mainstream equipment is 650 and 850 models. This production line transformation is expected to increase the production efficiency and production capacity of industrial diamonds and cultivated diamonds. At the same time, production switching efficiency between cultivated diamonds and industrial diamonds is expected to improve, and future business potential is expected to be further unleashed.
The performance of the company's semi-annual report verifies the high level of prosperity in the industry. In 2022 Q2, the company achieved revenue of 1.82 billion yuan, +20% year on year, and achieved net profit of 400 million yuan after deducting non-return to the mother, +86% year on year. Among them, the 202H1 military sector earned 1.34 billion yuan, +17% year on year, gross profit margin 20.6%, and +2.7pct year on year. 2022H1 Zhongnan Diamond achieved revenue of 1.6 billion yuan, +18.3% year on year, gross profit margin of 54.7% year on year, +18.3% year on year, net profit of 680 million yuan, +99% year on year, net interest rate reached 42%, +17pct year on year. The superhard materials sector benefited from the industry's cultivation of a double boom in the diamond and industrial diamond industries, achieving a double increase in quantitative profit, while the military sector also achieved a year-on-year improvement in profitability.
State-owned enterprise reforms have helped stimulate business vitality, new products in Hongyang in the North have been launched, and the profitability of the military sector may improve. 2022 is the last year of the three-year state-owned enterprise reform. The comprehensive deepening of state-owned enterprise reform is a major decision and arrangement made by the Party Central Committee. As the state-owned enterprise reform continues to advance, the company's vitality and efficiency are expected to be further stimulated. The North Hongyang Assembly Branch, a subsidiary of the company's military sector, announced in mid-August that it had successfully completed the trial production task of a key model product. With the launch of the new North Hongyang product, the profitability of the military sector is expected to improve further.
Profit forecast and investment rating: Zhongbing Hongjian is a leading synthetic diamond company in China. It belongs to China Ordnance Industry Group. It leads the scale and industrial technology industry, cultivating a double boom in the diamond and corporate diamond industries. The company's performance continues to be realized, and corporate governance is expected to continue to improve. We maintain the company's net profit of 1.34 billion yuan/1.82 billion yuan/2.32 billion yuan in 2022-24. The latest stock price corresponds to 2022-2024 PE 27 times/20 times/16 times, respectively, maintaining the “buy” rating.
Risk warning: Diamond cultivation capacity to expand production fell short of expectations, improvements in the military sector fell short of expectations, repeated epidemics, etc.