The company released the 2022 annual report, which is basically in line with market expectations. In 2022, the company realized operating income of 906 million yuan, year-on-year + 81.85%, net profit of 460 million yuan, + 92.12% year-on-year, and net profit of 437 million yuan, + 90.53%, basically in line with market expectations. In the fourth quarter alone, the company achieved an operating income of 232 million yuan, a month-on-month ratio of + 2.31%, and a net profit of 110 million yuan, which was-0.47% in the third quarter, which was basically the same as the previous quarter.

With the rapid launch of the company's production capacity, the company's revenue and profits have achieved rapid growth compared with the previous year. According to the 2022 annual report, the company's book currency funds plus transactional financial assets amount to 4.336 billion yuan, and there are no short-term loans on the book. the company is expected to strengthen R & D and production by virtue of good liquidity to consolidate its competitive advantage.

Cultivate diamond business to contribute to the main revenue, diamond powder business in the second half of the year month-on-month growth. The company achieved 389 million yuan in revenue from nurturing diamond business in 2022, including 167 million yuan in the second half of the year, down 24.9 percent from the first half of the year. Due to the decline in sales prices of nurturing diamond products in the second half of 2022, the gross profit margin of nurturing diamond business declined. It is calculated that the gross profit margin of nurturing diamond business in the second half of 2022 is about 73.67%, which is 9.77Pcts lower than that in the first half of 2022. Compared with 2021, the gross profit margin of nurturing diamond business is also lower. The annual revenue of the company's diamond powder business exceeded expectations. In 2022, the company's diamond powder business realized revenue of 316 million yuan, of which the revenue in the second half of the year was 180 million yuan, an increase of 31.81% over the first half of the year. The sales price of the company's diamond powder products increased in 2022. According to calculation, the gross profit margin of the diamond powder business in the second half of 2022 increased to 55.21%, about 2.81Pcts compared with the first half of the year. The company's annual diamond single crystal business revenue of 174 million yuan, due to the rise in raw material prices, resulting in the annual gross profit margin fell to 52.70%.

The smooth landing of the company's additional issuance in 2022 helped the company to accelerate its expansion. In September 2022, the company announced the landing of additional issues, the actual number of shares issued was 24.15 million shares, the issue price per share was 162.01 yuan per share, and the total amount of funds actually raised was 3.9 billion yuan. The funds raised will be used for two diamond-related smart factory construction projects and replenish liquidity. The company plans to use the raised capital of 2.19 billion yuan for Shangqiu Power Diamond Technology Center and the cultivation of diamond intelligent factory construction project; use the raised capital of 1.6 billion yuan for the second phase of diamond and diamond cultivation intelligent chemical plant construction project. The company's annual production equipment is expected to accelerate growth on the basis of 2022. The company's accelerated production expansion is expected to achieve rapid investment recovery of investment equipment, leaping to the forefront of the industry in terms of production capacity.

The company actively seizes the opportunity of industry development, and it is imperative to expand production capacity to meet the fast-growing market demand.

The cultivation of diamond business has high production and R & D barriers, and the high-quality supply of the industry is scarce. The company has long focused on the R & D and production of synthetic diamond products, and the existing diamond single crystal, diamond powder and nurturing diamond three core businesses have obvious synergy. The company has mastered a number of core technologies, including high-grade diamond synthesis technology. The annual R & D expenditure has increased rapidly from 9.97 million yuan in 2020 to more than 44 million yuan in 2022, and the company has now become a leading production and R & D company in the synthetic diamond industry. At the same time, the company has set up a joint venture with Chao Hongji, which plans to create, operate and cultivate diamond jewelry brands, and the company is expected to make a breakthrough in the layout of downstream retail links; the company is expected to vertically open up other links of the industrial chain in the medium to long term, and finally obtain profits covering the whole industrial chain in the upper, middle and lower reaches.

Investment advice: due to the scarcity of high-quality supply in the industry, continue to be optimistic about the investment value of cultivating upstream diamond producers. From the medium-term perspective, there are capacity barriers and technical barriers on the supply side of the industry, and it is difficult for new entrants to achieve short-term catch-up in the procurement of core equipment and product quality and yield. The trend on the demand side of the industry remains high. The growth path of the leader is clear. After the landing of the additional issuance, the company will gradually realize the production expansion plan and tilt the enterprise production to the cultivation of diamond business. It is recommended to focus on the investment opportunities of Power Diamond. The company is expected to have a net profit of $1.61 billion in 2025, maintaining a "buy" rating.

Risk hints: macroeconomic fluctuation risk; market competition aggravating risk; new technology substitution risk; expansion project promotion not up to expected risk; cultivating diamond price fluctuation risk and so on.