1H22 performance is in line with our expectations
The company announced 1H22 results: revenue of 4.89 billion yuan, an increase of 4.3%; net profit of 860 million yuan, an increase of 6.8%; and a net profit of 770 million yuan, an increase of 3.3%. Of this total, the 2Q22 income was 2.85 billion yuan, an increase of 0.3%, the net profit of 650 million yuan, an increase of 1.5%, and a deduction of 590 million yuan of non-return net profit, a decrease of 3.1%. The company's performance is in line with our expectations.
Trend of development
The company's main business is growing steadily, and the performance of the company is escorted by teaching materials and auxiliary business. The company's 1H22 revenue increased by 4.3%, of which 2Q22 revenue increased by 0.3%. Overall 1H22 maintained steady growth. From a business-by-business point of view, in terms of teaching materials and teaching aids, thanks to such factors as the increase in the number of students in the province and the further improvement in the rate of evaluation and teaching aids, the company's educational publishing business has made steady progress during the performance period, driving the overall business growth. In terms of general books, due to the high base revenue of theme publishing books in the same period in 2021, we judge that the general book business of 1H22 is under pressure, in which the revenue of publishing business decreased by 29.5% to 183 million yuan compared with the same period last year, and the corresponding sales code decreased by 18.2% to 520 million yuan. We expect theme publishing to pick up in the second half of the year.
The operation efficiency is improved and the expense rate is stable as a whole. In terms of gross profit margin, 1H22/2Q22 's comprehensive gross profit margin increased by 40.8% to 41.4% respectively. We judged that it was mainly due to the continuous improvement in the efficiency of the company's entire industry chain, and the cost-income ratio offset by the divisions of 1H22's main business increased by 1.3ppt to 1.06. in addition, the company's printing sector was transformed and upgraded, and the gross profit margin also increased by 14.1ppt to 36.1%, which partly led to the increase of the overall gross profit margin. In terms of expenses: 1H22's sales / management rates were increased by 0.3ppt/0.1ppt to 9.5% and 10.9% respectively, which remained stable as a whole.
Shandong population Construction Company has a stable basic market, and dividends highlight the long-term investment value of the company. In terms of population basis, as the end-users of teaching materials, the number of K12 students is the core factor that determines the sales volume of teaching materials. The momentum of population growth of K12 in Shandong Province is obvious: according to the data of the Bureau of Statistics, the number of births in Shandong Province has increased rapidly under the "two-child policy". The number of births in 2014 and 2016 increased by 25%, 43%, much higher than the national growth rate of 3%, 8% in the same period, to build a stable foundation for the company's teaching materials and auxiliary business. In terms of dividends, the amount of dividends paid by the company from 2017 to 2021 is 0.22, 0.29, 0.32, 0.32 and 0.35 respectively. We expect that the company's cash flow is expected to remain within a reasonable and abundant range in the future, and the amount of dividends is expected to remain high accordingly.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 7.7 times 2023 / 7.4 times 2023. Maintain an outperform industry rating and a target price of 8.00 yuan, corresponding to a price-to-earnings ratio of 10.0 times 2022 and a price-to-earnings ratio of 9.6 times 2023, which is 29.8% higher than the current stock price.
Risk
The growth rate of the number of primary and secondary school students in Shandong Province is lower than expected, the pricing policy of teaching materials and teaching assistance has changed, the digital transformation is not as expected, and the epidemic has repeatedly affected book distribution.