Event: the company achieved operating revenue of about 7.9 billion in 2016, up 10.52% from 7.1 billion in 2015, and net profit of 673 million, down 4.28% from 703 million in 2015.
The operating business is stable. Although the company's 2016 return net profit decreased slightly, the main reasons are: 1) the company's financial expense income decreased by about 18 million compared with 2015; 2) the company received about 70.83 million yuan in government subsidies in 2016, compared with 97.21 million yuan in 2015 (only 2842 million of the government subsidies are included in non-recurrent profits and losses because of the special operating conditions of the company). So excluding government subsidies and financial income, the company's performance in 2016 was almost the same as in 2015.
The company's business structure is basically stable. The company's publishing business achieved revenue of about 1.4 billion in 2016, accounting for 18%, an increase of about 6% over the same period last year. The revenue of the distribution business in 2016 was about 4.9 billion, accounting for 62%, an increase of about 5% over the same period last year. The gross profit margin of the distribution and publishing business is basically stable and has become the company's main profit contributor, maintaining the same level as in the past as a whole.
Emerging businesses are trying to move forward steadily. In addition to the traditional main business, the company is actively promoting various new business attempts: 1) the e-commerce logistics business set up with the starting point of solving the "last kilometer" of rural e-commerce; 2) accelerating the digital publishing business, the digital products of subsidiaries such as art cooperatives and farmers' cooperatives have been launched one after another. 3) in cooperation with International Children's Publishing House, we have introduced well-known IP works, including the Harry Potter movie book and the original collection of World of Warcraft.
The company has extremely abundant cash reserves. As of the end of 2016, Earth Media had about 3.8 billion in cash on its account. In addition to about 1 billion of its working capital, it had nearly 3 billion of available funds. According to the enterprise size of Earth Media, this cash reserve belongs to a very abundant level among culture listed enterprises. On the one hand, this fund earns a stable monetary return for the company; on the other hand, it provides unusually leisurely liquidity for the company's future resource integration and other investment projects, which will strongly support the company to consolidate traditional business and expand new business.
Profit forecast. We estimate that the company's EPS in 2017-2019 will be 0.72,0.79,0.84 yuan respectively, and the corresponding PE will be 17 times, 16 times and 15 times respectively, taking into account: 1) the company has obvious valuation advantages, sufficient cash and adequate safety cushions; 2) the company has a strong expectation of state-owned enterprise reform, and its intention to achieve transformation through mixed reform is obvious, covering it for the first time and giving it a "buy" rating.
Risk hints: raw material prices may fluctuate sharply, publishing policy may change.
