Summary of the report:
The growth of steady and sustainable educational publishing service providers. The company is mainly engaged in the compilation, printing and distribution of primary and secondary school teaching materials and teaching aids, serving primary and secondary school students in Henan province. In the first half of 2018, the company's main income and net profit were 4.098 billion yuan and 343 million yuan respectively, with year-on-year growth rates of 7.64% and 6.38% respectively. The distribution sector realized 2.527 billion yuan of income, including 2.039 billion yuan of teaching materials and auxiliary income, accounting for 81% of the distribution sector. general book income is 362 million yuan, accounting for 14% of the distribution sector. The income of the publishing section reached 755 million yuan, of which 610 million yuan was earned from teaching materials, accounting for 81% of the income from the publishing section, and 127 million yuan from general books, accounting for 17% of the publishing sector.
Leading peers, improve quality and efficiency entity bookstore channel network. The company's distribution group is the largest publication distribution enterprise in Henan Province, which is mainly responsible for the distribution of teaching materials, general books, audio-visual and electronic publications in the province. The company has outstanding distribution ability in Henan Province, and its distribution group, together with 128 Xinhua Bookstores in cities and counties and numerous urban and rural outlets, constitute a publication distribution network connected up and down, all over the province's urban and rural areas. In recent years, according to the three-level channel system structure of urban cultural complex, compound bookstore, campus bookstore and community bookstore, the company is carrying out a new round of channel construction, thus promoting the growth of the company's publishing and distribution business.
With the superposition of market advantages and policy advantages, education and publishing has a bright future.
1) Henan Province is a province with a large population and educational resources. Early childhood education, basic education, vocational education and higher education provide a broad market space for the company's education publishing services. In 2017, the average expenditure of individual students in Henan Province on purchasing teaching materials and auxiliary teaching materials of the company was 312 yuan, while that of Central South Media and Shandong Publishing was 866 yuan and 503 yuan respectively, highlighting the great potential of Henan education publishing market where the company is located.
2) the only supplier of free textbooks in Henan Province, the qualification advantage is prominent. In terms of teaching materials, Henan Xinhua Bookstore Distribution Group Co., Ltd., which belongs to the company, continues to be the only supplier of free textbooks in Henan Province; at the same time, the company is the exclusive rental agent in Henan Province for mainstream textbook publishers such as people's Education Publishing House, people's Music Publishing House, people's Fine Arts Publishing House and so on. In terms of teaching assistance, eight publishing enterprises affiliated to the company have obtained the administrative license of the education administrative department of Henan Province for the teaching and publishing of the whole science and education or some disciplines.
Company profit forecast and investment rating. We estimate that the company's net profit from 2018 to 2020 is 753 million yuan, 806 million yuan and 869 million yuan respectively, the corresponding EPS is 0.74,0.79 yuan and 0.85 yuan respectively, and the corresponding PE is 9.5x, 8.9x and 8.2x respectively. We believe that the publishing and distribution business of the company's books and teaching materials is growing steadily, so we give the company a "highly recommended" rating of 12 times PE in 2018, corresponding to the target price of 8.88 yuan.