Incident: The company released its 2018 annual report. In 2018, it achieved operating income of 9.001 billion yuan, an increase of 10.11% over the previous year, and Guimu's net profit of 734 million yuan, an increase of 5.92% over the previous year, after deducting net profit of 718 million yuan from non-Gumo, an increase of 11.87% over the previous year.
Revenue from the main business of book publishing and distribution grew steadily. In 2018, the company's book publishing business achieved revenue of 1,725 billion yuan, an increase of 13.58% over the previous year. The acceleration of growth over last year was mainly due to good sales of themed books; the book distribution business achieved revenue of 5.182 billion yuan, an increase of 3.51% over the previous year, with a steady growth rate.
The gross margin of the book publishing business declined slightly, and the gross margin of the book distribution business increased slightly. In 2018, the gross profit margin of the company's book publishing business was 30.7%, down 2.2 percentage points from last year; the gross profit margin of the company's book distribution business was 31.0%, up 0.7 percentage points from last year, which is relatively stable.
The institutional reform of Xinhua Bookstore has had remarkable results, improving the efficiency of enterprise operations. The mid-level agencies and personnel of Xinhua Bookstores in 128 cities and counties across the province were further reduced and streamlined. According to the annual report, the number of employees in the company in 2018 was 14,747, a decrease of 682 compared to 15,429 in 2017, and wage expenses in management expenses were reduced by 26 million yuan. As the institutional reform of Xinhua Bookstore continues to advance, the company's overall operating efficiency will continue to improve.
The dividend ratio increased. Based on the total share capital of 1,023 million shares on December 31, 2018, the company plans to distribute a cash dividend of 2.5 yuan (tax included) to all shareholders for every 10 shares, for a total of 256 million yuan in cash. The amount of cash dividends accounted for 34.84% of the net profit of the mother, an increase of 8.27 percentage points over 2017.
Profit forecast and investment rating: We expect the company's net profit in 2019-2021 to be 802 million yuan, 875 million yuan, and 938 million yuan respectively. The corresponding PE is 12X, 11X, and 10X respectively. We gave the company 13 times the PE valuation in 2019, with a corresponding target price of 10.14 yuan, maintaining the “Highly Recommended” rating.
Risk warning: Sales of textbooks and teaching aids are lower than expected, and paper prices are rising.
