Events:
The company released its annual report on the evening of March 28, with an operating income of 9.001 billion yuan (+ 10.11%) in 2018, a net profit of 734 million yuan (+ 5.92%), and a deduction of 718 million yuan (+ 11.87%), which is in line with market expectations. Among them, 2018Q4 achieved an operating income of 298 million yuan (+ 14.48%) in a single quarter, a net profit of 246 million yuan (+ 5.73%), a cash dividend of 2.5 yuan (including tax) for every 10 shares, and a dividend ratio of 34.84%, an increase in 8.27pct over last year.
Comments:
The business is based on a populous province, and the distribution channels are unified throughout the province. Henan Province has a total population of 109 million in 2018, of which 96.05 million are resident, making it the most populous and educational province in the country. The company is the exclusive agent of mainstream textbook publishing houses such as people's Education Publishing House, people's Music Publishing House and Beijing normal University Publishing House in Henan Province. It has the whole industry chain business covering all fields of educational publishing, mass publishing and professional publishing, among which the more prominent ones are the literature integration of Elephant Publishing House, the arrangement of ancient books of Zhongzhou Ancient Books Publishing House, the children's publishing of Haiyan Publishing House and so on. At the same time, the company's Henan Xinhua Bookstore Distribution Group has a network channel and service system covering all counties and cities in the province, reaching all counties and cities in the province.
In 2018, the company set aside a total of 112 million yuan for impairment of various assets. According to the prudent principle, the provision for bad debts of receivables is 52.6333 million yuan, the provision for inventory decline is 59.4854 million yuan, and the provision for impairment of projects under construction is 40,000 yuan. During the reporting period, the company's R & D expenditure decreased by 51.78%, mainly because the Elephant Publishing House intelligent item bank project, which originally accounted for more R & D investment, has been completed and put into use.
In addition to the provincial education publishing group consistent with the publication of auxiliary teaching materials, general book business, the company is in the lead in the digital education business developers. The comprehensive education service system supported by the key Laboratory of Publishing, Integration and Development and the China Education Publishing Network has been initially built, forming a series of digital education products, such as elephant e-teaching, elephant e-learning, elephant e-exam, primary and secondary school digital library and so on. it has a service system such as wisdom question bank, intelligent test paper, examination and teaching evaluation, and sells the products and systems to a single school or regional education formation department. At the same time to provide maintenance, provincial, content update and other services.
Investment advice: the company's performance is sound, accounting treatment is prudent, dividends have increased significantly in recent years, while reflecting the initiative in new business development, and has achieved results. It is estimated that the net profit of the company from 2019 to 2021 is 800 million yuan, 880 million yuan and 940 million yuan respectively, corresponding to EPS yuan, 0.78,0.86 yuan and 0.92 yuan. We give the company 15 times the target PE in 2019, corresponding to the target price of 11.7 yuan, with a "buy-A" rating.
Risk tips: bad debt risk, changes in industry policy subsidies.