Company dynamic events

1. The company released its annual report for 2018, with revenue of 2.17 billion yuan, an increase of 10.19% over the same period last year, and net profit of 348 million yuan, an increase of 5.66% over the same period last year.

2. The company issued a profit distribution plan for 2018, with a cash dividend of 2 yuan (including tax) for every 10 shares of all shareholders.

Comments on matters

Income continues to grow and net interest rate decreases slightly

In 2018, the company achieved revenue of 2.17 billion yuan, an increase of 10.19% over the same period last year. The continued growth of revenue was mainly due to the steady growth of the company's traditional publishing and distribution business and the accelerated development of new businesses such as film and television rights. The company's comprehensive gross profit margin was 39.09%, a slight increase of 0.31 pct over the same period last year; the period expense rate was 24.64%, a decrease of 1.53 pct compared with last year; and the net profit rate was 16.04%, a decrease in 0.68pct. The slight decline in the company's profit margin is mainly due to the official opening of Qingdao City Media Plaza, a new project, resulting in higher depreciation charges for fixed assets. After excluding the loss factors such as the depreciation of new fixed assets, the company's return net interest rate increased by 16.65%.

The publishing and distribution business goes hand in hand, and the self-compiled teaching materials have a good momentum of growth. The company's publishing business achieved revenue of 928 million yuan, an increase of 10.48% over the same period last year. In the teaching materials teaching auxiliary publishing, the company's income is all generated by self-compiled teaching materials, rent-free business. The annual sales volume of teaching materials compiled by the company reached 88.77 million copies, an increase of 11.17% over the same period last year. The company's own copyright "green edition" teaching materials have a strong competitive advantage. at present, four kinds of teaching materials have entered the national standard catalogue, and more than a dozen kinds of teaching materials have entered the local catalogue. in 2018, on the basis of the continuous promotion of "green edition" national standard teaching materials, the company has landed more than 20 new projects, such as "mental health education" and "Sinology readers". The teaching auxiliary series of the best-selling product "Jiafenbao" has also completed the upgrading and transformation. Sales throughout the country have repeatedly reached record highs. In terms of general book publishing, the overall sales number of the company's general books is basically the same as last year, and the sales code has increased by 19.42% over the same period last year. Among them, the market share and reader recognition of the company's children's books have gradually increased, while the market share of life books ranks first in the country all the year round. The company's issuance business also maintained a good growth momentum, with revenue of 1.77 billion yuan, an increase of 9.60% over the same period last year. In terms of the distribution of teaching materials, relying on the business qualification of textbook distribution in primary and secondary schools held by its Qingdao Xinhua Bookstore Co., Ltd., the company continues to promote the marketing strategy of "millions of districts, counties and cities" in Shandong Province. to achieve full coverage of the operating areas in the province, but also actively expand the national market. Some of the company's own copyright teaching materials have been launched in Jiangxi, Henan, Hubei, Inner Mongolia and other regions, helping the company to achieve double-digit growth in teaching materials sales and foreign code. Similarly, the company's general book distribution business sales code has also achieved positive growth. The new media business has developed in an all-round way, and the cultural complex operation business has initially landed. In addition to the traditional publishing and distribution business and supporting logistics business, the company is also committed to developing diversified new media business. in 2018, the company achieved a total revenue of 70.9107 million yuan for all kinds of new businesses excluding the above three traditional businesses, a substantial increase of 242.43% over the same period last year., Accounts for 3.36% of the company's overall revenue. The substantial increase in new business revenue is mainly due to the growth of film and television copyright and sales of the company's film and television business. In addition to film and television business, the company's digital content, audio books, VR content, network sales and other new media business is also in rapid progress. The company also began to test the operation of large-scale cultural complex in 2018, and the Qingdao Urban Media Plaza invested in the West Coast New area of Qingdao is now in full operation. the intention is to create a comprehensive urban cultural consumption center that integrates copyright, fashion, art, technology and other elements, but the business has not yet made a profit. In terms of investment business, the company contributed 40 million US dollars to participate in the E-round financing of Shanghai Zendai Himalayan Network Technology Co., Ltd., which is expected to bring good investment returns for the company in the future.

Profit forecast and valuation

Benefiting from the declining cost of cultural paper and the rebound of the population of school students, we are optimistic that the company has a strong competitive momentum of sustained and steady growth in the business of self-compiled teaching materials and general book publishing and distribution. at the same time, a number of new business type of the company is expected to maintain the current rapid development trend.

It is estimated that the net profit of the shareholders belonging to the parent company from 2019 to 2021 is 384 million yuan, 422 million yuan and 465 million yuan respectively, and the EPS is 0.55,0.60 and 0.66 yuan respectively, corresponding to PE 16.24,14.76 and 13.40 times.

Risk hint

New business development is not as expected; industry competition intensifies; policy risk; raw material price fluctuation