Company dynamic events

1. The company released its annual report for 2018, with revenue of 9.351 billion yuan, an increase of 5.05% over the same period last year, and a net profit of 1.485 billion yuan, an increase of 8.80% over the same period last year.

2. The company has issued a profit distribution plan for 2018, which intends to distribute a cash dividend of 2.9 yuan (including tax) to all shareholders for every 10 shares.

Comments on matters

The profit margin is stable and the dividend rate is increased

The overall operating profit margin of the company remains basically stable. In 2018, the company's comprehensive gross profit margin was 35.87%, an increase of 0.72 pct over the same period last year; the expense rate during the period was 21.30%, an increase of 1.42pct over the same period last year, mainly due to the increase in employee compensation; and the net profit rate was 15.78%, an increase of 0.51pct over the same period last year. The dividend rate of the company is higher than that of last year, reaching 40.76%. According to the market value on the day of the annual report, the corresponding dividend rate is 3.3%.

Teaching materials: less affected by the new edition of the three-subject textbooks, the publishing gross profit margin is expected to pick up. The publication and distribution of teaching materials is the company's pillar business. In 2018, the company's teaching materials and auxiliary business achieved revenue of 6.836 billion yuan, an increase of 12.85% over the same period last year. In the aspect of teaching and auxiliary publication of teaching materials, it is influenced by the unified use of unified teaching materials of ideology and legal system, Chinese, and History in the stage of compulsory education throughout the country. several versions of the three-subject textbooks, including the company's own copyright Shandong version of the three-subject textbooks, were replaced by unified textbooks and began to withdraw from the market gradually. However, as the company has obtained the agency operation right of unified teaching materials in Shandong Province, it is expected to share the withdrawal dividend of other versions of the three-subject teaching materials. the company's market share in textbook publishing in Shandong Province is expected to achieve steady progress. The unified teaching materials operated by the company adopt the rental model. Compared with the self-compiled teaching materials, the company only needs to pay a certain amount of rental fees to the people's Education Society. In 2018, the rental fees paid by the company only account for about 3.2% of the corresponding teaching materials sales code, which has little impact on the gross profit margin of the textbook publishing business. The gross profit margin of sales of self-edited and leased teaching materials published by the company fell by 2.99pct and 4.83pct respectively compared with the same period last year, mainly due to the rise in printing costs caused by the rise in paper prices. with the gradual decline in paper prices after 2018Q4, the gross profit margin of the company's teaching materials publishing business is expected to pick up. In terms of the distribution of teaching materials, the company is the only distributor of teaching materials for primary and secondary schools and recommended by small, middle and high schools in Shandong Province. in 2018, the sales of teaching materials and teaching aids increased by 13.43% compared with the same period last year.

General books: sales code increased by 20.77% compared with the same period last year, and best-selling children's books continue to emerge.

The company's general book business achieved revenue of 1.775 billion yuan, an increase of 9.30% over the same period last year. The company has a strong competitive advantage in general book publishing. According to open-book data, the sales code of China's book retail market increased by 11.3% in 2018 compared with the same period last year, while the sales code of general books under the company's publishing standards increased by 20.77% compared with the same period last year. Much higher than the industry average. The company has a strong ability to create bestsellers, with sales of more than 10,000 books reaching 536 in 2018. The company has been engaged in the subdivision of children's books for many years. Tomorrow, one of its core publishers, has maintained a long-term cooperative relationship with Yang Hongying, a famous writer of children's books. Its series of books "laughing Cat Diary" has long been on the best-seller list of children's books Top10, and the latest series, "people belonging to cats", topped the best-seller list of children's books in February this year. The "Xinyi Picture Book" series of children's picture books introduced by the Society tomorrow are also best-selling and long-selling works in China. In terms of the distribution of general books, Shandong Xinhua Bookstore Group, a subsidiary of the company, on the one hand, enriches the forms of offline sales by carrying out various forms of marketing activities with obvious results; on the other hand, it actively taps the potential of online sales. The company's online sales platform "Xinhua Reader" and "Smart Book City" achieved sales of nearly 40 million yuan for the whole year through upgrading and revision measures, with initial success.

Profit forecast and valuation

The company's business to teaching materials, children's books as the two major fulcrum, the future is expected to fully benefit from the downward cost of cultural paper, the proportion of young population rebounded and other positive factors. It is estimated that the net profit of the shareholders belonging to the parent company from 2019 to 2021 is 1.622 billion yuan, 1.757 billion yuan and 1.883 billion yuan respectively, and the EPS is 0.78,0.84 and 0.90 yuan respectively, corresponding to PE 11.80,10.89 and 10.16 times.

Risk hint

Policy risk; intensified competition in the industry; fluctuation of raw material prices; failure to participate in government bidding