Key points of investment:
2019H1 Revenue and net profit grew steadily. In the first half of 2019, the company achieved operating income of 1,115 million yuan, an increase of 6.62% over the previous year, and net profit attributable to shareholders of the parent company was 221 million yuan, a year-on-year increase of 37.98%, gross margin of 39.22%, an increase of 0.84 pct over the same period last year. Net interest rate was 19.82%, an increase of 4.5 pct over the same period last year. Sales expenses and management expenses accounted for 10.89% and 11.12% respectively, of which sales expenses fell 1.26 pct from the same period last year. In 19Q2, the company achieved operating income of 561 million yuan, an increase of 0.81% over the previous year, and net profit attributable to shareholders of the parent company was 127 million yuan, an increase of 57.15% over the previous year.
Implement a quality publishing strategy to speed up the transformation of methods and structures. In the first half of 2019, the company achieved an 8.5% year-on-year increase in Publishing Code Yang with a 26% year-on-year reduction in the number of new book publications, and the overall reprint and reprint rate reached 87.88%. During the reporting period, the company received 41 awards for 31 types of books at the provincial and ministerial levels, and projects such as “China's River Basin Natural and Cultural Heritage Image Archive... Memories of the Yellow River”, “A General History of China's Reform and Opening-up”, and “Fossil Atlas of China's Dinosaur Footprints” were selected for the National Publishing Fund. The company's various publishing sections continue to create quality products for the market, such as the “Tatsuya Miyanishi” series, the “Young Reading” series, the “Little Pea” and “Little Honey Melon” series, the “Awakening Reading Skills” series, and “Burn! “Brain” series, “Emotional Intelligence: A Life Pattern Book for Children”
Many other products are selling well; the education sector has launched new projects and products on the market, such as the “Test Site List” and “New High School Examination Papers,” and the results of optimizing the overall publication structure are beginning to show. We believe that the company's publishing strategy that optimizes topic selection and streamlines the structure will increase the company's profit level and strengthen the company's brand effect.
Promote the development of newly laid out industries, and investment income grew rapidly. In terms of industrial layout, 2019H1's new media business has been further expanded. The “True Color China” VR project has established cooperative distribution channels in many parts of the country, and the influence of the project in the virtual reality field continues to increase. The TV drama “Operation Ice Breaker”, which was filmed by film and television companies, was a hit on many platforms, and the market response was enthusiastic. The company's BCMIX brand has obtained Tencent's full IP image license, opening up new areas of cooperation. In terms of investment, the company's investment structure will be further optimized as the company invests 40 million US dollars to continue to participate in Himalayan Series E financing.
Offline physical bookstores have been transformed and upgraded, and online partnerships have continued to advance. Xinhua Bookstore is doing a solid job in distributing important documents and publications on key topics of the Party and the country, and while strengthening the “book selection and recommendation” team building, actively promoted the transformation and upgrading of physical stores, established strong ties with readers through new complex cultural spaces and diverse and diverse cultural activities, promoted the implementation of the National Reading Project, and expanded general book sales. The company's online channel sales revenue increased 22% year-on-year. Cooperation with mainstream e-commerce channels such as Dangdang, JD, and Tmall developed steadily, and the effects of social marketing were evident, becoming a new fulcrum for the company's rapid growth in performance
Profit forecast and valuation analysis: We believe that the company's business is growing steadily, implementing a boutique book strategy, optimizing the structure of publishing books, and broadening the company's business and industry layout, the company is expected to maintain a high growth rate in the future. We expect the company's EPS in 2019-2021 to be 0.56 yuan, 0.60 yuan, and 0.69 yuan. Referring to comparable companies, we gave the company a dynamic PE valuation of 14 times to 16 times in 2019. The corresponding reasonable value range was 7.84-8.96 yuan, maintaining a superior market rating.
Risk warning: Traditional publishing mainly involves downside risks, and new business development falls short of anticipated risks.