Xinhua Wenxuan is the leading publishing and distribution company in Sichuan, with a solid provincial market and strong online distribution capacity, as well as a low valuation level, with investment performance-to-price ratio. Combining comparable valuation and absolute valuation methods, we give the company a target price of 11.4 yuan per share, covering it for the first time and giving it an "overweight" rating.
Xinhua Wenxuan: Sichuan regional publishing and distribution leader. Xinhua Wenxuan is a publishing and distribution company affiliated to Sichuan Province, mainly engaged in book publishing and distribution (accounting for more than 90% of revenue in 2021). The publication of books covers a wide range of teaching materials, literature, children and other fields. In addition, the company actively layout education information services and other businesses, through the integration of new and old business strategy to promote transformation and upgrading. The company has seen steady growth in revenue and profit in recent years. In 17'21, the company's revenue CAGR 9.4% relegated 3Q21 revenue 7.332 billion yuan (YoY+3.9%); 17'21 homed net profit CAGR 9.0% minus non-net profit 772 million yuan (YoY+9.2%).
Publishing and distribution industry: high qualification threshold and stable market pattern. In terms of the overall scale, the sales volume of book distribution in China has exceeded 100 billion yuan (107.5 billion yuan in 2020), of which the top three categories are culture and education (81.1%, with teaching materials and teaching aids at the core), philosophy and social sciences (7.5%, including party building, economic management), and literature and art (6.5%). In terms of retail channels, online code accounts for nearly 80 per cent (1~3Q22), with traditional e-commerce / short video e-commerce accounting for 61.7 per cent and 19.8 per cent respectively. In terms of industry profits, the head publishing company has steady growth in revenue and profits, abundant cash and a high proportion of dividends.
The company focuses on: the publishing business is profound, and the innovative business is developing healthily. Publishing business, the company is good at publishing children's books, has the popular style IP "Rice Circle" publishing rights, up to 2021 cumulative sales of 130 million copies.
In 2021, the company's market share of mass publishing ranked seventh in the country, with 45 varieties of books selling more than 300000 copies. Diversified distribution, the company has formed a diversified distribution matrix of offline (in-store + out-of-store) and online (official website + integrated e-commerce + new media e-commerce). Education service, the company is the main operator of educational information products and services in the province, developed Wenxuan intelligent campus, intelligent classroom and other products, 22H1-related business income of 287 million yuan (YoY+8.8%), achieving steady growth.
Risk factors: changes in the policy of the publication and distribution of teaching materials, changes in tax policies and subsidy policies, rising prices of paper and other raw materials, the number of newborns and primary and secondary school students in Sichuan Province are less than expected, and local epidemics repeatedly have an impact on offline book retail.
Profit forecast, valuation and rating: Xinhua Wenxuan is a regional publishing and distribution group based in Sichuan, with investment performance-to-price ratio. We forecast that the company's revenue of 22nd 24e is 109.70 Universe 12.50 billion yuan, and the net profit of its parent is 13.54 billion dollars. The current stock price corresponds to PE 9.2x/8.8x/8.5x. Combined with comparable company valuation, DCF and DDM valuation estimates, we give the company a target price of 11.4 yuan per share, covering for the first time and giving an "overweight" rating.
