Investment highlight

Covering Zhejiang Edition Media (601921) for the first time, the company is the leading publishing and distribution enterprise in Zhejiang Province and ranks in the first echelon of local state-owned publishing companies. we are optimistic about the company's continuous optimization of the traditional main business and the vigorous expansion of the digital publishing field. The specific reasons are as follows:

Rooted in Wuyue, the educational publishing business has developed steadily. In terms of educational basis, relying on the geographical advantages of Zhejiang Province, Zhejiang Province spent 704 yuan on teaching materials for single students in 2017, ranking fifth in the country, with a CAGR of 8.1% in 2021-2021. From a demographic point of view, Zhejiang Province attracts a large number of net population inflows, and we believe that it is possible to partially resist the downside risk of K12 population in the long run. In terms of products, the proportion of self-compiled teaching materials and gross profit margin of the company in 2022 were 65.8% and 45.8% respectively, ranking fifth / 3rd among state-owned publishing companies, respectively, focusing on high-quality publishing strategy for a long time or helping the company to further improve its educational publishing strength.

The general book business has performed well, and the strategy of double-cycle distribution and boutique publishing continues to advance. In terms of distribution, relying on Boku Group, the company has online revenue of 3.16 billion yuan (YoY+17.2%) in 2022, ranking first among state-owned publishing companies. On this basis, the company continues to iterate double-cycle distribution system.

In terms of publishing, the company focuses on boutique publishing, and the book publishing capacity continues to improve. In 2022, the real foreign market share of the book retail market is 3.07%, ranking fifth in the country, up 3 places from the same period last year. We judge that under the double-round upgrading of channels and content, the company's general publishing business can be flexible.

The continuous layout is digital, the asset quality is healthy, and high dividends bring stable returns. 1) in terms of digital publishing, in recent years, the company has focused on building digital platforms such as "torch" knowledge services, electronic agencies and Qingyun online, and continue to build a digital publishing ecosystem, which we believe may bring new increments in performance. 2) in terms of dividends, the absolute amount of annual dividends has continued to increase since the company went public. Under the background of sound performance expectations and high net cash level, we judge that the company may maintain a higher amount of dividends in the future.

What is the biggest difference between us and the market? We are optimistic that the company's boutique publishing and diversified distribution strategy will continue to promote the expected performance flexibility, while digital publishing is expected to help the company to open up a new commercialization path.

Potential catalyst: the domestic book retail market continues to pick up, and the company's "torch" knowledge service, Qingyun online and other digital publishing business income is accelerated.

Profit forecast and valuation

We expect the company's 2023 EPS to be 0.70 in 2024, and CAGR to be 9.2% in 2022-2024. For the first time, we cover the industry rating and target price of 10.50 yuan for the company, corresponding to 13.8 times Pmax E, 15.0 times 2024, and the current price, which corresponds to 11.9 pound E in 2024, with a potential upside space of 26%.

Risk

The growth rate of the number of primary and secondary schools in Zhejiang Province is not as expected, the recovery of the general book industry is not as expected, the policy of teaching materials and auxiliary teaching has turned, and the digital transformation is not as expected.