Event: Shandong Publishing released its 2023 three-quarter report. 2023Q1-Q3 achieved total operating income of 8.052 billion yuan, an increase of 9.5% over the previous year; net profit of 1.254 billion yuan, an increase of 10.2% over the previous year; net profit after deducting non-return mother was 1,174 billion yuan, an increase of 13.9% over the previous year. 2023Q3 revenue was 2,827 billion yuan, up 14.7% year on year; net profit was 359 million yuan, up 30.2% year on year; net profit after deducting non-attribution was 341 million yuan, up 33.3% year on year.

Comment: Publishing and distribution are growing steadily, new progress has been made in research business, the digitization process of education has accelerated, and the construction of a service position for the elderly has been promoted

1) Publishing and distribution are growing steadily. In 2023Q1-Q3, the company's publishing business achieved revenue of 2,561 billion yuan, a year-on-year increase of 9.7%, a gross profit margin of 26.2%, an increase of 0.8 pct over the previous year; the distribution business revenue was 5.808 billion yuan, an increase of 8.3% over the previous year, and a gross profit margin of 33.3%, an increase of 0.2 pct over the previous year.

2) Textbooks, teaching aids and general books are progressing steadily, and new progress has been made in research business. In terms of textbook teaching aids, the company scientifically schedules all aspects of editing, printing, distribution, and supply to do a good job in the publication and distribution of textbooks in the fall. In terms of general books, Shandong Publishing Group's public account information shows that the first batch of results of the large-scale context project “Qilu Library” was unveiled at the 9th Nishan World Civilization Forum in September. Furthermore, the company's research business has made new progress. According to the official account information of Shandong Xinhua Cultural Tourism Group, by the end of August 2023, the company's research business revenue in 2023 had reached about 180 million yuan. The International Research Camp for Outstanding Traditional Chinese Culture (Qufu Camp) was officially opened in September, which is expected to continue to contribute to performance.

3) The digitization process of education is speeding up, and the integration of digital publishing is actively explored. The company developed and built the “Homework+Academic Diagnosis Big Data Feedback” project, which integrates teaching aid publishing and big data technology, and has been approved for pilot implementation in one city in the province.

Also, according to information on the official account of Shandong Publishing Group, the digital textbook service platform for primary and secondary schools was officially launched in September, and the installation service for pilot schools in the Rizhao region was officially launched. In addition, the Publishing Industry Brain Project can provide four scenario services: multi-source data, artificial intelligence assisted decision-making, business process intelligence, and multi-scenario interaction. The project has completed preparations for transformation and application.

4) Integrate superior resources to promote the construction of service positions for the elderly. According to the official account of Shandong Publishing Group, the company signed a strategic cooperation agreement with the Veteran Cadres Bureau of the Shandong Provincial Committee in October. The two sides will carry out all-round, multi-level, multi-field cooperation in areas such as building service positions for the elderly, digital application, supply of geriatric education, and cultural tourism research for the elderly.

5) Steadily control the cost rate and maintain R&D efforts. The 2023Q3 sales, management, and R&D expenses were 10.3%, 10.9%, and 0.2% respectively, with a year-on-year increase of +0.37/-0.75/+0.05 pct, respectively, and the cost rate was relatively stable.

Profit forecast and valuation: Considering that demand for textbooks and teaching aids continues to rise driven by the start of school in the fall in September, the marginal improvement in online and offline sales channels for general books after the pandemic is obvious, and the company's 2023Q3 performance has exceeded expectations, we maintain our previous revenue and net profit forecasts. The current market value corresponds to the company's valuation of 9.5x, 8.4x, and 7.6x, respectively, maintaining the “buy” rating.

Risk warning events: policy risks on the cultural supervision side; increased discounts on e-commerce books for short video broadcasts; risk that information and data used in research reports are not updated in a timely manner.