occurrences

On November 18, the company announced that it plans to repurchase the company's shares with 2-4 billion yuan of its own capital, with a repurchase price of no more than 8.5 yuan/share. In addition, the company plans to change the use of the funds raised from the non-public stock offering in 2016, and use the unused and accumulated revenue of 2.43 billion yuan for investment projects such as “digital science popularization”, “industry-education smart finance platform”, “digital bookstore construction”, and “smart travel game platform”.

reviews

Capital is being invested in new digital business formats at an accelerated pace, and multiple tracks are trying to unlock diverse growth space. Affected by changing factors such as the market environment, industry policies, and technological development, the company terminated its investment in the original “Intelligent Learning All-Media Platform” and “Smart Bookstore Operation Platform” projects. The total amount of funds raised and accumulated revenue that has not yet been invested and used will be invested in “digital science popularization”, “industry-education intelligent finance platform”, “digital bookstore construction”, “supply chain smart logistics park” and “smart travel game platform”. The investment amount is 1.74/1.19/3.34/5.89/300 million yuan, respectively. The remaining capital supplements working capital. Looking at various new investment projects, with regard to digital science popularization projects, the company will thoroughly implement the digital transformation of popular science education and apply technologies such as XR, blockchain, cloud computing, and digital twins to create a new ecosystem of immersive science experiences. Immersive classroom experiences are still in the early market, but they have shown remarkable value in improving the quality of teaching, cultivating students' spirit of exploration, and enhancing students' interest and concentration. The company's increased investment in the digital transformation of science education will help it establish a first-mover advantage in the field of digital education. Regarding the Industry-Education Intelligent Integration Platform Project, the platform will develop curriculum resources around the five directions of artificial intelligence, innovation, industrial simulation, digital twins, and the Internet of Things, and build an engineering technology service center for the integration of industry and education to promote the transformation of teaching results and the implementation of scientific research results. The integration of industry and education plays an important role in improving the compatibility of talents with jobs and optimizing the vocational education talent training mechanism. This active investment in the integration of obstetrics and education will help the company improve its industrial chain layout and increase its market share among downstream vocational education institution customers. Regarding the digital bookstore construction project, the online part will focus on digital technology infrastructure construction, while the offline part will focus on building a digital landmark bookstore. Although the project itself does not produce direct economic benefits, the improvement of the customer consumption experience will help drive the growth of the company's cultural consumption sector, enhance the company's market image, and thus enhance the overall value. Regarding the smart gaming platform project, the company's stand-alone game aggregation platform has run more than 400 PC stand-alone games so far. This additional investment will plan to introduce high-quality IP game distribution projects at home and abroad, such as “Legend of Sword and Fairy” and “Stalker 2,” which will help the company enrich its IP and product matrix and consolidate the platform's industry competitiveness in the stand-alone game distribution circuit.

Overall, the amount of capital raised by the company for this change of use is high. Various initiatives have been invested in the digital development of popular science education, vocational education, specialty bookstores, and games, etc., which are expected to nurture valuable opportunities for the company to achieve industrial upgrading and create a second growth curve based on the main book distribution business.

The repurchase of shares with own capital shows confidence in the company's long-term development. The company plans to repurchase the company's shares at a centralized bid of 2-4 billion yuan. The repurchase price is no more than 8.5 yuan/share, and the number of repurchases is 2353-47.06 million shares, accounting for about 1.18%-2.37% of the total share capital. The company comprehensively considers factors such as financial conditions, future development, and reasonable valuation levels. The repurchase of shares will be used to cancel and reduce the company's registered capital, thus promoting the matching of stock prices with internal value, reflecting the company's confidence in future long-term development.

All main businesses have developed collaboratively, and performance has been steadily increasing. As of the first three quarters of 2023, the company has achieved revenue of 9.780 billion yuan, an increase of 5.92% over the previous year, and realized net profit of 984 million yuan, an increase of 18.32% over the previous year. On the basis of the stable distribution channels of the Xinhua Bookstore, the company invigorated online channels to form an integrated new retail model, which guarantees the steady growth of the main book sales business. At the same time, the “Anhui New Learning Machine” launched by the company in collaboration with Huawei has entered the trial marketing stage, and the commercialization of the company's C-end smart education products is beginning to bear fruit. In addition, the Cube Gaming platform continues to be updated, with 1.95 million registered users. As the product line becomes richer in the future, it is expected that the game business will continue to contribute to the company's performance elasticity in the future.

Profit forecasting

The company's book sales and supply chain business are growing steadily, while actively exploring new cultural retail, smart education, and gaming business formats to create new growth points, with both certainty and growth. We expect the company to achieve operating income of 140.01/165.18/18.644 billion yuan, net profit of 10.42/12.87/1,488 billion yuan, corresponding to EPS of 0.52/0.65/0.75 yuan, according to the closing price of November 20, 2023, corresponding to 15/12/11 times PE, respectively. Maintain a “buy” rating.

Risk warning:

Risk of declining school-age population; risk of digital business transformation not progressing as expected; policy risk.