Core views:
Zhongnan Media revealed the 2023 performance report: (1) In 2023, the company achieved revenue of 13.620 billion yuan, an increase of 9.27%; net profit to mother was 1,839 billion yuan, up 31.44% year on year; net profit after deducting non-return to mother was 1,543 billion yuan, up 5.05% year on year. (2) In 23Q4, the company achieved revenue of 4.413 billion yuan, up 16.98% year on year; net profit to mother of 604 million yuan, up 83.85% year on year; net profit after deducting non-return to mother was 349 million yuan, up 4.86% year on year.
Steady growth in main business performance and company assets. According to the “Notice Concerning the Issuance of Two Regulations on the Transformation of Operational Cultural Institutions into Enterprises and Further Supporting the Development of Cultural Enterprises in Cultural System Reform”, operating cultural institutions under the company that completed the transformation before 2018 are exempt from corporate income tax in 2019-2023. The income tax policies applicable to these subsidiaries may change in 2024, so the company re-calculated deferred income tax assets and deferred income tax liabilities at the end of the reporting period and confirmed deferred income tax expenses of approximately $241 million to include non-recurring profit and loss.
Excluding these effects, the company's profits and assets grew steadily. In 2023, the company achieved net profit of 1,598 billion yuan to mother, an increase of 14.22% over the previous year. By the end of the 2023 period, the company's total assets were 25.239 billion yuan, up 1.69% from the beginning of the year, and continued to maintain good liquidity and strong solvency.
Profit forecasting and investment advice. The company's main publishing and distribution business is growing steadily, and its competitive advantage is stable. It is actively expanding innovative businesses such as digital education, new media, and the Zhongnan Media Malanshan Park project. Revenue volume, profit growth rate and dividend level are all at the forefront of the sector. Assuming that an operating cultural institution under the company is converted into an enterprise in 2024, it is required to pay corporate income tax 5 years after the transformation period. We expect the company's operating income in 2024-2025 to be 144.65/15.234 billion yuan, and the net profit to the mother will be 1,430/1,546 billion yuan. We gave the company a PE valuation of 18 times that of 2024, with a corresponding reasonable value of 14.33 yuan/share, maintaining a “buy” rating.
Risk warning. Income tax policy uncertainty; fewer K12 students enrolled; weak book consumption; changes in regulatory policies; market theme changes