The results are in line with the flash report and our expectations
The company's FY23 revenue was 13.6 billion yuan, up 0.36%; net profit attributable to mother was 2.95 billion yuan, an increase of 42%, mainly due to income tax policy adjustments that had a one-time positive impact of 650 million yuan on current profit; deducted non-net profit of 2.07 billion yuan, an increase of 16%, in line with the performance report and our expectations.
The company announced a proposed cash dividend of 0.5 yuan/share (tax included), accounting for 43% of net profit to mother and a dividend ratio of 4.6% (at 4/22 closing price).
Development trends
Revenue from textbooks and teaching aids is stable, and general books are under slight pressure, but operating efficiency has improved. 4Q23 revenue remained relatively stable at 0.69% YoY. Among them: 1) Textbooks and teaching aids in 2023, revenue was basically the same year on year (same decrease of 0.1%/0.5%), and 2) revenue for general books fell 5% in 2023. We think it was mainly affected by the market environment. According to the opening data, in 2023, China's book retail market increased by 5%, while retail discounts declined by 7% due to increased competition. From the perspective of operating efficiency, the average inventory code of the company's general books fell 15% throughout the year. We believe that the company promoted the efficiency of the distribution line through store transformation and e-commerce innovation, and gradually showed results.
The gross profit margin and expense ratio of the main business remained stable throughout the year. FY23 gross margin decreased slightly by 0.8ppt to 37.6% year over year. We believe that in part, the gross margin of the main publishing/distribution business increased slightly by 0.15/0.08ppt due to the decline in gross margin of data services and software businesses. In terms of expenses, the FY23 sales/management expenses rate decreased by 0.19pp/ increased by 0.36ppt to 11.9%/12.7%, respectively, and remained relatively stable.
Continue to explore innovative development paths, and focus on the high dividend value of dividends. In terms of multi-dimensional development, the company stated in its annual report: 1) In terms of the expansion of education informatization, Discipline Network's revenue in 2023 was 448 million yuan, an increase of 19%, and net profit of 85.47 million yuan, an increase of 30%. The company also stated that according to changes in the capital market situation, it will adjust the optimized online marketing plan to enable a new round of development through the capital market; 2) explore the research market, with the goal of developing various research courses within 1-2 years to build a provincial research brand with Phoenix characteristics and form a large-scale research business segment; 3) The Phoenix Plaza business also reduced losses by about 13 million yuan throughout the year. In terms of cash flow, as of the end of FY23, the company's monetary funds, transactional financial assets, non-current assets due within one year (large deposits or fixed deposits due within one year), and other current assets (96% are short-term large deposits and interest) reached a total of 9.1 billion yuan, which is abundant overall. The company's FY21-23 cash dividends are all 0.5 yuan/share (tax included). We expect the company to maintain a relatively stable dividend level to give back to shareholders.
Profit forecasting and valuation
Taking into account the impact of income tax policies, net profit attributable to mother for 24/25 was reduced by 6%/6% and $18.7/1.99 billion yuan.
The current share price corresponds to 15/14 times the 24/25 price-earnings ratio. Maintaining an outperforming industry rating, the target price was lowered by 3% to 12 yuan due to profit forecast adjustments, corresponding to 16 times the 2024 price-earnings ratio, with an upward margin of 11%.
risks
Changes in industry/income tax policies, the risk of rising paper prices, the impact of potential impairment of goodwill, and a slowdown in population growth.