The FY23 deduction was basically in line with our expectations, and the 1Q24 performance was slightly lower than our expectations
The company's FY23 revenue was 9.37 billion yuan, up 3%; net profit attributable to mother was 1.28 billion yuan, up 34%, mainly due to the one-time positive impact of tax policy adjustments on current profit and loss of about 139 million yuan, which was basically in line with expectations after deducting this; after deducting this, non-net profit was 891 million yuan, an increase of 0.31%.
The company's 1Q24 revenue was 2.1 billion yuan, down 5%; net profit to mother was 152 million yuan, down 34%; after deducting non-net profit of 169 million yuan, a decrease of 9%. The 1Q24 performance fell short of our expectations. We think it was mainly due to: 1) a slight change in the pace of revenue side confirmation, partly related to the local government's fiscal allocation rhythm at the beginning of the year; 2) the impact of income tax policies; 3) the impact of Dragon Media's 1Q24 loss on net profit.
The company announced a cash dividend of 0.54 yuan/share (tax included), accounting for 38% of net profit to mother and a dividend ratio of 3.8%.
Development trends
The main business of textbooks and teaching aids is steady, and general books have a comparative advantage. They are actively expanding diversified businesses to seek new revenue growth points. The main business is relatively steady: 1) The overall revenue of textbook teaching aids FY23 also increased by 6%, and gross margin also increased by 5.4ppt. Among them, revenue from the self-authored textbook textbook publishing business increased 6% year on year, and revenue from the textbook teaching aid distribution business increased 5% year on year, which we believe shows that the company's main business has good endogenous growth momentum.
2) In terms of books in general, sales of published/distributed products increased by 35%/29% year-on-year, respectively, and revenue decreased by 6%/5%, respectively. The gross margin of the general book publishing business also declined by 7.8ppt. We believe that MaYang's growth in scale reflects the company's comparative advantage in general books, but due to the influence of the industry, channel discounts are still under pressure, which affects revenue levels accordingly. In terms of expanding business, the company is actively expanding trusteeship, research and other businesses outside primary and secondary schools to achieve diversified revenue development.
Use industrial capital to promote resource integration and help the main business develop. In terms of resource integration and capital operation, within 2023, the company will: 1) invest in the establishment of Guangdong Science Group, Lingnan Ancient Books Publishing House, and Fengwu Technology Company; 2) establish a joint venture to establish a children's book company; and 3) acquire Guangdong Lingnan Society and Guangdong Map Club. We believe that the company will continue to advance in capital integration, use diversified methods to expand the company's business radius and deepen the company's brand influence. It is recommended to continue to monitor the company's relevant developments in the direction of capital.
The amount of dividends has increased, and emphasis is placed on shareholder returns. The company announced a dividend of 0.54 yuan/share (tax included). Previously, FY20 to 22 paid dividends of 0.31/0.33/0.47 yuan/share (tax included), accounting for 36.5%/30.5%/44.1% of net profit to mother for the year, respectively. In terms of cash flow, as of the end of 1Q24, the total amount of the company's monetary capital and transactional financial assets reached 3.2 billion yuan. We believe that the overall dividend amount of the company has maintained an upward trend and has a steady cash flow to give back to shareholders.
Profit forecasting and valuation
Taking into account the impact of income tax policy changes and the pace of revenue side confirmation, net profit returned to mother in 24/25 was reduced by 15.15% to $82/890 million. The current share price corresponds to 15/14 times 24/25 P/E. Maintaining an outperforming industry rating, the target price was lowered by 4% to 15.6 yuan (17 times P/E) due to adjustments in profit forecasts, but considering the company's high dividend value, innovative business, capital resource integration, etc., the target price was lowered by 4% to 15.6 yuan (17 times P/E), with an upward margin of 11%.
risks
Investment losses, changes in industry/income tax policies, risk of rising paper prices, and a slowdown in population growth.