FY23 results are in line with express reports and our expectations, and 1Q24 revenue is in line with expectations
The company's FY23 revenue was 13.6 billion yuan, up 9%; net profit attributable to mother was 1.85 billion yuan, up 33%; after deducting non-net profit of 1.55 billion yuan, an increase of 6%, in line with previous express reports and our expectations. 1Q24 achieved revenue of 3 billion yuan, in line with our previous forecast of 2.9 billion yuan; net profit to mother was 284 million yuan, slightly weaker than our forecast of 300 million yuan. We believe that the actual effective tax rate was slightly higher than our expectations.
The company announced a cash dividend of 0.55 yuan/share (tax included) for 2023, accounting for 53% of net profit due to mother in 2023. At the same time, the 2024 mid-term profit distribution schedule was announced, and it is proposed to distribute a cash dividend of 0.1 yuan/share (tax included, yet to be submitted to the shareholders' meeting for consideration).
Development trends
Generally, books are bright, textbooks and teaching aids are steady, and the revenue growth rate is leading the industry. The company's revenue increased 9% in 2023 and 13% in 1Q24, ranking among the highest in the industry. Among them: 1) General books performed well in 2023. Among them, publishing and distribution revenue increased by 3%/24% respectively, and the distribution business showed a good scale effect. The company's share of Shiyang's comprehensive book retail market reached 3.8%, ranking second. There are 64 types of books that sell more than 100,000 copies a year, of which “Changan's Lychee” sells more than one million copies a year. In addition to Xinhua Bookstore, the net profit of the general book distribution business Boji Tianjuan (51% subsidiary) reached 109 million yuan in 2023, an increase of 37% over the previous year. 2) Revenue from the publication and distribution of textbooks and teaching aids remained stable, increasing by 5%/9%, respectively. By region, revenue growth in Hunan Province reached a year-on-year rate of 13%.
The gross margin fluctuates naturally, and the cost ratio remains relatively stable. 1) In terms of gross margin, the overall decrease was 1ppt in 2023: the publishing business also increased by 0.65ppt, of which general book publishing increased by 1.65ppt. We believe that the company's general book publishing capacity will continue to improve. The distribution business declined slightly by 1.4ppt over the same period last year. The distribution of textbooks and teaching aids also decreased by 3.83ppt. We believe that the overall system fluctuated normally due to internal structural changes in some departments such as textbooks, teaching aids, education services, etc. 2) The rate remained relatively stable during the period. The sales/management rate increased by 0.1 ppt to 15.6%/12.6% in 2023, and the R&D rate decreased by 0.4 ppt to 0.7%.
The frequency of dividends has increased, emphasis is placed on shareholder returns, and the value of dividend rates. In terms of cash flow, as of the end of 1Q24, monetary funds and transactional financial assets totaled 12.3 billion yuan, and reserves of cash-like assets were abundant. In terms of dividends, the company's cash dividend from 2020 to 2022 was 0.63/0.65/0.60 yuan/share. This time, the company announced a dividend of 0.55 yuan/share for 2023 and a proposed dividend of 0.1 yuan/share for mid-2024. The dividend frequency has increased, and the dividend will continue to give back to shareholders.
Profit forecasting and valuation
Maintain profit forecasts. The current share price corresponds to 15/14 times the 24/25 price-earnings ratio. Maintaining an outperforming industry rating and target price of 13.1 yuan, corresponding to 16/15 times the 24/25 price-earnings ratio, with an upward margin of 6%.
risks
Industry/income tax policies have changed, paper prices have risen, and population growth has slowed.