Incident: Shandong Publishing released its 2024 quarterly report. The company's 2024Q1 revenue was 2.47 billion yuan, up 13.4%; total profit side profit was 280 million yuan, up 29.9%; net profit to mother was 210 million yuan, down 1.1%; net profit from non-return to mother was 200 million yuan, up 14.7%.

Comment: The profit side overcame the impact of tax factors and showed resilience. The main business grew steadily, and the innovative business achieved fruitful results? 1) The operation remains stable, and the profit side shows resilience despite the influence of tax factors. The company's profit side showed resilience. Net profit attributable to mother declined slightly in 2024Q1 due to changes in tax policies and an increase in income tax expenses, while net profit after deducting non-return to mother still achieved positive growth. Excluding the impact of income tax, the company's net profit grew steadily year on year.

2) The main business is growing steadily. Without excluding internal offsets, the company's publishing business achieved revenue of 850 million yuan, up 4.2% year on year, gross profit margin of 28.9%, up 3.4 pct year on year; distribution business revenue was 1.77 billion yuan, up 7.9% year on year, and gross profit margin was 30.0%, down 0.8 pct year on year. 2024Q1 The company scientifically arranges, prints, distributes, and supplies all aspects to complete the publication and distribution of spring textbooks and teaching aids. According to data from the Shandong Provincial Bureau of Statistics, in 2023, the number of students enrolled in the K12 level in Shandong Province increased by 4.7%, and the number of students enrolled in elementary school also increased by 6.8%. Textbooks and teaching aids benefited from the steady increase in the number of K12 students. In addition, the company is deeply involved in quality publishing. “Grandma Became a Cat” published by Tomorrow's Press was shortlisted as the 2023 “Good Chinese Book” for children.

3) Create new cultural service scenarios, and innovate business with fruitful results. In terms of innovative business, in the field of smart education, the company's “Homework+Academic Diagnosis Big Data Feedback” project has been approved as a pilot project for “Personalized Assignment Reform for Primary and Secondary Schools Based on Academic Condition Diagnosis” project in one city in the province. In the field of research, the company made new breakthroughs in camp construction and operation, and initially formed a characteristic research camp cluster represented by the Qufu Camp, which is expected to continue to contribute to performance. In the field of the elderly, Shandong Xinhua Bookstore Group, a subsidiary of Shandong University for the Aged Joint Company, jointly built the “Xinhua Bookstore University for the Aged” brand, with the goal of “co-building schools, sharing resources, co-creating brands, and seeking common development”, to build a “Xinhua Bookstore University for the Aged” within the province at or above the county level.

4) Effective control of the cost rate, and the cost rate is stable. The company's 2024Q1 sales, management and R&D expenses rates were 8.9%, 11.0%, and 0.3%, respectively, up -0.65/-1.22/+0.07pct year-on-year, respectively.

Profit forecast and valuation: Considering that the company's 2024Q1 performance is in line with expectations and that changes in tax policies will have an impact on the company's 2024-2026 net profit, we expect Shandong Publishing's revenue for 2024-2026 to be 133.48/148.26/16.491 billion yuan, respectively, up 9.82%, 11.08%, and 11.23% year on year; net profit to mother was 1,847/2,055/ 2.01 billion yuan, respectively, up -22.26% year on year, 11.27%, 11.94%

The current market value corresponds to the company's valuation of 11.3x, 10.2x, and 9.1x, respectively, maintaining a “buy” rating.

Risk warning events: policy risks on the cultural supervisory side; changes in preferential policies for state-owned media companies; increased discounts on e-commerce books for live video broadcasts; risk of untimely updates to information data used in research reports.