Focus on the main business and actively optimize the industrial ecosystem. The company has more than 100 wholly-owned and holding subsidiaries, and has 804 physical stores in Anhui, Jiangsu, Beijing, etc., forming a complete publication distribution service and education service system covering the entire province and surrounding area of Anhui Province. The company's main business includes cultural services, education services, full supply chain management and other culture-related businesses. It continuously extends and broadens the upstream and downstream industrial chains around user needs, forming more new growth points.

The main business is progressing steadily, and high dividends reflect defensive attributes. In 2023, the company's revenue was 11.244 billion yuan, down 3.79% year on year, mainly due to the decline in education equipment business and diversified businesses. Textbook books, general books and audiovisual products business maintained steady growth; net profit to mother was 936 million yuan, up 32.21% year on year, affected by income tax policy adjustments; net profit after deducting non-return mother was 754 million yuan, up 9.66% year on year. In terms of dividends, the company plans to distribute a cash dividend of RMB 3.05 (tax included) to all shareholders for every 10 shares, for a total dividend of 597 million yuan, based on the closing price of April 30, at a dividend rate of 4.2%.

Actively develop new business formats and empower traditional main businesses. The company has built an omni-channel and multi-scenario online cultural service channel system including APP applets, third-party e-commerce platforms, live e-commerce, etc., and launched the digital bookstore Yuanshi Bookstore, the “Anhui Xinyun Bookstore” new retail platform, and the “New Anhui Business Purchase” applet. Its “Cube Game” platform carries out game product distribution, operation, R&D, and technical service services. A total of 444 game products have been launched, and the number of registered users has exceeded 2 million. We believe that the company's active adoption of a digital strategy is expected to enhance the consumer experience brought to consumers, expand the book sales market share, increase business profitability, and help sustainable development.

The education service industry chain is extended and broadened to help transformation and upgrading. As the only company in Anhui Province with the qualification to distribute textbooks, the company has formed four major business systems: preschool education, K12 education, vocational and higher education, and smart education. In terms of smart education, the company uses the “reading partner” learning machine as a breakthrough to open up a new digital education circuit; promote the refined development of smart reading, research education, labor education, preschool education, childcare services, after-school services, teacher training, etc., and continue to expand the influence of the new education brand in Anhui.

In 2023, the company completed 54 smart classroom projects, enriched the campus reading product matrix with 240 varieties, and developed a total of 659 digital content courses for the micro-class client. We believe that the education service business is expected to meet the needs of student and teacher groups to improve efficiency and reduce the burden, and extend the business industry chain. As AI applications continue to be implemented, the smart education business is expected to further develop and accelerate the transformation and upgrading of the company's business.

Accelerate the development of digital projects and build a smart logistics system. The company promotes digital bookstore construction projects, establishes a user-centered digital intelligence cultural service system; promotes digital science popularization projects to explore new paths of science education; promotes the industry-education intelligent integration platform project, builds an integrated platform for the integration of industry and education, develops curriculum resources, and builds 6 new engineering technology centers for the integration of industry and education to form a complete industrial chain for the integration of industry and education. In terms of smart logistics, through lean operation and intelligent upgrading, the company strengthens supply chain collaboration service capabilities to provide high-value-added logistics services for the world's top 500 enterprises such as Lenovo and BYD; expands the supply chain procurement business for agricultural specialty products, fresh and FMCG products; improves smart logistics system construction, relies on a “big data +” logistics platform to build a smart logistics distribution system based on a data cloud, and gradually build a professional, intelligent and efficient platform-based supply chain service enterprise.

Profit forecasting and valuation. We expect the company's 2024-2026 EPS to be 0.39 yuan/share, 0.41 yuan/share, and 0.44 yuan/share, respectively. Referring to comparable companies, we believe that the company's main business has maintained steady growth, and the education service and smart logistics business have provided new impetus for the company's growth. As the level of digitalization increases, the company's profitability is expected to be further improved. The company was given a PE valuation of 20-22 times in 2024, corresponding to a reasonable value range of 7.80-8.58 yuan/share. For the first time, coverage gave the company a “superior to the market” rating.

Risk warning: Risk of changes in industry policies, publishing and distribution business falling short of expectations, digital business development falling short of expectations.