Incident: Southern Media released its 2023 annual report and 2024 quarterly report. The company's total revenue in 2023 was 9.37 billion yuan, up 3.4%; net profit to mother was 1.28 billion yuan, up 34.4%; net profit after deducting non-return to mother was 890 million yuan, up 0.3%. 2024Q1's revenue was 2.09 billion yuan, down 4.9%; total profit margin was 230 million yuan, down 15.3%; net profit to mother was 150 million yuan, a decrease of 34.0%; net profit not attributable to mother was 170 million yuan, a decrease of 9.3%.

Comment: Total dividends have increased significantly, operations have remained steady, the main business has performed admirably, the education business has steadily expanded, and breakthroughs have been achieved in capital operation

1) The total amount of dividends increased significantly. The company plans to distribute cash dividends (after deducting repurchased shares) of 480 million yuan in 2023, an increase of 13.1% over the previous year. The total dividend amount increased significantly; the proposed dividend ratio reached 37.1%.

2) The operation remains steady, and the profit side is under slight pressure. The company's revenue and net profit to mother maintained steady growth in 2023.

The decline on the 2024Q1 revenue side was mainly due to delays in repayment of textbooks in spring; the large profit side changes were mainly due to changes in tax policies, increased income tax expenses, and fair value changes in superimposed equity investments and fund product investments, and a decrease in investment returns.

3) Consolidate core advantages, and the main business performance is remarkable. Without excluding internal offsets, in 2023, the company's publishing business achieved revenue of 3.38 billion yuan, a year-on-year increase of 4.9%, gross profit margin of 25.7%, and a year-on-year decrease of 0.1 pct; revenue from the distribution business was 7.34 billion yuan, up 3.8% year on year, and gross profit margin was 22.5%, up 0.2 pct year on year. The company's textbook teaching aids stock increased steadily, reaching 290 million yuan in 2023. The submission of Guangdong's national standard textbooks for review has progressed steadily, the Guangdong catalogue of teaching aids has been completely revised, and the distribution code has increased significantly over the same period last year. At the same time, general books began a new situation, and a number of new works by famous artists such as Wang Meng's “Sky Full of Shadows” were launched. “Suishu” ranked first in the children's category in the national list of new books.

4) Implement the integration of technology and steadily expand the education industry. In terms of smart education, the company proposed the “Digital Intelligence to the South” development strategy to enable high-quality enterprise development and efficiency through informatization and digitalization. The service capacity of the “Guangdong Education Xiangyun Digital Textbook Application Platform” platform has been steadily improving, with over 43 million active users throughout the year, an increase of 95.77% over the previous year. Various market-based projects such as the “Southern Intelligent Operation System” have been launched to achieve commercial operation. In terms of after-school services, the company promoted the construction of the “Southern Education Media After-School Service Platform” and the “Greater Bay Area Research Service Platform”. After school services implemented “one county, one policy” and “one school, one case”, with total revenue of nearly 200 million yuan.

5) Achieve breakthroughs in capital operations. The company achieved new breakthroughs in industrial investment. It invested in the establishment of Guangdong Science Group, Lingnan Ancient Books Publishing House, Fengwu Technology Company, and established a joint venture to establish a children's book company. At the same time, the benefits of the company's market-based capital operation are gradually showing. It participated in the completion of a special fund to invest in Shanghai Laofengxiang's equity project, and can be expected to contribute considerable benefits.

6) The sales and management cost ratio has increased, and the R&D cost rate is stable. The company's sales, management and R&D expenses rates in 2023 were 10.5%, 10.4%, and 0.1%, respectively, an increase of +0.90/+1.00/+0.01pct year-on-year, respectively. The company's 2024Q1 sales, management and R&D expenses rates were 9.4%, 11.0%, and 0.1%, respectively, up +0.25/+1.87/+0.00pct year-on-year, respectively.

Profit forecast and valuation: Considering that the company's 2023 performance is in line with expectations and that changes in tax policy will have an impact on the company's net profit for 2024-2026, we have adjusted the company's performance expectations appropriately. Southern Media's 2024-2026 revenue is expected to be 104.61/116.99/13.032 billion yuan, respectively (the pre-revenue value for 2024-2025 was 108.95/12.215 billion yuan, respectively), up 11.70%, 11.84%, and 11.39%, respectively; net profit to mother is The previous value of 10.37/1,161 billion yuan (net profit to mother in 2024-2025 was 1,019/1,127 billion yuan, respectively), with year-on-year increases of -19.23%, 11.98%, and 11.36%, respectively. The company's valuation corresponding to the current market value is 12.7x, 11.4x, and 10.2x, 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.