Performance summary: Xinhua Wenxuan released the 2023 annual report and the 2024 first quarter report. 1) The company achieved main revenue of 11.87 billion yuan in 2023, up 8.6% year on year; net profit to mother of 1.58 billion yuan, up 13.1% year on year; net profit after deducting non-return to mother was 1.62 billion yuan, up 11% year on year. 2) In 2024Q1, we achieved revenue of 2.47 billion yuan, an increase of 7% year on year; net profit to mother was 210 million yuan, down 3.3% year on year.

The publishing business is growing steadily, ranking high in market share. In 2023, the company's publishing business achieved revenue of 2.99 billion yuan, an increase of 8.8% over the previous year; 24Q1 achieved revenue of 890 million yuan, including 550 million yuan for textbooks and teaching aids, and 250 million yuan for general books. In 2023, China's book retail market was 91.2 billion yuan, up 4.7% year on year; the company has 15 publishing media units, covering publishing categories such as books, newspapers, audiovisual, electronics, and the Internet. According to unpublished data, Shiyang's share of the company's mass publishing market ranked 11th among the country's 37 publishing media groups and 7th among local publishing groups.

The distribution business continues to grow, and education informatization services have been upgraded. In 2023, the company's distribution business achieved revenue of 10.49 billion yuan, an increase of 5.5% over the previous year; 24Q1 achieved revenue of 2.17 billion yuan, including 1.14 billion yuan for textbooks and teaching aids, and 960 million yuan for general books. In 2023, the company focused on the layout of education informatization, using high-quality digital resource content as a starting point to explore a full range of informatization services, from environmental construction, teaching applications, to application operation; and continued to promote the optimization and upgrading of the “Wenxuan Youxue” online service platform, covering a total of 6190 schools and serving 4.662 million students.

Stable dividends, corresponding to Hong Kong stocks with a dividend rate of over 5%. According to the company's 2023 profit distribution, a cash dividend of 4 yuan (tax included) is distributed to shareholders for every 10 shares, corresponding to the current Hong Kong stock price (HK$8.36; exchange rate of HKD 1 = RMB 0.92). The dividend rate is approximately 5.2%. The company's business situation is steady, maintaining continuous dividends. The dividend rate for the year 2021-2024 is about 30%, and special dividends are paid at the end of 23 to give back to shareholders steadily.

Profit forecast and investment suggestions: The company's 2024-2026 EPS is expected to be 1.41 yuan, 1.54 yuan, and 1.65 yuan, respectively, and the corresponding PE is 10 times, 10 times, and 9 times. Considering that the company is a leading organization in a local publishing group and is strong in the publishing and distribution business, the education information technology business is expected to open up a new growth curve, benefit from Western China's development strategy, the company is expected to obtain income tax benefits, and the company maintains a stable high level of dividend rate, so we maintain a “buy” rating for the company.

Risk warning: risk of changes in national policies, risk of fluctuations in enrolment population, risk of paper price fluctuations.