Incidents:

The company released its 2023 annual report and 2024 quarterly report.

Comment:

Net profit to the mother achieved steady growth, with active dividends to give back to shareholders. In 2023, the company achieved operating income of 11.244 billion yuan, a slight decrease of 3.79% over the previous year; achieved net profit of 936 million yuan, an increase of 32.21% over the previous year; net profit after deducting non-return to mother achieved 754 million yuan, an increase of 9.66% over the previous year. Looking at the subregions, the annual gross margins of domestic and foreign businesses in Anhui Province were 20.8% and 51.0%, respectively, up 1.8 pcts and 5.7 pcts from last year. 2024Q1 achieved operating income of 2,929 billion yuan, a year-on-year decrease of 5.44%, and achieved net profit of 293 million yuan to mother. The company announced the 2023 profit pre-distribution plan to distribute a cash dividend of RMB 3.05 (tax included) for every 10 shares to all shareholders.

The gross profit level of the core business increased, actively promoting the integration of all online and offline bookstores in 2023. Influenced by the increase in the number of students and sales categories, the textbook book business achieved revenue of 1,751 billion yuan, up 2.43% year on year, and gross profit margin of 25.24%, up 3.27pct year on year; general books and audio-visual products achieved revenue of 4,519 billion yuan, up 6.57% year on year, mainly due to increased sales of cultural and educational books and e-commerce platforms. The gross profit margin was 34.56%, a slight decrease of 0.61% from last year. The company promotes the full integration of online and offline business scenarios in bookstores. Currently, it has covered 200 stores across the province, with 420,000 users, an increase of 203 percent over the previous year. The average number of monthly visitors is 146,600, an increase of 120% over the previous year. The “Anhui New Enterprise Purchase” mini program has been developed. It has served 115 enterprises and institutions, and the contract amount exceeded 100 million yuan during the year.

Continue to strengthen the supply chain service system. Technology fully empowers smart education. In 2023, the supply chain and logistics service business achieved revenue of 3.798 billion yuan, a slight decrease of 3.54% over the previous year.

The company promoted the construction and commissioning of a comprehensive park, adding more than 30 new contracted customers throughout the year. Lianbao's self-developed digital management system was fully launched, and the operating efficiency increased by more than 15%; the Minsheng supply chain business expanded at an accelerated pace, and the annual revenue of Xinhuisan, Anhui increased 82.23% year-on-year. The company promotes research and education, brightens up the new research brand in Anhui, with sales revenue of 37.63 million yuan in 2023, an increase of 607.33% over the previous year, promoted the smart school business with high quality, completed 54 smart classroom projects, developed 659 digital content courses for the micro-class client, and made full use of AI and other new technologies to achieve the dual upgrade of smart education content and channels.

Investment advice and profit forecasting

The company is deeply involved in Anhui, and the distribution business of core textbooks and teaching aids is operating steadily. Multiple track layouts such as AI+ education and smart campuses are expected to contribute to the increase in performance. We expect the company to achieve net profit of 775/9.69/1,148 million yuan in 2024-2026, and EPS of 0.39/0.49/0.58 yuan, respectively, corresponding to PE19/15/13 times PE, maintaining a “buy” rating.

Risk warning

Macroeconomic downside risk; risk of new business development falling short of expectations; increased risk due to industry competition