24Q1 results exceeded expectations. 24Q1 achieved revenue of 2.47 billion yuan, an increase of 13.38% year on year; net profit to mother was 211 million yuan, a decrease of 1.10% year on year. The year-on-year decline in net profit is due to the fact that the preferential tax policies enjoyed by the company expired at the end of 2023, and total profit increased 29.87% year over year, mainly due to open source and savings. The number of K12 students enrolled in Shandong Province in 2023 increased 18% year over year (according to the Shandong Provincial Bureau of Statistics), driving the growth of textbooks and teaching aids related businesses for the 2023-2024 school year.

Highlight 1: The main textbook teaching aid business is growing steadily. (1) The company is the sole distributor of free textbooks in Shandong Province and teaching aids reviewed and recommended by the Provincial Department of Education. The location advantage of Shandong Province is that the K12 student size and education expenses rank in the top three of all provinces and cities in the country. Based on the birth population estimates, we judge that in the next three years, the primary and secondary school textbook teaching aid market in Shandong Province will maintain positive growth.

(2) The company's ability to develop textbooks and teaching aids is leading, and there is room for improvement in the average student income.

Highlight 2: Increased dividends, leading dividend ratio. By the end of '23, the company had monetary capital of 6.871 billion yuan, bank structured deposits of 1,915 billion yuan, time deposits and accrued interest of 3,551 billion yuan, and sufficient funds on hand. Since its listing, the company's cash dividend amount and cash dividend rate have continued to grow year by year. Based on the cash dividend in '23 and the closing price on May 17, '24, Shandong Publishing's dividend rate was 4.71%, ranking high among A-share publishing state-owned enterprises.

Highlight 3: Accelerate the development of innovative research and cultural tourism businesses. The company has laid out research and cultural tourism industries such as research travel, cultural and creative products, camp operation, and cultural tourism for the elderly. According to financial reports, in 2023, the number of participants was more than 6,000, with more than 700,000 participants, and achieved revenue of more than 300 million yuan, an increase of more than 4 times over the previous year.

Profit forecasting and investment advice. We expect that in 2024-2026, the company's revenue will be 132.42/141.16/14.781 billion yuan, and net profit to mother will be 16.56/18.12/1,920 billion yuan.

Considering the soundness, scale advantage and dividend return of the company's main education publishing business, we gave the company a PE valuation of 18 times in 2024, corresponding to a reasonable value of 14.29 yuan/share, which gave the first coverage a “buy” rating.

Risk warning. Changes in income tax policies; Fewer K12 students; weak book consumption; changes in regulatory policies; changes in market themes.