Recommended logic: 1) K12 students in Sichuan Province remain stable in the short term, and the textbook textbook publishing and distribution business still contributes to stable performance; 2) The general book publishing and distribution business benefits from cooperation between the company and various individual writers and media groups, and the expansion of online sales channels, which is expected to contribute to increased performance; 3) The company has maintained a steady dividend rate of 30% or more over the years to give back to shareholders.

The number of K12 students enrolled in Sichuan in 2024-2025 is still resilient. The number of births has been declining since 2020, but the number of students enrolled in K12 is lagging behind, and the number of students enrolled in 2024-2025 is expected to remain resilient. The number of births in Sichuan Province has declined since 2020, but considering the negative impact of elementary school students entering elementary school at age 6 and graduating from high school at age 18, the number of births is lagging behind. The number of primary school enrolments in 2024-2025 corresponds to the population born in 2018-2019 (about 90w), and the number of high school graduates corresponds to the population born in 2006-2007 (about 75w). It is expected that the number of K12 students enrolled in 2024-2025 will remain resilient.

Regional leader in publishing and distribution, rich in cooperative resources. The company wholly owns 15 publishing media units, covering publishing categories such as books, newspapers, audiovisual, electronics, and the Internet. In terms of textbooks and teaching aids, the company's Sichuan Education Press has a book publishing license issued by the State Press and Publication Administration, which is valid until December 31, 2029; the company has the qualification to publish teaching aids for all subjects in primary and secondary schools, and the published textbooks are mainly sold in Sichuan Province. In terms of books in general, the company has established cooperative relationships with writers including Wang Meng and Liu Xinwu, and organizations including Disney and Penguin Landon. According to the opening data, Shiyang's share of the mass publishing market ranked 7th among local publishing groups and 11th out of 37 publishing media groups in the country.

Stable dividends, and the dividend rate remains above 30%. The company has stable dividends. Currently, the stock price corresponds to a dividend rate of about 4.8% for Hong Kong stocks. 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 (9.07 HKD; exchange rate of 1 HKD = 0.92 yuan). The dividend rate is approximately 5%. The company's business situation is steady, maintaining continuous dividends. The annual dividend rate for 2016-2024 remained above 30%, and special dividends were paid at the end of 23 to give back to shareholders steadily.

Profit forecast and investment advice: The company's 2024-2026 EPS is expected to be 1.41 yuan, 1.53 yuan, and 1.65 yuan, respectively, and the corresponding PE is 5.9 times, 5.4 times, and 5 times. Considering that the company is a leading organization in a local publishing group and is a strong player in the publishing and distribution business, the education information technology business is expected to open up a new growth curve and benefit from the Western Development Strategy. The company is expected to obtain income tax benefits, and the company maintains a stable high level of dividend rate. Finally, considering the valuation discount of Hong Kong stocks, we gave the company 8 times PE in 2024, with a target price of HK$12.26 (exchange rate of 1 HKD = 0.92 yuan), which covered the “buy” rating for the first time.

Risk warning: the risk of changes in national policies, the risk of fluctuations in the enrolment population, and the risk of fluctuations in paper prices.