Core views
In the past few years, due to the impact of strategic contraction and credit impairment in the low-margin materials business, etc., the apparent profit of the company has been disrupted to a certain extent, and also affected the market's understanding of the company's ability to operate continuously and steadily.
1. Revenue side: Excluding material sales business, in the past 5 years, the company's revenue growth CAGR was 8.24%, proving the company's ability and steadiness in Hubei Province.
2. On the profit side, we restored the impact of credit impairment and one-time income tax in 2023. In the past 5 years, the company's core book business profit was 7.92/8.56/8.61/9.02/982 billion yuan, respectively, and a CAGR of 6.14%, which also shows the soundness of operations.
3. Asset quality and shareholder return: 1) The balance ratio is low, only 31% at the end of 1Q24, and is mainly current liabilities related to operations; 2) sufficient cash reserves, with bank deposits and various types of financial management exceeding 8 billion yuan; 3) operating cash flow in 2023 exceeds the total dividends by 2 times; 4) Stable dividends, which have stabilized at around 400 million yuan over the past three years.
Investment advice:
We are optimistic about the company's steady and efficient book publishing and distribution capabilities in Hubei Province after the low gross profit business shrinks and credit impairment comes to an end, as well as the resulting shareholder return capacity.
The net profit for 24-26 is expected to be 714/7.57/804 million yuan, or -29.70%/+5.98%/+6.18%. The closing price on June 12 corresponds to PE of 14.55/13.73/12.93x. It is highly recommended and gives a “buy” rating.
1. The core textbook teaching aid business accounts for a high proportion:
1) The core publishing and distribution business accounts for a high proportion: the company's textbooks account for 75% of the revenue, and the total revenue from the publishing and distribution business accounts for more than 95%. After deducting other businesses, the textbook teaching aid business revenue CAGR for the past 5 years was 8.24%.
2) The low gross profit business has shrunk, and the risk of impairment has been released: in the past few years, other low-profit businesses such as commodities and printing have been continuously contracted, driving the net interest rate after deduction from 2% in 2015 to 13% in 23. The risk of credit impairment has been fully accrued, and the undepreciated balance is only 36 million yuan. Reversing the impact of credit impairment and one-time income tax in 2023, the company's core book business profit in the past five years was 7.92/8.56/8.61/9.02/982 million yuan, respectively, with a CAGR of 6.14%.
2. The number of students enrolled continues to rise:
In the next 5 years, it is expected that the number of middle and high school students enrolled in Hubei Province will buck the trend. Although the number of students enrolled in Hubei Province is definitely not among the highest in the country, there is an increasing trend of middle and high school students in Hubei Province. In 19-23, 377/381/383/385/3.9 million were enrolled in elementary schools, showing a clear upward trend.
3. The latest dividend ratio ranks first in the industry, with abundant cash reserves
1) Based on the latest closing price, Changjiang Media's dividend rate was 5.16%, ranking first in the industry.
2) The 24Q1 company's monetary capital+capital protected financial management+time deposits totaled 8.078 billion yuan, accounting for about 80% of the company's market value.
4. Valuation
The net profit of Changjiang Media is expected to be 714 million yuan in 2024. According to the closing price on June 12, 2024, the corresponding PE is 14.55x. PB is 1.11x, which is at a low level in the industry.