Core views:

Integrity: Anhui Province's exclusive textbook distribution qualification, building the foundation for channels within the province. The company is responsible for the distribution of all free textbooks for compulsory education in Anhui Province. Based on this, the company has built a publication distribution channel and education service system covering the entire province of Anhui. By the end of 2023, the company had 804 sales outlets and nearly 3,000 education service specialists. According to estimates of the number of births and enrolment rates in Anhui Province, the number of K12 students in Anhui Province continued to grow in 2015-2024, and declined slightly from a high point in 2025. Considering the shift in the student structure to the upper grades, the company is actively increasing its market share in college and secondary school textbooks and market-based teaching aids in Anhui Province, transforming from a single teaching aid product to overall solutions such as mental health, labor education, science education, and campus reading. We expect the company's main textbook distribution business to maintain a growing trend over the next 3 years.

Innovation: (1) Providing educational services such as educational equipment, smart schools, research and education, after-school delay services, labor education practices, teacher training, and AI teaching robots for primary and secondary schools in Anhui Province.

(2) Supply chain logistics expanded from publications to 3C, household appliances, agricultural specialty products, cosmetics, FMCG, etc. (3) In 2017, the self-developed standalone game platform “Cube Game” was launched, and famous games such as the “Legend of Sword and Fairy” series and “The Wolf” were successfully released. By the end of 2023, 444 games had been released on the cube platform, and the number of registered users exceeded 2 million.

There is plenty of cash on hand. Repurchase was implemented in '23 and dividends were greatly increased. As of 24Q1, the company had a total monetary capital of 10.9 billion yuan, with sufficient funds on hand. The company operates capital flexibly and is happy to give back to investors. The total amount of cash dividends in 2023 (including the amount of shares repurchased) was 0.645 billion yuan. The repurchase amount, dividend ratio, and dividend rate were among the top in the sector.

Profit forecasting and investment advice. In 2024-2026, we expect the company's revenue to be 11.161/11.334/11.542 billion yuan, and net profit to mother 0.893/1.044/1.152 billion yuan. Referring to the valuation levels of other publishing state-owned enterprises, we gave the company a PE valuation of 18 times that of 2024, corresponding to a reasonable value of 8.08 yuan/share, which covered the “buy” rating for the first time.

Risk warning. Fewer students enrolled; demand for books declined; progress in the “AI+ education” business fell short of expectations; uncertainty in the game business; changes in corporate income tax policies applied by the company.