Incidents:

The company achieved revenue of 5.213 billion yuan in 2024H1, a year-on-year decrease of -13.59%; net profit to mother of 0.579 billion yuan, a year-on-year decrease of -20.09%; and deducted non-net profit of 0.609 billion yuan, a year-on-year decrease of -6.10%.

Among them, 2024Q2 achieved revenue of 2.284 billion yuan, a year-on-year decrease of -22.19%; net profit to mother of 0.286 billion yuan, a year-on-year decrease of -26.04%; and deducted non-net profit of 0.295 billion yuan, a year-on-year decrease of -22.50%.

Net profit due to 2024H1 declined due to income tax

2024H1's revenue fell -13.59% year on year, mainly due to the decline in revenue from the education equipment business and supply chain business. However, due to the expiration of the income tax benefits of the transformation policy of operating cultural institutions, the company no longer enjoyed the preferential income tax policy. 2024H1 income tax expenses were 0.178 billion yuan, an increase of 1140% over the previous year, causing the company's net profit to mother to drop -20.09%.

Promote the upgrading of the digitally enabled business format, and continue to lay out “AI+ Education” companies to improve e-commerce construction and set up 36 online book stores. The sales code during the reporting period reached 0.37 billion yuan, an increase of 34.5% over the previous year; enriching the online channel functions of the Wanmei Education Platform. Platform users paid a total of 0.73 billion yuan in the first half of the year, an increase of 120% over the previous year. Furthermore, the deployment of AI education products has been accelerated, including the development of a new AI reading model in Anhui, the launch of a companion intelligent learning machine, and the Xinyuan Xiaoao robot in Anhui.

We believe that by using digital technology and AI technology, the company is expected to expand a new digital circuit in the field of culture and education and reap new growth in performance.

The dividend return plan for the next three years enhances long-term investment value

2024H1 plans to distribute a cash dividend of 1.00 yuan for every 10 shares to all shareholders, for a total cash dividend of 0.196 billion yuan, with a cash dividend ratio of 33.84%; and as of 2024H1, the company has implemented a share repurchase amount of about 0.156 billion yuan. In summary, the total cash dividend and repurchase amount of 2024H1 is estimated to be 0.352 billion yuan, accounting for 60.85% of 2024H1's net profit to mother. In addition, the company formulates a shareholder dividend return plan for the next three years (2024-26). The company distributes profits at least once a year under the condition that the profit and cumulative undistributed profit for the year are positive and the cash flow satisfies the normal operation and long-term development of the company.

Profit Forecasts, Valuations, and Ratings

The company's main business operates steadily, and continues to promote the integration of digital technology and AI technology with the field of culture and education, and revenue is expected to increase. Therefore, we expect the company's revenue for 2024-2026 to be 12.1/13.041/14.054 billion yuan, corresponding growth rates of 7.61%/7.78%/7.77%, and net profit to mother of 0.927/1.01/1.096 billion yuan, respectively, corresponding growth rate of -0.94%/8.95%/8.50%. Maintain the company's “gain” rating.

Risk warning

The risk of changes in industry and tax policies, the risk of a reduction in the size of the school-age population, and the risk of digital technology and AI technology falling short of expectations.