Incident: Shandong Publishing released its 2024 semi-annual report. The company's 2024H1 revenue was 5.944 billion yuan, up 13.8%; total profit was 1.036 billion yuan, up 16.0%; net profit to mother was 0.754 billion yuan, a decrease of 15.6%; net profit without return to mother was 0.696 billion yuan, a decrease of 16.4%. The company's 2024Q2 revenue was 3.474 billion yuan, an increase of 14.0%; total profit was 0.76 billion yuan, up 11.4%; net profit to mother was 0.544 billion yuan, a decrease of 20.2%; net profit not attributable to mother was 0.496 billion yuan, a decrease of 24.8%.

Comment: Total revenue and profit increased rapidly, publishing and distribution grew steadily, and publishing integration and innovation continued to advance

1) The operating side is steady, moderate and positive, and total revenue and profit have increased significantly. The company achieved high growth in total revenue and profit in 2024H1 and 2024Q2, proving that the operating side is steady. Net profit attributable to the mother increased income tax expenses due to changes in income tax policies.

2) Publishing and distribution are growing steadily. Without excluding internal offsets, the company's publishing business achieved revenue of 1.78 billion yuan, up 5.4% year on year, gross profit margin of 29.2%, up 2.1 pct year on year; distribution business revenue was 4.22 billion yuan, up 7.9% year on year, and gross profit margin of 35.1% year on year decreased by 0.6 pct year on year. 2024H1 In terms of textbooks and teaching aids, the company is actively expanding the textbook teaching aid categories, adding 62 new varieties (series), including “Strong Country, Our Thinking and Politics Academy”. At the same time, the company completed the recruitment of middle vocational textbooks and teaching aids in the spring of 2024 to achieve steady development of the middle vocational textbook teaching aid distribution business. In terms of general books, in the first half of 2024, the company monitored 20 types of books with sales of 0.1 million books or more, and monitored 491 types of books with cumulative sales exceeding 0.1 million books.

3) Publishing integration and innovation continue to advance. In terms of innovative business, in the field of smart education, the “Homework+Academic Diagnosis Big Data Feedback” project, which integrates teaching aid publishing and big data technology, is progressing smoothly and in an orderly manner. The feedback results have been good in many tests organized by pilot cities. In the field of research, the company expanded the advantages of characteristic research camp clusters, and 2024H1 research and cultural tourism revenue increased by more than 60% over the same period last year. In the field of the elderly, the company has built a digital platform “Home for the Elderly”, continuously enriching the content of the platform and optimizing the experience and functions of the platform for aging.

4) Effective control of the cost rate, and the cost rate is stable. The company's 2024H1 sales, management and R&D expenses rates were 9.1%, 10.2%, and 0.2%, respectively, with year-on-year increases of -0.14/-0.89/+0.00pct, respectively. The company's 2024Q2 sales, management and R&D expenses rates were 9.3%, 9.5%, and 0.2%, respectively, with a year-on-year increase of +0.22/-0.65/-0.04pct, respectively.

Profit forecast and valuation: Considering the company's steady 2024H1 operating side and the impact of tax policy changes on the company's 2024-2026 net profit, we maintain our previous company performance expectations. We expect Shandong Publishing's revenue for 2024-2026 to be 13.348/14.826/16.491 billion yuan, respectively, up 9.82%, 11.08%, and 11.23% year on year; net profit to mother was 1.847/2.055/ 2.301 billion yuan respectively, up year on year -22.26%, 11.27%, 11.94%.

The current market value corresponds to the company's valuation of 13.4x, 12.1x, and 10.8x, respectively, maintaining a “buy” rating.

Risk warning events: policy risks on the cultural supervisory side; changes in preferential policies for state-owned media companies; increased discounts on e-commerce books for live video broadcasts; risk of untimely updates to information data used in research reports.