Southern Media announced its interim results. In 2024H1, the company achieved operating income of 4.025 billion yuan, a year-on-year decrease of 0.83%; net profit to mother was 0.299 billion yuan, a year-on-year decrease of 27.22%. 2024Q2 achieved operating income of 1.937 billion yuan, a year-on-year increase of 4.39%; realized net profit to mother of 0.147 billion yuan, a year-on-year decrease of 21.82%.

The reform of the main publishing industry has been brilliant, and a new business format for the education publishing industry has been gradually built. The company achieved operating income of 4.025 billion yuan in 2024H1, a year-on-year decrease of 0.83%; realized net profit to mother of 0.299 billion yuan, a year-on-year decrease of 27.22%. The decline in revenue in the first half of the year was mainly due to a year-on-year increase in revenue from the teaching aid business, digital textbooks, etc., but the year-on-year decline in general books, sports, and other businesses was affected by the year-on-year decline. The company achieved revenue of 1.937 billion yuan in 2024Q2, an increase of 4.39% year-on-year. Mainly, the company's Q2 general book business was a hit. Taking advantage of the hit TV series of the same name, Huacheng Press's exclusive contract author Li Juan's phenomenal book “My Altay” has sold over one million copies. It has been ranked first in Dangdang.com's best-selling list for many days, and has quickly set off another round of sales boom for Li Juan's series of works. In terms of educational publishing, all textbooks of the new-era Cantonese high-quality textbook system created by the company were submitted for review, and 96 volumes of compulsory education textbooks in 16 subjects were all approved by the Textbook Bureau of the Ministry of Education and approved for use. There has been a steady increase in the promotion of textbooks and teaching aids. In the spring of '24, the teaching aids catalogue reached a distribution code of 0.645 billion yuan, an increase of 4% over the previous year. The company increased the development and promotion of vocational education and preschool education products. “Sports Rehabilitation” and “Business Letter Writing” were successfully selected as the Ministry of Human Resources and Social Security's “14th Five-Year Plan” national technical education planning textbook, and 13 textbooks, including “Artificial Intelligence Technology and Application”, were selected for the first batch of “14th Five-Year Plan” vocational education planning textbooks in Guangdong Province.

Gross margin increased slightly, and cost control was good. 2024H1, the company's gross sales margin increased by 2.74 pct to 34.21%, mainly due to a decrease in paper costs. The 2024H1 sales/management/R&D expense rates were 10.34/10.97/ 0.10%, respectively, -0.21/0.38/-0.002pct. Changes in sales expenses are mainly due to a reduction in labor costs and issuance fees; changes in management expenses are mainly due to an increase in labor costs, depreciation of right-of-use assets, travel expenses, and conference expenses; changes in R&D expenses are mainly due to a reduction in labor costs and intangible asset amortization expenses.

Steadily expand education services and actively promote informatization construction and digital transformation. The company continues to improve the service capabilities of the Guangdong Education Xiangyun digital textbook platform. The platform covers 99.3% of schools, 93.5% of teachers and 79.7% of students in the charity education stage in the province, and has connected with the “National Smart Education Platform for Primary and Secondary Schools”; actively exports the “Guangdong Model” digital textbook project to the outside world to promote the development of digital education resources in an orderly manner. The “Southern E-Classroom” platform has added a “Joy AI Listening” section and a science education service module for primary and secondary schools.

Maintain a “Highly Recommended” investment rating. We predict that in the future, the main textbook publishing and distribution business will maintain a steady development trend with the number of students in the province. Furthermore, the company's innovative business will blossom, steadily expand education services, and actively promote informatization construction and digital transformation. We estimate that 2024/2025/2026 will achieve profit of 0.918/0.995/1.105 billion yuan, respectively, and the corresponding PE is 12.3/11.3/10.2, respectively, maintaining a “highly recommended” investment rating.

Risk warning: the risk of new business development falling short of expectations, the risk of preferential tax policies, the risk of transformation and upgrading, and cost risks.