Investment highlights:

2024H1 revenue declined slightly year on year. Excluding income tax, total profit of 2024Q2 increased 1.16% year over year. Revenue side: 2024H1 achieved operating income of 4.025 billion yuan, yoy -0.83%, gross profit of 1.377 billion yuan, yoy +7.80%, gross profit margin of 34.21%, +2.73 pct year on year; 2024Q2 achieved revenue of 1.937 billion yuan, yoy +4.39%, qoq -7.25%. 2024Q2 gross profit of 0.666 billion yuan, yoy +7.14%, gross profit margin 34.39%, yoy+0.88pct; 2024H1 revenue declined slightly year on year, mainly due to the year-on-year increase in revenue from the teaching aids business, digital textbooks, wood pulp, etc., and the year-on-year decrease in revenue from general books, sports supplies, etc.

Profit side: 2024H1 net profit 0.299 billion yuan, yoy -27.22%, net profit without return to mother 0.33 billion yuan, yoy -5.95%; 2024Q2 net profit to mother 0.147 billion yuan, yoy -21.82%, qoq -3.57%; 2024H1 income tax ETR 25.04%, excluding income tax impact, 2024H1 total profit of 0.475 billion yuan, yoy -6.12%, Total 2024Q2 profit was 0.247 billion yuan, yoy +1.16%. The year-on-year decline in total 2024H1 profit was mainly due to ① management expense ratio +0.38pct, ② fair value change net income - 62.41 million yuan, mainly due to fair value change profit and loss from holding Dragon Media shares; 2024H1's profit after excluding income tax and fair value change profit and loss of holding Dragon Media shares was 0.482 billion yuan, yoy +15.87%.

The main publishing and distribution business is operating steadily, and new forms of education publishing are actively expanding. The general book market affected the market. (1) Publishing business declined (1) Publishing business: 2024H1's publishing business revenue was 1.391 billion yuan, yoy -1.69%, gross profit margin of 30.90%, yoy+4.22pct.

(2) Distribution business: 2024H1's distribution business revenue is 3.193 billion yuan, yoy -4.37%, gross profit margin 23.60%, yoy+0.75pct.

(3) General books: 2024H1's general book publishing business achieved operating income of 0.184 billion yuan, yoy -17.21%, sales code 1.165 billion yuan, yoy -5.95%, gross profit margin 9.3%, yoy +0.63pct; according to opening data, sales code Yang in the 2024H1 book retail market fell 6.20% year on year, and the decline in the company's general book business was mainly affected by the market.

(4) Textbook teaching aids: The 2024H1 company made every effort to guarantee the political task of “arriving books before class, one manual” and successfully completed the unified supply of textbooks for primary and secondary schools in the spring of 2024. The total supply of textbooks exceeded 0.223 billion, or 1.637 billion; all 96 compulsory education textbooks in 16 subjects were approved and approved for use by the Textbook Bureau of the Ministry of Education; the promotion of textbooks and teaching aids increased steadily. In the spring of 2024, the teaching aids catalog was distributed at 0.645 billion yuan, an increase of 4% over the previous year.

(5) Informatization and digitalization: 2024H1 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 province. The platform has connected with the “National Primary and Secondary School Smart Education Platform”; promoted the development of digital education resources in an orderly manner. The “Southern E Classroom” platform added a “Joy AI Listening” section and a science education service module for primary and secondary schools. The “Yue Teach Intelligence” smart teaching aid platform was launched.

The total amount of monetary funds and transactional financial assets at the end of 2024H1 was nearly 3 billion yuan, with a dividend rate of 4.3% for the past 12 months

At the end of 2024H1, the company's monetary capitals+transactional financial assets totaled 2.972 billion yuan, YOY -15.04%.

The company's dividends are stable. The dividend rate for 2016 to 2023 is over 30%. Based on the closing price on September 13, the dividend rate for the past 12 months was 4.32%.

Profit forecast and investment rating: We are optimistic that the company relies on the geographical advantage of Guangdong Province, with a steady upward trend in the main business, and the income tax policy. However, the company actively embraces AI and new business formats, and future performance is expected to maintain steady growth. Based on this, we predict that the company's revenue for 2024-2026 will be 9.923/10.697/11.557 billion yuan, respectively, and the net profit to mother will be 0.938/1.022/1.119 billion yuan, respectively. 11.76/10.79/9.85x, maintaining a “buy” rating.

Risk warning: Market competition increases the risk, the risk that the number of students does not grow as much as expected, the risk that the progress of scientific and technological innovation falls short of expectations, the risk of changes in tax policies, the risk of changes in industry policies, etc.