It covered Southern Media for the first time and gave it a “buy” rating. The target price was 17.6 yuan. The company is a leading educational publishing enterprise in Guangdong Province. Its main business is developing steadily and has a monopoly within the region. Backed by Guangdong, the population has good resource endowments; deepening digital intelligence strategies, expanding after-school services, and actively exploring the “AI+ education” business to create many new growth points; cash reserves are abundant, and there is room for improvement in dividend ratios.

Population resources & school-age population structure have endowments, providing a foundation for the steady development of the main business a) The quantitative dimension of demand: Guangdong's population is rich in resources. The impact of the birth population on the number of K12 people is lagging behind. The number of births in Guangdong Province in 2018-2021 (that is, the number of new students enrolled in 2024-2027) is still larger than the number of births born in 2006-2009 (that is, the number of third-year high school graduates in 2024-2027), so we expect the total number of K12 students enrolled in Guangdong Province to continue growing in 2024-2027; b) Due to differences in the structure of the number of students in different grades in the school-age population, there are more subjects in secondary school teaching aids than in elementary school, and the average price of a single textbook is high school> middle school> elementary school, we It is estimated that the size of the textbooks and teaching aids market in Guangdong will continue to rise steadily for some time to come, and there will only be a downward trend after 2031.

Deepen digital intelligence strategies, expand after-school services, and empower AI technology

Accelerate the transformation from a single textbook publisher to a “diversified product development+customized service plan” supplier.

Promote the construction of the “Southern Education Media After-School Service Platform” and the “Greater Bay Area Research Service Platform”. The service capabilities of the “Guangdong Education Xiangyun Digital Textbook Application Platform” platform have been steadily improving. In 23 years, the number of active users exceeded 43 million, an increase of 96% over the previous year. Actively explore the “AI+ Education” business, covering a wide range of fields. Products include: Cantonese AI Listening, Torch Reputation, Guangdong iFLY E Listening and Learning Machine, and Guangdong Excom.

Cash reserves are abundant, and there is room for improvement in dividend ratio

Cash reserves are generally abundant, and dividend amounts and dividend rates have generally maintained an upward trend. The dividend ratio has been around 40% in the past two years. Compared with the average dividend ratio of 50% (22 years) of education publishing companies in other mainstream provinces in the industry, and the highest dividend ratio of 77%, there is still room for significant improvement.

Our differences from the market: We are more optimistic about the school-age population and the textbook teaching aid market in Guangdong Province. The market is worried that education publishing companies will be affected by the decline in the number of births in recent years. The school-age population will shrink in the future, and the company's performance will go on a downward channel. On the other hand, we believe that according to quantitative estimates, the inflection point for the school-age population in Guangdong Province will be after 2027, and the obvious inflection point for overall income related to teaching aids will be after 2031. The main business can be expected to grow steadily in the short to medium term, and not as pessimistic as the market feared before.

Profit forecasting and valuation

We expect net profit of 0.896/0.988/1.082 billion yuan to the mother in 24-26, and the average PE value of comparable company Wind is 14X in '25. Based on the investment logic above, we give a 25-year 16X PE valuation, corresponding to a target price of 17.6 yuan, which covers a “buy” rating for the first time.

Risk warning: The number of K12 people falls short of expectations, policy and regulatory risks, and the development of innovative businesses falls short of expectations.