Key points of investment

Event: The company releases quarterly results and operating data. 24Q3 revenue decreased 9% year over year to 2.6 billion yuan; gross profit decreased 9% year over year to 0.8 billion yuan, gross margin was 32% year over year; sales expense ratio was flat at 10% of 23Q3, management expense ratio increased by 1 pct to 14% year over year; profit before tax decreased 21% year on year to 0.3 billion yuan, profit margin before tax decreased by 2 pct to 11% year on year, and actual tax rate was 25%; net profit to mother decreased by 40% year on year to 0.22 billion yuan year on year, net profit margin to mother decreased by 40% year on year, net profit margin to mother decreased by 40% year on year to 0.22 billion yuan year on year, and net profit margin to mother decreased by 40% year on year to 0.22 billion yuan year on year, and net profit margin to mother decreased by 40% year on year to 0.22 billion yuan year on year, and net profit margin to mother decreased by 40% year on year to 0.22 billion yuan year on year, net profit margin to mother decreased by 40% Reduce 4 pct to 8%. Revenue from January to September '24 increased 6% year on year to 8.5 billion yuan; gross profit increased 4% year on year to 3.1 billion yuan, gross margin decreased 0.5 pct to 36% year on year; sales expense ratio decreased 0.4 pct to 9% year on year, management fee ratio remained the same as 11% year on year; profit before tax increased 5% year on year to 1.3 billion yuan, profit margin before tax remained flat at 16% year on year, and actual tax rate was 27%; net profit to mother decreased 23% year on year to 0.97 billion yuan year on year, compared to 0.97 billion yuan Maternal net interest rate decreased by 4pct to 11% year over year.

Revenue from the publishing business remained stable in the first three quarters, and revenue from the distribution business increased slightly. From January to September '24, sales of the company's publishing business increased 2% year on year to 5.4 billion yuan, revenue increased 0.3% year on year to 2.6 billion yuan, and gross margin increased 1.5 pct to 28% year on year; sales of the distribution business increased 5% year on year to 6.6 billion yuan, revenue increased 4% year on year to 6 billion yuan, and gross margin decreased 0.9 pct to 32% year on year.

Shandong Xinhua Cultural Tourism Development Group signed a strategic cooperation agreement with Anhui Times Education. On August 27, at the “2024 Anhui Research and Tourism Conference” held in Hefei, Anhui, Shandong Xinhua Cultural Tourism Development Group signed a strategic cooperation agreement with Anhui Times Education Development Co., Ltd., which will open a new era of inter-provincial cultural tourism industry cooperation, develop high-quality cultural tourism products, explore new ideas, new models and new paths, and build the “Study in Anhui” and “Xinhua Love Book Club” research brands. After the strategic cooperation agreement is signed, the two sides will cooperate in depth in research for primary and secondary school students, customized tourism for the elderly, cultural and creative product development, etc., to make full use of the unique culture of their respective regions, develop quality research courses, and develop high-quality routes.

Profit forecast and investment rating: Due to the year-on-year decline in gross margin in the first three quarters, we lowered the company's 2024-2026 net profit from 1.7/1.92/1.98 billion yuan to 1.52/1.73/1.82 billion yuan. The current stock price corresponding to 2024-2026 PE is 15/13/12 times, respectively. We are optimistic about the long-term demand for books in the populous province of Shandong, as well as the company's positive progress in studying the cultural tourism business, and maintain a “buy” rating.

Risk warning: risk of industry policy changes, risk of economic cycle risk, risk of population decline.