Incident: Xinhua Wenxuan released its 2024 three-quarter report. The company's core operating data is as follows: On the revenue side, the company achieved operating income of 2.65 billion in the third quarter, up 3.4% year on year, achieved profit before tax of 0.219 billion, up 15.9% year on year, achieved net profit of 0.175 billion yuan, down 1.6% year on year. Facing financial pressure brought about by changes in corporate income tax policies this year, the company's operating capacity was steady.

The advantages of tax policies are obvious. In 2024, all state-owned cultural listed companies will face financial pressure to submit corporate income tax due to the expiration of preferential income tax policies. Xinhua Wenxuan is located in Chengdu, Sichuan Province. Most of its business is in Sichuan Province. According to the policies “Notice Concerning Further Implementation of the Western Development Strategy” and “Notice Concerning Continuing the Corporate Income Tax Policy for Western Development” issued by the Ministry of Finance and other departments, Xinhua Wenxuan's corporate income tax rate has a clear advantage over most provinces. According to the company's financial report, in the third quarter, the corporate income tax rate was about 16.8%, and the tax rate for the first three quarters was about 12.4%. Mainly in the profit structure for the previous period, some of the investment company's dividends were included in the profit before tax. This amount did not need to be taxed again, so the overall tax rate was lower. Overall, Xinhua Wenxuan's tax burden has a strong advantage among similar provincial publishing and distribution groups, providing an important guarantee for stable performance.

Integrate online and offline scenarios to digitally transform reading services. The company has been proactive over the years, striving to find a second growth curve for the company other than traditional publishing and distribution, deeply integrating the company's own channel advantages with its ability to integrate cultural resources within Sichuan Province, and carried out a series of emerging business explorations. The company integrates platforms such as large bookstores, small and medium-sized bookstores, and Internet reading services for publications, combined with logistics service networks to achieve a nationwide reading service network. The company continues to deepen platform e-commerce operations, further promote short video and live streaming services, enhance competitiveness in the national book e-commerce industry; build a “cloud store” business system to build diversified, personalized and intelligent reading consumption scenarios.

Profit forecasting and investment advice. Net profit due to mother in 2024-2026 is estimated to be 1.54 billion yuan, 1.71 billion yuan, and 1.89 billion yuan respectively, corresponding to PE of 11 times, 10 times, and 9 times, respectively. Considering that the company is the leading organization of a local publishing group and benefits from the Western Development Strategy, the company is expected to obtain income tax benefits while maintaining a stable high level of dividend rates. Overall, maintain a “buy” rating.

Risk warning: the risk of changes in national policies, the risk of fluctuations in the enrolment population, and the risk of fluctuations in paper prices.