The company's main business integrates “editing, printing, distribution and supply”. It has 20 subsidiaries, including 2 first-level publishing houses of People's News Agency and Tomorrow Society, forming a pattern of integrated management of the entire industry chain with publishing and distribution business as the core, upstream printing and processing, material trade, and integrating emerging business formats such as mobile media, internet media, digital publishing, research and cultural tourism. It is a modern large-scale comprehensive cultural industry operating entity.

The fundamentals of the textbook teaching aid business are stable. The core target group for textbooks and teaching aids is school students. Compared to general books for the general public, textbooks and teaching aids are in the immediate need market and are less affected by macroeconomics. The number of students enrolled in Shandong is still growing, and the proportion of senior students continues to rise. The company is building a textbook system based in Shandong, and its brand advantage is remarkable. In 2020-2023, the company's textbook distribution revenue was 5.54 billion yuan, 6.01 billion yuan, 6.518 billion yuan and 6.888 billion yuan respectively, with a compound growth rate of 7.49%; the compound growth rate of self-written textbook teaching aids revenue and rental textbook revenue was 11.91% and 9.13%, respectively

Actively launch quality books and innovate businesses to add new perspectives. The company thoroughly implements the “double product and double effect” strategy, creates high-quality quality books, and actively promotes short videos and other channels. In 2023, the company published a total of 15,841 kinds of books, 141 kinds of audio-visual electronic publications, and 8 journals, and the reprint rate of book products was 78.5%. In terms of innovative business, the company vigorously develops research cultural tourism business, launches research camps, builds a brand research course system, optimizes and extends the cultural tourism industry chain, and actively lays out high-end cultural tourism and cultural tourism for the elderly. In the first half of 2024, the company's research and cultural tourism business developed rapidly, and revenue increased by more than 60% over the same period last year. At the same time, the company accelerates digital transformation and continues to promote smart campus construction projects, after-school delayed services, and digital innovation projects.

Merger and acquisition and high dividend contributions highlight investment value. From 2021 to 2023, the company's dividend amount and dividend ratio increased year by year. We believe that the company is expected to continue to increase the dividend ratio and keep the dividend amount stable. In terms of mergers and acquisitions, the company announced in 2023 that in order to avoid peer competition or potential competition between the company and companies belonging to the controlling shareholder Shandong Publishing Group Co., Ltd., strengthen the company's main publishing business and expand new economic growth points, according to the company's development needs, the company acquired 100% of the shares of Shandong Veterans Home Magazine Co., Ltd., a wholly-owned subsidiary of the Publishing Group, with 72.6808 million yuan in cash.

Profit forecasting and valuation. We expect the company's total revenue for 2024-2026 to be 12.845 billion yuan, 13.829 billion yuan, and 14.658 billion yuan, with year-on-year growth rates of 5.7%, 7.7% and 6.0% respectively; net profit to mother is 1.525 billion yuan, 1.611 billion yuan, and 1,697 billion yuan, respectively, with year-on-year growth rates of -35.8%, 5.6% and 5.4%; corresponding fully diluted EPS is 0.73 yuan, 0.77 yuan and 0.81 yuan per share, respectively . Referring to comparable companies, we gave the company a PE valuation of 16-18 times in 2024, corresponding to a reasonable value range of 11.69-13.16 yuan/share, and a “superior to the market” rating.

Risk warning: The risk of rising paper costs, business transformation such as AI applications and education services falling short of expectations, and stricter regulation of book content.