Events:

According to the annual report released by Palmer Science and Technology, the total operating income of the company in 2020 was 2.06 billion yuan (an increase of 9.47% over the same period last year), with a return profit of 264 million yuan (64% year-on-year growth), and a non-return profit of 257 million yuan (an increase of 83.5 yuan over the same period last year). In a single quarter, the company's homing profit in the fourth quarter of 2020 was 98 million yuan (an increase of 85% over the same period last year). According to the profit distribution plan for 2020, it is proposed to distribute a cash dividend of 1 yuan (including tax) for every 10 shares.

Main points of investment:

2020Q4's 85% increase in deduction non-profit boosted full-year profit growth (revenue and deduction non-profit increased by 9.5% and 83% respectively in 2020) operational optimization ability to boost profitability the company has gradually become one of the top companies in the field of digital content with the advantage of the scale of content and users. 2020Q4's revenue is 560 million yuan (up 14% year-on-year) and operating cost is 300 million yuan (1.3% year-on-year). However, the percentage of sales of operating costs is 83.7% (5.5% lower than the same period in 2019, which also highlights the optimization of the company's operating capacity). At the same time, the total sales and management expenses are basically the same as in the same period in 2019, which pushed up 2020Q4's operating profit by 105 million yuan (up 69% year-on-year and 42.5% month-on-month), and home profit of 98 million yuan (up 85% year-on-year). 2020Q4 also became the fastest growing company in the fourth quarter.

Sales expenses decreased in 2020 compared with the same period last year, sales gross profit margin and net profit margin increased by 320 million yuan net operating cash flow of RMB 480 million yuan in 2020 (year-on-year growth rate of 14%, compared with 47% growth rate in the same period in 2019). Sales expenses are well controlled); the company's gross profit margin and net profit margin are 45.9% and 12.3% respectively (up 8% and 4% respectively) The company's net operating cash flow is 320 million yuan (an increase of 4.6% over the same period last year), maintaining a good operating situation.

The industry pattern of China's digital reading market has emerged. The head enterprises will continue to benefit from the digital reading market and benefit from the gradual improvement of China's copyright market. At the same time, the head platform enterprises focus on business innovation and gradually release the value of digital reading. If the Internet upstart joins in the byte jump, it will also bring a new dividend in the digital reading market (Quantum Jump holds an 11.23% stake in the company). In 2020, the number of monthly active users of the company's reading platform reached 160 million (an increase of 33.3% over the same period last year). Based on the company's huge user and traffic base, it deepens the commercial value of the digital reading platform through the combination of payment and free mode. At the same time, the company continues to strengthen the advantages of copyrighted content, achieving revenue of 504 million yuan in 2020 (an increase of 92.66% over the same period last year).

Profit forecast and investment rating: since its inception, the Buy rating Company has gradually built business layouts such as content creation, content distribution and content derivative development on the basis of digital reading platform. strive to become an influential digital reading platform (the company's digital reading content reached more than 500,000 volumes in 2020). The company's performance ended smoothly in 2020, and the company continued to increase its main business under the consolidation of the performance. On August 21, 2020, the company proposed to increase its main business, which was approved by the Securities Regulatory Commission on December 12, and completed the fixed increase and the change of equity on February 11, 2021 (issued 37.9 million shares, total share capital 439 million shares, issue price 28 yuan / share). After the completion of the fixed increase, it is expected to ensure the sustainable development of the company's core main business. We estimate that the company's parent profit from 2021 to 2023 is 361 million yuan, 463 million yuan and 579 million yuan (corresponding to the latest PE of 39.5x, 30.8x, 24.6x). Based on the fact that the company, as one of the leading enterprises in the industry, continues to add code to its main business, and tries intelligent synthetic voice technology to produce more than 100,000 hours of audio content, which complements the company's audio content. The company's high internal performance and external hand-in-hand byte jump is expected to share the industry chain dividend, while the company extends the layout of short video creation platform to explore the incremental space of new media for content and maintain the buy rating.

Risk tips: policy regulatory risk; digital content piracy risk; core staff turnover risk; new business exploration is not as expected; macroeconomic fluctuation risk.