Event: the company released the three-quarter report of 2019, the first three quarters of 2019 achieved operating income of 5.828 billion yuan (YoY+6.38%), net profit of 747 million yuan (YoY+24.56%) and non-return profit of 713 million yuan (YoY+29.77%); 2019Q3 realized operating income of 1.954 billion yuan (YoY+2.77%) and non-return net profit of 161 million yuan (YoY+14.02%).
Q3 income growth slowed and gross profit margin rose. Q3 revenue growth slowed to 2.77% in a single quarter, while publishing and distribution business slowed. 1) the publishing business is mainly caused by a 9.60% decline in general book revenue; 2) the distribution business is mainly due to a 2.61% decline in educational services and a 2.94% decline in retail revenue, partly offset by the 21.81% year-on-year growth rate of Internet retail. Overall, the single-quarter gross profit margin was 34.72%, an increase of 0.35pct over the same period last year.
Gross margin growth in the publishing and distribution business has slowed. The gross profit growth rate of Q3 publishing business slowed to 8.8%, mainly due to a 39.37% decline in general book gross margin in the publishing business, and a decline in the growth rate of educational service revenue in the distribution business due to seasonal reasons, thus dragging down the overall growth.
Investment advice. In recent years, the company has developed rapidly in book Internet retail and general books, with a cumulative sales volume of 60 million copies of the "Rice Circle" series, and formed cooperation with a number of best-selling works, we are optimistic about the future development of the company. We estimate that in 2019-2021, the company will achieve a net profit of 1.1409 billion yuan, corresponding to an EPS of 0.90 and 1.03, respectively, and a closing price of 13.6, 11.9 and 10.8 times on October 30, respectively, giving it a "prudent overweight" rating.
Risk hint: the risk brought by the reform of textbook publication and distribution system; the policy risk of textbook recycling; the risk of one subject and one auxiliary policy to compress the space risk of teaching assistant market; the change risk of tax preferential policy; the risk of general book growth not as expected; online channel competition risk; macroeconomic risk