Performance summary: Xinhua Wenxuan released its 2021 interim report, which achieved revenue of 4.662 billion yuan in the first half of the year, an increase of 29.3% over the previous year; realized net profit of 603 million yuan, up 3.9% from 580 million yuan in 2020H1; net profit after deduction increased 18.2% from 522 million yuan in 2020H1 to 617 million yuan in 2021H1. Overall, the company's performance in the first half of the year was in line with expectations, and revenue and profit sides experienced varying degrees of rebound.
The publishing and distribution business is driven by two wheels, and the potential for segmented business growth is hidden. By business, the Group's publishing business recorded revenue of 1,186 million yuan in 2021H1, an increase of 24.9% compared to the 756 million yuan in 2020H1, while gross margin increased slightly by 0.46 pp. Looking at the breakdown, textbooks and teaching aids and mass publishing are the two core revenue sources of the publishing business, accounting for 87.2% of total publishing revenue; textbooks and teaching aids in 2021H1 achieved revenue of 677 million yuan (including domestic sales), an increase of 13.1% over the previous year, and gross margin increased 2.81 pp, which achieved good results in cost control; mass publishing increased 52.2% year-on-year to 357 million yuan, and the sector is expected to continue to pick up in the future.
The Group's distribution business achieved revenue of 4.07 billion yuan (+28.9%), which is the company's largest source of revenue. Among them, the education service business continued to gain strength, with revenue of 2.64 billion yuan, an increase of 18.4% over the previous year. The growth was mainly driven by new businesses such as textbook teaching aids and after-school delay services, and labor and practical education services. 2021H1, the Group made full use of the strategic opportunities of the new college entrance examination reform and the Education Informatization 2.0 Action Plan to continue to promote the optimization and upgrading of the “Excellent Education, Excellent Education” online service platform, covering a total of 6244 schools and serving 4.27 million students. The education informatization business increased 196.2% year-on-year to 100 million yuan, with potential for growth looming.
Embrace the new era of online e-commerce and optimize logistics management. Internet sales revenue in the first half of 2021 was 1.05 billion yuan, an increase of 53% over the previous year. It was mainly due to the improvement of product organization, sales organization and logistics services capabilities, including omni-channel expansion such as third-party e-commerce platforms, company websites, new media e-commerce, etc., with outstanding synergies in various business formats. 2021H1, the Group maintained the ranking of the top 3 book sales on major platforms such as Tmall and Jingdong, and its leading position remained stable. In terms of logistics, the Group helped improve the overall service level and profitability of the supply chain, and the total volume of publishing and logistics through its own channels reached 15.7 billion yuan (+34%).
Profit forecasts and investment recommendations. We expect that the company's net profit of 2021-2023 will be 1,313 billion yuan, 1,387 billion yuan, and 1.52 billion yuan, EPS is 1.06 yuan, 1.12 yuan, and 1.23 yuan respectively, and the corresponding PE is 8.1 times, 7.6 times, and 7 times respectively. Considering that the gross margin of the company's main distribution business will continue to increase, the company's main businesses, such as mass publishing and physical store sales, have basically come out of the haze of the epidemic, and the company's steady growth in the future is worth looking forward to, maintaining the “buy” rating.
Risk warning: Market entry or industry regulation policy relaxation increases the risk of market competition. The company has management risks due to scale expansion.
