Event: the company announced that the company achieved operating income of 8.84 billion in 2019, an increase of 8% over the same period last year, a net profit of 1.14 billion, an increase of 22% over the same period last year, and a net profit of 1.05 billion after deduction, an increase of 21% over the same period last year. The company as a whole maintained healthy and relatively rapid growth.

Stable issuance builds the base of the company's performance. In 2019, the company achieved an operating income of 7.47 billion in the issuance business, which continued to increase steadily from the level of 7.03 billion in 2018; the gross profit margin was 30.7%, almost the same level as in 2018. As the basic business of the company, the business model based on teaching materials and teaching makes this business have a strong rigid attribute. In the context of economic fluctuations, the distribution business has become the largest stable cornerstone of the company's profits and cash flow. Based on the stable characteristics of the issuance business, although the global situation and epidemic situation in 2020 have brought some uncertainty to the market, we expect the issuance business of Xinhua Wenxuan to maintain a steady development trend.

Children's books have become the highlight of the performance of the whole company. In 2019, the company's publishing business achieved operating revenue of 2.6 billion, an increase of about 4% over the same period last year. Among them, the operating revenue of teaching materials and teaching aids was 1.37 billion, an increase of 1.46% over the same period last year, and that of general books was 890 million, an increase of about 13% over the same period last year. The company's publishing business has been booming in recent years. In terms of the field of authors, it has signed contracts not only with people of traditional literature, including Yu Qiuyu, but also with the new generation, including Tang Jia San Shao. From the field of cooperation, it has cooperated with American penguin Landen, Nick Children's Channel, British DK and other companies. It is one of the major cooperative publishing organizations of top IP in China, including the Avengers and Wang team. On its own IP, the top IP rice circle of the company's children's club has been on various best-seller lists for many times, with cumulative sales of more than 80 million copies. According to open-book statistics, Xinhua Wenxuan's mass book market share ranked seventh in the country in 2019, significantly higher than the level of No. 13 in 2018. We believe that, compared with the distribution business, the company's publishing business is more flexible, taking into account the continuous deepening of the market-oriented management of the company's state-owned enterprises, it will continue to drive the company's performance growth in the future.

Profit forecast and investment advice. We estimate that the EPS of Xinhua Wenxuan from 2020 to 2022 is 1.03,1.14,1.21 yuan respectively, and the corresponding PE is 10 times, 9 times and 9 times. Taking into account the company's robust nature and potential growth flexibility, as well as the future growth of the publishing business that may be brought about by the new IP, as well as the low valuation level, we maintain our "buy" investment rating on Xinhua Wenxuan.

Risk hints: the risk of significant fluctuations in paper prices, the risk of a change in publishing policy, and the risk that newly published books are less than expected.