The company is a leading publishing company in Zhejiang Province. Zhejiang Media is a large-scale comprehensive cultural enterprise whose main business is the publication and distribution of publications such as books, electronic audiovisual products, and journals, integrating emerging business formats such as digital publishing, digital media, digital marketing, information technology services, and online education and training. Currently, there are 4 sub-groups, 11 publishing units, more than 120 wholly-owned and controlled legal entities, more than 7,000 employees of various types, and 4 of its publishing houses have been selected as the top 100 book publishing units in the country.

Cash reserves are abundant, and the defense value of high dividends is outstanding. The company's 2024H1 revenue was 5.233 billion yuan, a year-on-year decrease of 5.06%, mainly due to the year-on-year decline in the company's general book revenue; net profit to mother was 0.506 billion yuan, which was affected by changes in income tax policies, a year-on-year decrease of 30.03%. The company has abundant cash reserves. 2024H1 quasi-monetary capital (cash+transactional financial assets - short-term loans) reached 11.855 billion yuan, 0.51 times the company's total market value as of August 21. In terms of dividends, the company paid a cash dividend of RMB 3.90 (tax included) for every 10 shares to all shareholders in 2023, for a total dividend of 0.867 billion yuan. Based on the closing price on August 21, the dividend rate is 3.70%.

Based on the main publishing business, we are deeply involved in original fine publishing. 2024H1 published 6,950 books, up 7.65% year on year, including 2,439 new books, up 2.31% year on year. The company attaches importance to thematic publishing and key publishing, and promotes the “Traceability” theme publishing project, the Zhejiang Cultural Publishing Project, the Song Yun Cultural Publishing Project, the Traditional Culture Innovation Publishing Project, etc., and also strives to build a library of various key projects such as “Traceability and Soul Building”, “Cultural Zhejiang”, and “Literary and Art Climbing Plan”. The art club broadened its top domestic IP partnerships and successfully signed contracts for topics with market potential, such as “Genshin Illustration Collection Vol. 3,” “Genshin Food Guide,” and “Tomorrow's Ark Comics: 123 Rhode Island.” In terms of education publishing, the company seized the opportunity of revising compulsory education curriculum standards and re-selecting textbooks. Textbooks such as Education Club “Mathematics” and “Science” and Art Club “Art” (grades 1 to 9) were approved by the Ministry of Education and selected to achieve provincial coverage. A total of 13 volumes of “Information Technology” textbooks for elementary and middle schools were officially published and distributed, covering the entire “Information Technology” subject.

Establishing a digital publishing system and being the publisher of “Black Myths: Goku” attracted attention. The company strengthens digital technology to enable traditional business transformation, and uses new technology and applications to create a diversified integrated publishing system centered on e-books, audiobooks, video content, and knowledge services. Among them, the front desk framework for the Torch Theater has been completed, a number of skit content resources have been reserved, game marketing promotion has been deepened, and “Black Myths: Goku” has been approved as a game version, which has attracted market attention. In the digital education sector, the “Zhejiang Digital Textbook Service Platform” launched 96 types of textbooks and teaching aids in the spring of 2024, and launched a new “After-School Service Course” section. The number of digital resources downloaded on the platform reached hundreds of thousands of times in the first half of the year. The “Mobiai Math” smart teaching aid, a collaboration between Electronic News Agency and Learning and Thinking, has published a total of 0.185 million books to promote the construction of a matrix of digital integrated supporting teaching aids. We believe that the company has many qualifications to develop digital publishing, marketing, and online game businesses, and is actively expanding the scale of “paper books+digital resources” integrated service products. In the future, it is expected that the digital publishing business will be the focus of development, upgrade iterative digital content platforms, and cultivate new growth points.

Strengthen the advantages of the distribution sector, and online channels contribute new volume. The company continues to improve the online and offline dual circulation distribution system with a strong position, complete outlets, spatial aggregation, and high integration, and continuously improves the supply of quality content and the ability to guarantee reading services for all. Zhejiang Xinhua expanded the public domain e-commerce matrix of 190 companies and implemented the “Thousand Anchors” incubation project to form a complex online business format. “Qiantang Hongshu” continues to iteratively develop the “Bookstore+” cloud space to build a cultural platform for the benefit of the people. At the same time, the company's publishing house further enriched the “short video+live broadcast” format and content to create a multi-dimensional and three-dimensional media cluster. The total number of users on various platforms of People's Social Affairs has exceeded 3 million. The Art Club has set up a calligraphy and aesthetic education live broadcast room, and the Children's Club has established a multi-platform, high-traffic linkage mechanism to create popular products. Book sales such as “Detective Cai Xiaobai's Popular Science Mystery Story Book” and “Apple Blossoms” rank at the top of the online channel children's book list. We believe that as we continue to cultivate the new media marketing circuit, the company's online and offline distribution chain system will be further improved, which is expected to drive the continuous growth of the company's distribution business.

Profit forecasting and valuation. We expect the company's 2024-2026 EPS to be 0.52 yuan/share, 0.55 yuan/share, and 0.59 yuan/share, respectively. Referring to comparable companies, we believe that the company's main business has maintained steady growth. With the deepening cooperation in the field of skits and games and the development of online marketing channels, the digital publishing and digital distribution business is expected to grow rapidly, thereby improving the company's overall profitability, giving the company a 22-25 times PE valuation in 2024. The corresponding reasonable value range is 11.44-13.00 yuan/share, giving the company an “superior to market” rating for the first time.

Profitability forecasting assumptions. 1) The company continues to consolidate its leading position in the industry, enhance the scale and profitability of traditional business through continuous development of online marketing channels, and promote a 3.61%/3.82%/3.87% increase in distribution business revenue in 2024-2026. 2) The company vigorously carries out various publishing projects and continues to promote digital transformation and upgrading. The company invests in new fields such as digital education, short dramas, and games to build a diversified integrated publishing system. “Black Myths: Goku” was approved as a game version, which attracted market attention and is expected to drive the publishing business revenue to grow 4.59%/4.42%/4.47% in 2024-2026.

Risk warning: Risk of changes in industry policies, publishing and distribution business falling short of expectations, digital business development falling short of expectations.