SHANDONG PUBLISHING&MEDIA(601019):RESULTS IN LINE OPERATIONAL EFFICIENCY CONTINUES TO IMPROVE

类别:公司 机构:中国国际金融股份有限公司 研究员:Xueqing ZHANG/Xinyao YU 日期:2022-08-26

1H22 results in line with our forecasts

    Shandong Publishing & Media announced 1H22 results: Revenue rose 4.3% YoY to Rmb4.89bn, net profit attributable to shareholders rose 6.8% YoY to Rmb862mn, and recurring net profit attributable to shareholders rose 3.3% YoY to Rmb775mn. In 2Q22, revenue rose 0.3% YoY to Rmb2.85bn, net profit attributable to shareholders rose 1.5% YoY to Rmb649mn, and recurring net profit attributable to shareholders fell 3.1% YoY to Rmb589mn. The firm’s results are in line with our forecasts.

    Trends to watch

    Core business grows steadily, textbooks and teaching materials drive results growth. In 1H22, the firm’s revenue increased 4.3% YoY (2Q22 revenue up 0.3% YoY) and maintained steady growth overall. Specifically, the textbook and teaching material business benefited from increase in the number of students in Shandong and rise in penetration rate of supporting teaching materials. The firm’s education publishing business developed steadily, fueling up overall business growth. Taking into account a high base for comparison from same period of 2021 due to strong themed publication revenue, we believe the trade book segment was under pressure in 1H22, with publishing revenue down 29.5% YoY to Rmb129mn, and sales revenue (based on list price) down 18.2% YoY to Rmb426mn. We expect the themed publication business to recover in 2H22.

    Operational efficiency increases, overall expense ratio remains steady. In 1H22 and 2Q22, aggregate gross margin increased 1.2ppt and 1.4ppt YoY to 40.8% and 41.4%, which we attribute mainly to enhanced efficiency across the value chain. In 1H22, the firm’s cost (after income and costs along various links of the value chain are fully offset) as a proportion of income rose 1.3ppt YoY to 1.06x . In addition, gross margin of the publishing segment rose 14.1ppt YoY to 36.1% amid business transformation and upgrading, driving up overall gross margin. Expenses: In 1H22, sales and G&A expense ratio increased 0.3ppt and 0.1ppt YoY to 9.5% and 10.9%, staying largely stable.

    Fundamentals solid backed by strong population growth momentum in Shandong; high dividend payouts highlight long-term investment value. Population growth: The number of K-12 students, who are users of textbooks and teaching materials, is the key factor determining the sales volume of textbooks and teaching materials. In Shandong province, the number of K-12 students shows strong growth momentum. According to the National Bureau of Statistics of China, the number of newborns witnessed rapid growth in Shandong after the introduction of the two-child policy. In 2014 and 2016, the number of newborns increased 25% and 43% YoY, outpacing the national average of 3% and 8%, laying a foundation for the fundamentals of the firm’s textbook and teaching material business. Dividend payment: From 2017 to 2021, the firm’s dividend per share was Rmb0.22, Rmb0.29, Rmb0.32, Rmb0.32, and Rmb0.35. Looking ahead, we think the firm’s cash flow could remain reasonably abundant, and it could maintain relatively high dividend payments.

    Financials and valuation

    We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 7.7x 2022 and 7.4x 2023 P/E. We maintain OUTPERFORM and our TP of Rmb8.00 (10.0x 2022 P/E and 9.6x 2023 P/E), offering 29.8% upside from the current price.

    Risks

    Slower-than-expected growth in student enrollments at primary and secondary schools in Shandong; changes in textbook and teaching material pricing policies; digital transformation disappoints; COVID-19 resurgence weighs on book distribution.