Meemi O.
Mar 86 min
Updated: Apr 29
In this article, we introduce Xinhua Winshare Publishing and Media (新华文轩出版传媒)(HKEX: 0811), a publishing company owned by the Sichuan provincial government which monopolizes the supply of textbooks in Sichuan province but also publishes and distributes other forms of books and media.
Key Characteristics
Steadily growing revenue and profit with relatively stable profit margins
Relatively stable ROE with consistent and growing EPS and dividend payout
Limited business growth potential subject to the risk of a declining population
May be suitable for investors seeking a relatively stable dividend income from a company with sound fundamentals
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Corporate History
The predecessor of Xinhua Winshare can be traced to Xinhua Bookstore (新华书店), a bookstore founded in 1937 by the Chinese Communist Party (CCP) in the Party's headquarter city of Yan'an (延安). Xinhua Bookstore subsequently became the first and only nation-wide bookstore chain following the founding of the People's Republic of China in 1949. After China's opening-up and reform period during the late 1970s to 1980s, Xinhua Bookstore was restructured and broken down from a centrally-controlled business to a number of smaller provincial-level businesses operated by local state-owned companies.
Sichuan Xinhua Bookstore (四川新华书店) was established in 2000 and renamed Sichuan Xinhua Publishing Group (四川新华出版集团) in 2003. Sichuan Xinhua Winshare Chains (新华文轩连锁) was established as a subsidiary of the Group in 2005 and subsequently went public on the Hong Kong Stock Exchange (HKEX: 0811) in 2007. In 2010, Sichuan Xinhua Winshare Chains acquired 15 publishing companies owned by Sichuan Publishing Group (四川出版集团), a state-owned publishing company, and was renamed Xinhua Winshare Publishing and Media (新华文轩出版传媒). Xinhua Winshare went public on the Shanghai Stock Exchange (SHA: 601811) in 2016.
Business Summary
Xinhua Winshare's primary businesses include: the publication and distribution of textbooks, the provision of other education-related products and services to primary and secondary schools, the publication of newspapers, journals, and digital media products, the provision of printing services and supply of printing materials, and the retailing, distribution, and online sales of publications.
The company is the sole supplier of primary and secondary school textbooks in Sichuan province.
Financial Highlights
Total Revenue And Net Profit Grew Steadily During 2013-2022
Xinhua Winshare's total revenue and net income grew steadily over the past ten years from 2013 to 2022, with total revenue growing at a compound annual growth rate (CAGR) of 8.8% and net income growing at a CAGR of 9.9% over this time period. The company switched from IFRS financial reporting standards to Chinese reporting standards in 2016, and started reporting an operating profit metric along with the switch. Xinhua Winshare's operating profit grew steadily at a CAGR of 15.2% from 2015 to 2022. Operating profit and net income are reconciled by non-operating income (such as government subsidies and
gains on disposals of assets) and non-operating expenses (such as donations and losses on disposals of assets).
Operating And Net Profit Margins Are Relatively Stable
Xinhua Winshare's operating and net profit margins fluctuated within a relatively stable range over the sample period, particularly during the past six years from 2017 to 2022. During this time, the company's operating profit margin fluctuated between 11.4% and 14.5% and net profit margin fluctuated between 11.3% to 13.8%.
Textbooks and Supplementary Materials Are The Biggest Revenue Driver
Xinhua Winshare releases principal revenue breakdown data (as reported below) before taking accounting inter-segment eliminations into account. The inter-segment eliminations in each year are relatively large, ranging between 16% to 18% of principal business revenue prior to deducting the eliminations. Principal business revenue is almost equal to but does not exactly equal total revenue, with the difference being reconciled by other revenue such as commission from concessionaire sales.
As shown below, Xinhua Winshare generates more revenue from textbooks and supplementary materials than from other sources prior to deducting inter-segment eliminations.
Note: other revenue reconciliations are not shown in the graph above
Note: the graph starts in 2014 due to revenue breakdown data availability
The Gross Profit Margin For Textbooks And Supplementary Materials Is 2X That Of Other Products
Xinhua Winshare's gross profit margin for textbooks and supplementary materials is approximately double the gross profit margin for other products. Specifically, the gross profit margin for textbooks and supplementary materials fluctuated between 37.8% to 42% over the past eight years, whereas the gross profit margin for other products ranged from 17.6% to 20.4% over the same time period. As a whole, Xinhua Winshare's gross profit margins are remarkably stable, especially those for the textbooks and supplementary materials segment.
Note: the graph starts in 2015 due to segment breakdown data availability
Sichuan Province Accounts For More Than 70% Of Total Revenue Each Year
More than 70% of Xinhua Winshare's total revenue is generated in Sichuan province each year, although the share of total revenue contributed by other provinces is continuously growing.
Note: management only started reporting a revenue breakdown by region in 2016
The Average Gross Profit Margin In Sichuan Province Is 3X That Of Other Provinces
The average gross profit margin for products sold in Sichuan province is approximately triple that of products sold in other provinces. Specifically, the average gross profit margin of products sold in Sichuan province fluctuated between 41.7% to 47.7%, compared with an average gross profit margin of 11.8% to 15.7% for products sold in other provinces.
Note: management only started reporting a revenue breakdown by region in 2016
EPS Is Stable And Growing
Xinhua Winshare generated consistent earnings per share (EPS) during the first half of the past decade, followed by continuously increasing EPS over the latter half of the decade. In 2022, Xinhua Winshare had an EPS of RMB1.13, up from RMB0.75 in 2017 and RMB0.55 in 2013.
ROE Is Moderate But Relatively Stable
Xinhua Winshare generated a moderate but consistent return on equity (ROE) especially during the second half of the past decade, with an ROE that fluctuated between 10.7% to 12.3% from 2018 to 2022.
Dividend Payout Is Stable and Growing In Recent Years
Xinhua Winshare paid a dividend of RMB0.3 per share each year from 2013 to 2019, which increased to RMB0.31 in 2020, RMB0.32 in 2021, and RMB0.34 in 2022.
As of the time of writing, Xinhua Winshare stock is trading at HKD7.54, which equates to an approximate 4.9% dividend yield based on the company's 2022 declared dividend.
Management declared a special dividend of RMB0.18 per share for fiscal 2023, although the year's final dividend has yet to be disclosed.
Investor Summary
Key characteristics of the company include:
Monopoly provider of textbooks and related materials in Sichuan province
Steadily growing revenue and profit
Relatively stable profit margins
Limited business growth potential
Key characteristics of the stock include:
Relatively stable ROE
Consistent and growing EPS
Consistent and growing dividend payout
Moderately high dividend yield*
*compared with other stocks listed on the Hong Kong Stock Exchange
Future opportunities and risk factors include:
Chinese regulators have been encouraging state-owned companies to further reward shareholders (see here), so Xinhua Winshare's management may consider increasing the company's dividend payout ratio (which currently stands at 30%) going forward
China's birth rate is declining, so the demand for textbooks may drop in the long run
Xinhua Winshare's revenue may be correlated with and affected by the Sichuan provincial government's revenue budget
Xinhua Winshare may be suitable for investors who are seeking:
Relatively stable dividend income from a company with sound fundamentals
Exposure to a less cyclical and volatile industry
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