Chinese Media ( CH)_Downgrade to Reduce_ Revenue under pressure

Summary of Chinese Media (600373 CH) Equity Research Report Company Overview - Company: Chinese Media - Industry: Media - Current Rating: Downgraded to Reduce from Buy - Target Price: Reduced to RMB 8.40 from RMB 18.70 Key Financial Metrics - 2023 Revenue: CNY 10,084 million - 2024 Revenue Estimate: CNY 8,574 million (down 21.4% from previous estimate) - 2025 Revenue Estimate: CNY 7,676 million (down 33.9% from previous estimate) - 2026 Revenue Estimate: CNY 8,188 million (down 32.8% from previous estimate) - 2024 Net Profit Estimate: CNY 915 million (down 52.0% from previous estimate) - 2025 Net Profit Estimate: CNY 1,015 million (down 50.2% from previous estimate) - 2026 Net Profit Estimate: CNY 1,429 million (down 34.4% from previous estimate) [4][44] Core Points and Arguments - Revenue Pressure: Revenue from textbooks and supplementary teaching materials is under pressure due to a policy change in Jiangxi Province, where centralized purchasing by schools has been discontinued since autumn 2024 [2][13][42]. - Earnings Estimates: The company's earnings estimates have been significantly lowered due to the impact of the policy change, with a projected CAGR of pre-tax profit at 6% for 2024-26, which is below the industry average of 13% [13][46]. - Valuation Concerns: The stock is currently trading at a 19x 2025e forward PE, which is above the industry average of 17x, indicating that the stock may be overvalued [13][46]. - Tax Benefits: The company is expected to enjoy tax benefits starting in 2025 due to preferential tax treatment for cultural enterprises, leading to a significant reduction in income tax rates [21][13]. Financial Ratios and Changes - Gross Margin: Lowered gross margin estimates for 2024-26 by 2.5ppt, 2.1ppt, and 0.9ppt to 40.6%, 40.1%, and 41.3% respectively [20]. - Expense Ratios: Increased selling, administrative, and R&D expense ratios due to lower revenue estimates [43]. - Market Capitalization: Current market cap is CNY 18,993 million (USD 2,613 million) [14]. Risks and Opportunities - Risks: The primary risk is the continued pressure on textbook sales due to the policy change, which could lead to further revenue declines [42]. - Opportunities: Potential for recovery in the textbook business if the company can adapt its sales strategy to target students directly, and growth in the overseas gaming market could provide additional revenue streams [51]. Conclusion - The downgrade to Reduce reflects significant downward revisions in revenue and profit estimates due to policy changes affecting the core business of Chinese Media. The company faces challenges in adapting to these changes while also being overvalued compared to industry peers. Future performance will depend on the successful implementation of new sales strategies and the realization of tax benefits.