Event: Century Tianhong released its 2022 annual report. In 2022, the company achieved operating income of 433 million yuan, an increase of 5.25% over the previous year; net profit of 35.61 million yuan, an increase of 2.78% over the previous year; net profit after deducting non-return net profit of 30.59 million yuan, an increase of 13.5% over the previous year.

The cornerstone business continues to grow, and product development, product promotion, and teaching and research services go hand in hand. As the company's cornerstone business and main source of revenue, Educational Aid Books achieved revenue of 366 million yuan in 2022, an increase of 3.16% over the previous year; gross margin was 31.38%, an increase of 1.58 pp over the previous year. In terms of product promotion, the company added 345 review catalogue products from Shaanxi, Guizhou, Zhejiang, Inner Mongolia and other provinces in 2022. At the same time, it also strengthened the construction of regional centers, set up a new business development department, explored new marketing models, promoted the company's products through a “partnership program”, and provided important support for sales revenue growth. In terms of product development, the company planned, edited, and produced 3,347 books throughout the year, and the new topic “Simultaneous Reading of Elementary School Mathematics and Culture” also entered the editing and production process through the People's Education Press. In terms of teaching and research services, the company completed 114 teaching and research service activities in Shandong, Henan, Hebei and other places throughout the year, forming an initial reserve of nearly 200 expert resources and clear working mechanisms and work processes. It already has the ability to conduct multiple teaching and research meetings at the same time.

We have actively laid out AI education, built a new education ecosystem, and made significant progress in investment projects. In the education AI business, the company actively promotes the digital transformation and upgrading of educational content with a technology-driven and content-first concept, focusing on developing accurate teaching products with independent intellectual property rights. The products have covered students' daily homework and teaching scenarios such as examinations in depth, and have been tested in Sichuan, Shandong, Henan, Shanghai, etc., serving over 100 schools and over 10,000 students. At the same time, the company is seizing the new college entrance examination reform opportunities and window to re-establish the “Education Ecology Matrix”, and organized large-scale college entrance examination report training in Henan. A total of 153 high schools and 703 teachers attended the conference, and carried out large-scale joint examination activities involving 128,300 people. At the same time, the company increased capital investment in smart education, successfully completed refinancing in March of this year, and invested 30 million yuan in cash to increase capital to Microrubber Technology in April, enabling the company to explore more deeply in the field of smart education, expand accurate teaching services in schools, and accelerate market expansion. The “Penshen Essay” product that the company invested in in December 2021 has also made significant progress, with a cumulative total of over 13 million users up to the reporting period.

Profit forecast and investment suggestions: The company's EPS for 23-25 is expected to be 0.20 yuan/0.22 yuan/0.24 yuan, respectively, and the corresponding PE is 61/54/50 times, respectively. As a leader in private publishing, the company's AI layout is expected to further open up room for growth. The net profit CAGR for the next three years will be 12.4%, maintaining a “holding” rating.

Risk warning: The double reduction policy poses the risk of uncertainty about the demand for teaching aids; the risk that R&D and sales of educational AI systems will fall short of expectations; and the risk of worsening market competition.