Key points of investment
Incident: CITIC Publishing released its 2023 interim report. The company's operating income for the first half of 2023 was 873 million yuan, up 2.92% year on year; net profit of 91 million yuan, up 1.35% year on year; net profit after deducting non-return net profit of 89 million yuan, up 1.03% year on year. Among them, in the second quarter, the company achieved operating income of 446 million yuan, an increase of 2.18% over the previous year, net profit of 49 million yuan, an increase of 0.32% over the previous year, after deducting non-return net profit of 50 million yuan, a year-on-year decrease of 9.66%.
The main business bucked the trend and expanded, and non-domestic business grew rapidly. In the first half of 2023, the company's main business gross profit margin was 35.36%, down 1.49 pct from the previous year; the sales expense ratio was 17.05%, down 2.88 pct from the previous year; the management expense ratio was 6.38%, down 0.60 pct from the previous year; and the R&D expense ratio was 0.58%, up 0.22 pct from the previous year. 1) Overall improvement in operating indicators: In the first half of the year, under the overall downward trend in the domestic book retail market, the company achieved revenue expansion against the trend. The number of book sales categories increased 7.3% year on year, inventory turnover increased 0.41, and TOP500 bestsellers in the 10 major segments covered by the company were listed 311 times, an increase of 4.4% over the previous year. 2) Rapid growth in non-domestic business: In the first half of 2023, the company exported a total of 173 types of publishing rights, including works promoting outstanding traditional Chinese culture and highlighting Chinese wisdom, Chinese solutions, and Chinese strength. Non-domestic business achieved a year-on-year increase of 62.50%.
The leading position of mass publishing is stable, and it has embraced AIGC's technological changes. 1) Popular Publishing continues to lead the way:
2023H1, the company's share of the Shiyang market in the overall book market was 3.47%, up 0.48 pcts from the same period last year, ranking first among publishing institutions; Shiyang variety efficiency was 5.03, up 0.44 from the same period last year, ranking first in the industry. Business management, children's, psychological self-help, and biographical books all rank first in the market share, and the company has a strong leading position. 2) Distribution management standardization upgrade: The company's distribution management process has been fully standardized, a data model based on a tag system, a reader-centered user operation system, a product operation system with refined product management as the goal, and a marketing management system with accurate traffic management as the logic; 3) Increased investment in live e-commerce: The company closely follows the growth opportunities of short videos and live e-commerce platforms, and continues to increase investment and iteration in content e-commerce. The average GMV of the official live broadcast room has increased by 329% year-on-year, ranking at the top of the industry; 4) Actively embraces AIGC's artificial intelligence transformation The product production and promotion system has been basically set up, and the first batch of AI-assisted publishing books is ready for sale. The company's AIGC digital publishing integrated tool platform has been opened for trial to the internal editorial team, achieving significant cost reduction and efficiency in process steps such as topic selection and evaluation, translation, preliminary review, cover and illustration production, marketing hot spot matching, and copywriting. Furthermore, the company's unified “intelligent digital system”, based on the AIGC application layer, integrates the company's parallel publishing laboratory, CITIC Academy, new media business, technology research and development center, and content e-commerce business, with a view to building a super content platform and knowledge service system, which is expected to form the company's second growth curve.
Profit forecast: We slightly adjusted our profit forecast. We expect the company's net profit to be 227/265/307 million yuan in 2023-2025. PE corresponding to the current stock price (August 25, 2023) will be 24.3/20.9/18.0 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: Risk of increased market competition, risk of industry growth falling short of expectations, risk of intellectual property infringement, risk of macroeconomic fluctuations, risk of AIGC technology falling short of expectations, etc.