Core viewpoints

The overall performance of 2Q23 company is sound, and the general book sales and online sales of publishing business contribute to the main performance increment.

Looking forward to the second half of the year, the company's performance is expected to maintain a stable development trend. In the long run, we believe that the company has flexible operation, strong sensitivity to industry changes, multi-line layout online education, and promotes the growth of users on all platforms through high-quality content storage, laying the foundation for the subsequent introduction of AI function and commercial realization:

1) the scale of users of the education information platform Qingyun online and electronic society continues to grow; 2) the high-quality content of the torch knowledge strict selection platform is expected to be combined with Boku book e-commerce to form a positive cycle of user growth and retention of e-commerce and knowledge payment.

Event

According to the company's annual report of 23 years, in the first half of 23 years, the company realized operating income of 5.511 billion yuan (YoY+ 2.14%), net profit of 724 million yuan (YoY+6.59%), and net profit of 665 million yuan (YoY+5.42%).

In the second quarter, the company achieved operating income of 2.825 billion yuan (YoY+1.64%), net profit of 578 million yuan (YoY+4.24%), and net profit of 542 million yuan (YoY+4.80%).

1. The performance of the issuance business is solid, and the proportion of online sales is increasing. In the first half of 2023, the company's issuance business income was 4.476 billion yuan, an increase of 1.31% over the same period last year.

Among them, offline steady development, online sales growth is faster.

1) offline: in the first half of 2023, Zhejiang Xinhua Bookstore Group, a subsidiary of the company, achieved an operating income of 3.339 billion yuan and a net profit of 352 million yuan, an increase of 3.23% over the same period last year. The company continues to expand and optimize its offline sales network, adding 3 self-owned stores, 9 small chain bookstores and 35 rural studies in the first half of 2023, and actively introducing emerging suppliers such as Huawei and iFLYTEK to increase diversified business income.

2) online: online sales revenue in the first half of 2023 was 1.652 billion yuan, an increase of 12.91% over the same period last year, mainly due to the company's online omni-channel expansion of the ecological chain of live streaming scenes to cope with the decline in book consumption and the competitive pattern of the e-commerce industry. In the first half of 2023, Boku Group promoted the two modes of bringing goods and self-broadcasting. Sales in Douyin and Kuaishou Technology channels increased by 30% over the same period last year. Zhejiang Xinhua online book sales increased by 392 million, an increase of 90.2% over the same period last year. Literature and art agencies generally sold more than one million yuan per live broadcast, with revenue of 15 million yuan in the first half of the year.

2. The publishing business is growing rapidly, and the general book sales are outstanding. In the first half of 2023, the company's publishing revenue was 1.44 billion yuan, an increase of 12.23% over the same period last year. Of this total, the general book sales revenue of the publishing business was 874 million yuan, an increase of 10.87% over the same period last year. The company's real foreign market share in the national book retail market reached 3.07%, up 0.89 pct from the same period last year. Its education society, people's society, and literature and art society entered the top 50 of the retail market publishing houses.

3. Gross profit margin and period expense rate remain stable compared with the same period last year. The company's 2Q23 achieved a gross profit margin of 30.15%, a decrease of 1.00pct compared with the same period last year; the expense rate during the period was 11.81%, a decrease of 0.36pct compared with the same period last year, with a sales / management / R & D expense rate of 10.82%, 3.67% and 0.13%, compared with the same period last year, which reflected the company's good cost management and control ability.

4. The multi-line layout of online education continues to permeate, and "AI+ education" can be expected in the future.

1) the scale of users of the dual platform of education informatization continues to grow: according to the company's announcement, by the middle of 2023, the total number of users of the "dual platform" mobile product matrix of Education Group Electronic Society and Qingyun online has exceeded 4.3 million.

2) the high-quality content of Boku Group's torch knowledge platform has increased: in the first half of 2023, Boku Group Torch knowledge strict selection platform added 117 new content providers and released more than 25000 pieces of high-quality content; focusing on channel revision around "understanding a book", online high-quality "reading book" audio 1096, is expected to combine Boku book e-commerce, to form a positive cycle of user growth and retention of e-commerce and knowledge payment. In the long run, we believe that the platform is expected to attract more users by virtue of its high-quality content reserve; a larger number of users is expected to lay the foundation for the subsequent introduction of AI functions and the realization of commercial realization.

Investment advice: in the first half of 2023, the company's overall performance is sound, the distribution business is growing steadily, and the publishing business is growing at a high rate. Looking forward to the second half of the year, the company's publishing and distribution business is expected to maintain a steady development trend. In addition, the company's flexible operation and strong sensitivity to industry changes, multi-line layout online education, through high-quality content storage to promote the growth of users of each platform, laying the foundation for the subsequent introduction of AI function and commercial realization. We expect the company to achieve operating income of 12.491 billion yuan, 13.229 billion yuan and 13.986 billion yuan from 2023 to 2025, 6.0%, 5.9% and 5.7% of the same period last year, and the net profit of the company is 1.563 billion yuan, 1.697 billion yuan and 1.821 billion yuan, respectively. The closing price of 10.55%, 8.60% and 7.28% of the same period on August 25 corresponds to the PE of 11.77max, 10.83 and 10.10x.

Risk analysis.

The risk of less than expected growth of K12 students in Zhejiang Province, the risk of less than expected recovery of brick-and-mortar stores, the risk of limited operation of online logistics, the risk of macroeconomic fluctuations, the risk of rising raw materials or logistics costs, the risk of a reduction in the number of new population, the risk of education policy regulation, the risk of content policy regulation, the risk of changes in users' consumption habits, the risk of less than expected copyright protection, The risk of the loss of copyright resources, the risk of undefined intellectual property rights, the risk of the decline of the influence of IP, the risk of a change in the aesthetic orientation of the public, the risk of declining sales of blockbuster products, the risk of increasing channel discounts in online stores, the risk that new business expansion is not as expected, the risk of failure in investment transformation, and the risk that the development of generative AI technology is not as expected.