Event: city Media released its semi-annual report in 2023, 2023H1 achieved a total operating income of 1.353 billion yuan, an increase of 9.8% over the same period last year, a net profit of 208 million yuan, an increase of 5.9%, and a non-return net profit of 197 million yuan, an increase of 3.7% over the same period last year. 2023Q2's revenue was 716 million yuan, up 9.3% from the same period last year; the net profit from returning to the mother was 112 million yuan, up 2.3% from the same period last year; and the net profit from non-return was 101 million yuan, down 2.1% from the same period last year.
Comments: the main business is growing against the trend, the book product system continues to expand, and new breakthroughs have been made in digital transformation. 1) the main business has achieved counter-trend growth. In the first half of 2023, the company's publishing business achieved revenue of 529 million yuan, an increase of 1.4% over the same period last year, and a gross profit margin of 45.5%, an increase of 3.9pct over the same period last year. The revenue of the distribution business was 1.045 billion yuan, an increase of 8.4% over the same period last year, and a gross profit margin of 18.8%, a decrease of 2.3pct over the same period last year. The company's main business of book publishing and distribution has achieved counter-trend growth under the situation of a year-on-year decline in the national book retail market.
2) the teaching materials and teaching aids are promoted in an orderly manner, and the general book product system continues to expand. In terms of teaching materials and auxiliary teaching, the company continues to promote the construction of "thousands of prefectures, cities, millions of districts and counties", promotes the distribution of teaching materials in and outside the province in an orderly manner, and gives full play to the role of educational products as "ballast stone". It has laid a solid foundation for the company to achieve its annual business target. In terms of general books, the company has comprehensively improved its ability to build best-selling products in the market. according to "open-book" data, the company's chess and card book market accounted for the first place in the country in the first half of the year, while beauty and clothing and children's Sinology books continued to take the lead in the industry. The company studied and judged "Book and Film interaction" in advance, and prospectively planned to publish the film and television book "Biao" of the same name to become a phenomenon-level product.
3) implement the deep integration of digital publishing and make new breakthroughs in digital transformation. The company set up a large model training and application laboratory for AIGC publishing, and the investment in technology research and development increased by 130.36% over the same period last year. "AI Reading, a large family of excellent traditional Chinese cultural picture books", was unveiled at the 31st National Book Exchange Expo, and the first batch of 30 picture books will be launched in September. The "Digital Culture and Expo Interactive experience" project has been put into use in many museums in China. The Vientiane AIGC Publishing Model, developed and released in early June, aims to provide professional and efficient content production capacity for the publishing industry and educational science popularization. In addition, the company continues to push forward in the VR+ education and research track, R & D and launch "I love the motherland aerospace" VR research theme module.
4) reduce the cost and increase efficiency, and maintain the intensity of research and development. The company's 2023H1 sales expense rate was 9.6%, which decreased 0.2pct compared with the same period last year.
The rate of administrative expenses is 7.4%, which is reduced by 0.3pct compared with the same period last year. The investment in R & D expenditure is stable, and the rate of 2023H1 R & D expenditure is 0.1%, an increase of 0.1pct over the same period last year. From a quarterly point of view, the rates of 2023Q2 sales, management and R & D expenses are 9.2%, 7.2% and 0.1% respectively, increasing-0.4/-0.3/+0.1pct respectively compared with the same period last year, and the overall expense rate shows a downward trend.
Profit forecast and valuation: considering that the marginal improvement of the general online and offline sales channels is more obvious and the company's 2023H1 performance is in line with expectations, we maintain the previous revenue and profit forecast. At the same time, considering that the gross profit margin of the issuance business has declined as a result of the increase in offline activities after the epidemic, the forecast of the net profit of homing has been slightly adjusted, we estimate that the net profit of homing from 2023 to 2025 is 3.70,4.22 and 482 million yuan respectively (the previous value of the net profit from 2023 to 2025 is 378 million yuan, 446 million yuan and 514 million yuan respectively). The current market capitalization corresponding to the valuation of the company is 14.4x, 12.6x, 11.0x respectively, maintaining the "overweight" rating.
Risk prompt events: policy risks on the cultural regulatory side; increased discounts on short video live e-commerce books; and the risk that the information and data used in research and reporting are not updated in a timely manner.