Incident: Xinhua Wenxuan released its financial report for the first half of 2023. According to the financial report, on the revenue side, the company achieved operating income of 5.43 billion yuan, an increase of 9% year on year; on the profit side, net profit of 760 million yuan, an increase of 6.2% over the previous year; after deduction, net profit of 800 million yuan, an increase of 24.8% over the previous year; the company's performance maintained continuous growth for many years, and the stability of the company's business model and the compound interest value brought by continuous growth was further highlighted.

The stability of the main education business is the core of the company's continuous growth. The publishing and distribution of textbooks and teaching aids is Xinhua Wenxuan's main business. In the first half of 2023, the textbook teaching aid publishing and distribution business achieved very good growth: the publishing side achieved revenue of about 630 million yuan, an increase of 9.3% over the previous year; the distribution side achieved revenue of 2.13 billion yuan, an increase of 13.5% over the previous year. In the first half of the year, through accurate prediction of the education market, Xinhua Wenxuan used specialization, differentiation, and branding strategies as business guidance strategies, optimized and adjusted the company's existing multiple education products in accordance with the new compulsory education curriculum plan and other relevant regulations, and deeply integrated the company's education products with the policy requirements of the current compulsory education stage, so that the content quality and market sales of the newly upgraded educational books were significantly improved.

The integration of IP and stores promotes the development of the company's general books. With the further development of the Internet, the traditional book sales system has been greatly impacted. However, due to its own positive response strategies, Xinhua Wenxuan has maintained development above the industry average in the fiercely competitive general book market: the publishing side achieved revenue of 450 million yuan, an increase of 13.6% over the previous year; the distribution side achieved revenue of 2.53 billion yuan, an increase of 8.5% over the previous year. We believe that in summary, the overall strategy of Xinhua Wenxuan in the general book market is to integrate IP upward and form various collaborations with many top authors and overseas institutions, including Disney; further integrate and optimize stores downward, including Tuanji Culture Mall, large and medium-sized bookstores, specialty bookstores, community bookstores, supermarket bookstores, and online reading platforms. Through organic interaction between upstream and downstream, it has coped with the impact of the Internet on the traditional reading industry. Judging from the current situation, it has obtained relatively good market feedback.

Profit forecasts and investment recommendations. Net profit for 2023-2025 is estimated to be 1.55 billion yuan, 17.01 billion yuan, and 1.83 billion yuan, corresponding to PE 11 times, 10 times, and 9 times, respectively. Considering the continuous optimization of the company's online platform and the steady development of the education service business, with the company closely following the Internet sales model, optimizing the store business layout, and maintaining the “buy” rating, it is recommended to pay attention.

Risk warning: the risk of changes in national policies, the risk of fluctuations in the enrolment population, the risk of fluctuations in paper prices.