The company's 23Q1 realized revenue of 2.311 billion yuan (YoY+4.7%) and deducted non-net profit of 226 million yuan (YoY+48.5%). The growth of non-net profit was mainly affected by changes in the fair value of Wenxuan investment holding fund projects. The company's core business growth is steady, the channel platform is becoming more and more diverse, and the innovative business represented by educational services and cultural digitization continues to advance. We are optimistic about the leading edge of the company's regional leader and maintain the "overweight" rating.

Income and profits are growing healthily, and the asset structure is stable. 23Q1 achieved revenue of 2.311 billion yuan (YoY+4.7%), mainly due to the growth of business sales such as educational services and Internet sales, of which the distribution / publishing business realized income of 2.022 billion yuan, gross profit of 25.8%, internal offset of 670 million yuan, gross profit of 32.3% (YoY-0.1pct) and net profit of 200 million yuan (YoY+18.0%). Deducting non-net profit 226 million yuan (YoY+48.5%), deducting non-net profit has a large increase, which is mainly due to the fluctuation of the fair value of fund projects held by Wenxuan Investment Co., Ltd. (Wenxuan investment is the main investment, investment income and fair value change profit and loss are not deducted as non-recurrent profit or loss). As of the end of 23Q1, the company has 8.022 billion yuan in currency on its books and sufficient cash reserves.

The distribution of teaching materials is growing rapidly, and the Internet sales system continues to be built. In the first quarter of 2023, the distribution revenue of educational services was 1.254 billion yuan (YoY+11.8%), of which 1.22 billion yuan was sold by teaching materials, with a sales revenue of 1.191 billion yuan (YoY+20.8%) and a gross profit margin of 34.01% (YoY+1.5pcts).

The company's online and offline distribution channel system has been further improved, continuously improving the fine operation capabilities of proprietary and third-party platforms, and actively exploring Internet channels such as Douyin, Kuaishou Technology, Bilibili Inc. and Xiaohongshu. Internet sales in the first quarter of 2023 totaled 613 million yuan (YoY+1.8%) and a gross profit margin of 9.77% (YoY-1.0pct).

The publishing business has developed steadily and has been deeply integrated online and offline. In the first quarter of 2023, the company sold 1.131 billion yuan in teaching materials, with an operating income of 652 million yuan (YoY+1.8%) and a gross profit margin of 41.05% (YoY-2.3pcts). General book sales totaled 833 million yuan, operating income 213 million yuan (YoY+35.7%), and gross profit margin 22.27% (YoY-3.6pcts). The company pays attention to the deep integration of traditional paper publishing and digital publishing, online and offline education, and sets up a special area of "Sichuan Education and Learning" on the multimedia platform to improve the quality of service.

The development of educational services and the digitization of culture are expected to open up room for growth. In terms of educational services, in 2022, the company continued to promote the optimization and upgrading of the online service platform for "excellent learning and excellent education", covering 6319 schools and serving 4.5258 million students. In terms of cultural digitization, 9 publishing houses of the company launched 916 kinds of non-paper publications such as e-books and audio books in 2022; 20 digital publishing projects were selected or won awards such as the National Audio Book Fine works Publishing Project, the first Virtual reality Press and Publishing Innovation and Application list, Provincial copyright demonstration Units and so on. The radio drama "Wang Wang team performed Great Meritorious Service" has been viewed more than 100 million times in the Himalayas, and the sound brand of "Sound Wu Qi" has received more than one million views, and has been rated as one of the top ten podcasts in the national publishing industry. The company's innovative business such as cultural digitization and educational informationization is accelerated, and it is expected to realize diversified realization and open up the space for performance growth by relying on its own capital and cultural and educational content advantages.

Risk factors: changes in textbook publication and distribution policy; changes in tax policy and subsidy policy; rising prices of paper and other raw materials; the number of newborns and primary and secondary school students in Sichuan Province is not as expected; the progress of company project investment is not as expected.

Investment suggestions: the core business of the company's distribution and publishing has developed steadily, the diversified expansion of the channel platform has contributed to the growth, and the innovative business represented by educational services and cultural digitization has continued to advance. Considering the gradual recovery of the book retail market and the bright performance of the company in the first quarter, we raised the company's revenue forecast for 2023 to 120.99 billion yuan in 2025 (the original forecast was 11.903 billion yuan), and raised the company's net profit forecast for 2023 to 1.702 billion yuan in 2025 (the original forecast was 1.602 billion yuan). The current stock price corresponds to 11.7 PE 11.0 times for 2023 to 2025. We refer to the valuation level of regional publishing leaders such as Phoenix Media, Central South Media and Zhejiang Edition Media (an average of 15 times PE in 2023), and give the company 15 times 2023 PE, corresponding to the target price of 19 yuan, maintaining the "overweight" rating.