Event: the company releases three quarterly results for 2023

According to the company's report for the third quarter of 2023, 23Q3's revenue was 369 million yuan, down 13.26% from the same period last year, and its net profit was 39 million yuan, an increase of 163.03% over the same period last year. Revenue in the first three quarters of 2023 was 1.02 billion yuan, an increase of 12.19 percent over the same period last year. The net profit was about 2.44 million yuan, reversing losses (a loss of 123 million yuan in the same period last year). The reason for reversing losses is that litigation recovers business funds, contributing nearly 40 million of non-recurring profits and losses.

The content is rich, and the commercialization continues to be promoted.

The company has rich content reserves, accumulated more than 5.5 million kinds of digital content resources, more than 4.5 million original network authors, and signed more than 2000 well-known writers and best-selling authors in cooperation with more than 600 copyright institutions (as of 23 mid-year report). Its original content platform includes 17K novel network, April day novel network, fantasy universe, enigma plan and so on. It covers fantasy, urban romance, martial arts, youth campus, archaic female frequency, science fiction, suspense interest and so on. From a commercial point of view, 1) the company continues to deepen inter-industry channel cooperation, covering Wechat Reading, QQ Book, QQ Browser, Seven Cat novels and other platforms. 2) continue to make efforts to protect intellectual property rights, the company launched "power whistle" and "no copy" two major platforms, actively provide convenient services for all kinds of power people to report.

3) continue to promote copyright adaptation, including films, dramas, short dramas, comics, etc.

Skits / skits show outstanding performance and bring performance flexibility

The microdrama industry is booming, with a total of 481 new skits in the first half of 2023, higher than the new 454 in 2022, which shows a trend of rapid expansion of supply. The company has the advantage of copyrighted content, and adapts its works according to its platform IP, including "provoking", "East Palace on the Moon", "Xianjun has robbed", "fighting" and so on. Among them, "provoking", adapted from its April Fiction Network of the same name, is a national love suspense category, which was broadcast in Tencent video in March this year, with a cumulative box office of more than 20 million, bringing performance flexibility.

The release of "Xiaoyao Big Model", paying attention to the progress of follow-up commercialization.

On October 13, the Chinese Xiaoyao model was released. The product is mainly used to help creators generate content. Based on the inspiration of the creator's ideas, the product can provide functional assistance covering the whole creative process from story conception, plot arrangement, content writing, as well as character dialogue and illustration production. Under the traditional content creation mode, the creator needs to independently complete all the work such as material collection, outline construction, character shaping, dialogue deliberation, scene outline, sentence carving and so on. With the help of the large model, the author focuses more on the high creative links, handing over the work of high energy consumption and low creativity to AI. Follow-up recommendations continue to pay attention to the progress of product commercialization.

Investment suggestion: at present, the market has high expectations for the future development of AIGC, and the company will continue to expand IP resources. We are optimistic about the company's determination and confidence in the field of AIGC. After years of performance fluctuations, it has been actively adjusted to a new starting point. We expect the company to achieve a net profit of 126 million yuan, 175 million yuan and 234 million yuan from 2023 to 2025, an increase of 135%, 40% and 34% over the same period last year, corresponding to PE72x, 52x and 39x, respectively.

Risk hint: the development of AIGC technology is not as expected and the risk of intensified competition in the industry.