The third-quarter results were lower than we expected.
The company announced 3Q23 results: revenue was 217 million yuan, down 15.8% from the same period last year, which was lower than our expectation of 260 million yuan. We judged that it was mainly due to the remaining pressure in the book retail market; the net profit from home was 41.25 million yuan, down 7.0% from the same period last year, which was also lower than our expected 45 million yuan, mainly because the revenue performance was lower than we expected.
Trend of development
The repair of the book retail market was relatively slow, and the year-on-year decline in revenue expanded in the third quarter. According to the open-book data, the book retail market in the first three quarters fell by 1.04% compared with the same period last year, which was only slightly narrower than that of 1Q23 and 1H23. By type, children's and literature books still accounted for the top three categories, but the proportion of children's category decreased by more than 2ppt. In the third quarter, the company's paper book sales fell 16.0% compared with the same period last year, revenue from paper books fell 13.3% year-on-year, and gross profit margin increased 1.5ppt. Specifically, when the summer vacation enters the peak reading season for students, the company's popular long-selling books continue to have good sales performance, including "alive", "hundred years of Solitude", "ordinary World" and so on, while we judge that the performance of children's books is still relatively weak. on the one hand, the overall market for children's books is declining, on the other hand, the company's business team personnel integration and optimization. As well as for self-broadcast and other channels to try the effect may still take time to show.
The cost control is better, and the profit margin level is slightly higher than that of the previous month. In terms of gross profit margin, the company's gross profit margin in the third quarter was 48.4%, an increase of 3.4ppt over the same period last year, and a month-on-month increase of 0.9ppt, with good cost-side control. In terms of expenses, the absolute value of the main expenses (sales / management / R & D) decreased in the third quarter compared with the same period last year, of which sales expenses and management expenses decreased by 15.0% and 12.0% respectively, indicating the company's relatively prudent expenditure strategy. To sum up, the company's net profit in the third quarter was 41.25 million yuan, down 7.0% from the same period last year, and the net interest rate was 19.0%, up 1.8ppt from the same period last year and 0.6ppt from the previous year.
Looking forward to the fourth quarter, pay attention to the e-commerce node for book sales and new book listing performance. The company's new book is Zhiyu and "on such a rainy day", and Xu Xianyun's "Jingwei Huaxia" went on sale in September; in addition, the main short video / e-commerce platform has been launched on November 11, and we suggest that we pay attention to the online channel boost to the book retail market consumption drive.
Profit forecast and valuation
Taking into account the relatively slow progress in the recovery of the book market, we reduced the revenue of 2023 Universe by 9.5% in 2024 to RMB 8.93 billion in 2024, but taking into account the good control of the company's costs and expenses, we basically maintained the 2023 Universe 2024 homing net profit forecast unchanged, and the current share price corresponds to 18 times 2023 Universe. Maintain the neutral rating, taking into account the downward shift of the valuation center of the industry, the target price will be lowered by 10% to 19.0 yuan, corresponding to 19pm 17 times 2023max 2024 Pmax E, and the target price has 10% upside space compared with the current stock price.
Risk
Book retail market sales continue to be under pressure, channel discount pressure, overseas business expansion is not as expected, liquidity risk, loss of core editors, increased piracy and infringement.