The company released the third quarter report of 2023, Q1-Q3 achieved operating income of 1.286 billion yuan, year-on-year-3.11%, net profit of 126 million yuan,-8.98% year-on-year. 2023Q3 realized revenue of 413 million yuan,-13.77% of the same period last year, and net profit of 35 million yuan,-27.82% of the same period last year.

Both revenue and profits of Q3 declined. 2023Q3 realized revenue of 413 million yuan, down 13.77% from the same period last year and 7.38% from the previous year; the net profit from the home was 35 million yuan, down 27.82% from the same period last year and 27.40% from the previous year. The decline in 2023Q3 performance is mainly due to the following reasons: 1) the third quarter itself is off-season, and the book retail market recovery did not meet expectations, there is a certain negative impact on performance. 2) the investment at the cost side is increased, the company's Q3 management / R & D expenses are + 11.25% respectively compared with the same period last year, and the management / R & D expenses rates are + 1.88/0.39pct respectively. 3) the increase in the impairment loss of assets, with the absolute value of impairment + 165%, is mainly based on the principle of prudence and the impairment loss of prepaid accounts increases according to the impairment policy.

The decline in the book market has narrowed and stabilized, and the company's leading position is solid. Open-book data show that the 2023Q1-Q3 national book retail market fell by 1.04% compared with the same period last year, further narrowing the decline. Although the market has not yet become a full member, the company's real foreign market share in the national book retail market from January to September was 3.28%, an increase of 0.38 percentage points over the same period last year. Management, children, psychological self-help, and biography all ranked first in the market. At present, the company has a rich reserve of key books on hand, including the Biography of Elon Musk (the audio book is launched synchronously on the Himalayan platform), and the popular IP linkage work "Biography of Oppenheimer" and "Changan 30,000 miles", which is expected to further enrich 2023Q4 performance.

AI can improve the quality and efficiency of the publishing industry, and smart reading can enhance the brand advantage. The company's AIGC Mathematical Intelligence Publishing platform assisted the publication of the "Blood and Rust" science fiction series on the market, which has greatly improved the publishing efficiency. In addition, 2023Q3 improved its quality and efficiency with data-driven and technology applications, and its gross profit margin increased by 2.46% year-on-year. The company cooperates actively with major AIGC model technology companies to speed up the building of an intelligent reading brand. In October 2023, Citic Academy jointly launched the knowledge service AI application product, "CITIC Academy AI Reading Assistant", jointly launched by Baidu, Inc. search, marking a key step in building the company's AI+ reading brand.

Maintain the "highly recommended" investment rating. We predict that the book retail market is expected to recover further in the future. As one of the leading companies in the industry, the company has significant advantages in operating efficiency and some subdivided races (management, children, etc.). It is estimated that the net profit from 2023 to 2025 will be 1.58 pound 1.96 trillion PE, corresponding to 30.0 pound 24.1 pm 20.8 times, maintaining the "highly recommended" investment rating.

Risk tips: digital transformation is not as expected; book industry market further decline; e-commerce channel development is not as expected; content copyright risk and so on.