Performance overview: The company released the third quarterly report of 2023. From Q1 to Q3 of 2023, the company realized operating income of 1.286 billion yuan, with a year-on-year decline of 3.11%; net profit attributable to parent was 126 million yuan, with a year-on-year decline of 8.98%; net profit deducted from non-parent was 119 million yuan, with a year-on-year decline of 12.35%. In Q3 of 2023, the Company realized operating income of RMB 413 million yuan in a single quarter, with a year-on-year decline of 13.77% and a month-on-month decline of 7.40%; realized net profit attributable to parent of RMB 35 million yuan, with a year-on-year decline of 27.82% and a month-on-month decline of 28.57%; realized net profit deducted from non-parent of RMB 29 million yuan, with a year-on-year decline of 37.60% and a month-on-month decline of 42.00%.

The market share of real estate has risen steadily, and the layout density of subdivided fields has been strengthened. At the industry level, according to the open-book data, the national book retail market declined by 1.04% year-on-year from Q1 to Q3 in 2023, and the decline continued to narrow. In the first three quarters of 2023, the real foreign market share of the Company in the national book retail market was 3.28%, an increase of 0.38pct year-on-year, and the leading position in the industry was stable. At the segment level, the company ranks first in the market in management category, children category, psychological self-help category and biography category. The company continues to strengthen the publishing efforts in various sub-fields and launch key books, among which the Biography of Elon Musk and the series of books such as Oppenheimer Biography and Chang 'an Thirty Thousand Miles launched in the form of IP linkage have significant dissemination effects. The company invests in innovative content and high-quality copyrights to improve content planning, marketing and distribution capabilities.

In response to channel reform and innovative distribution mode, content e-commerce continues to lead the book industry. Based on the current situation of the industry where the flow of traditional book sales channels is declining while the emerging channels are not yet mature, the Company promotes the transformation and upgrading of the marketing and sales system to improve quality and efficiency through data-driven and technology application. From Q1 to Q3 of 2023, the gross profit margin of the Company increased by 2.46pct year-on-year. The Company standardized the issuance process, established a data model based on the label system, a product operation system with refined management as the goal, and a marketing system with accurate flow operation as the logic. The Company accelerated the reshaping of interpersonal and community-based marketing models, and strived to improve product effectiveness by promoting the "Golden Product Project"; adopted the strategy of broadening segmented channels and extending vertical channels, expanded the three-dimensional sales system, and expanded the sales channels of animation, children and other vertical categories as well as government and enterprise major customers; at the same time, the Company continued to increase the investment and iteration of content e-commerce, and the average GMV of official live broadcast rooms led the book industry.

Build digital intelligence system, cooperate with AIGC Model Technology Company. 2023Q1-Q3, the company firmly built a digital intelligence system, developed data assets and cooperated with major AIGC model technology companies to accelerate the creation of intelligent reading brands. The AIGC digital publishing integration tool platform has been opened for trial use by internal editorial teams, which significantly improves efficiency in process tests such as topic evaluation, translation, preliminary revision, cover and illustration production, marketing hotspot matching and copywriting. Through the integration of parallel publishing laboratory, CITIC Academy, new media business, technology research and development center and content e-commerce business, the Company has established an "intelligent digital system", which is based on the cross-integration of organization, technology and users at the AIGC application layer, and has built a super content platform and knowledge service system on the digital platform, reader interaction and social embedding integration, thus forming the second growth curve of the Company. In Q3 2023, the sci-fi series Blood and Rust published by the company with the assistance of AIGC digital publishing platform was launched, successfully improving the publishing efficiency and gaining wide attention in the application field of publishing AIGC.

Profit forecast and rating: The company is the leader in the mass publishing field, maintains the industry leading market share in multi-segment tracks, and creates a new growth point with AIGC digital intelligent publishing business and intelligent reading digital platform. We expect the company to achieve revenue of 20.61/23.43/25.78 billion yuan respectively from 2023 to 2025, with a year-on-year growth of 15%/14%/10%, and net profit attributable to parent of 2.31/2.59/2.85 million yuan, with a year-on-year growth of 83%/12%/10%, corresponding to PE 21/18/17x, maintaining the "buy" rating.

Risk warning: policy tightening risk; copyright party unable to renew risk.