Event: Century Tianhong released its three-quarter report for 2023. 2023Q1-Q3 achieved total operating income of 369 million yuan, an increase of 23.4% over the previous year; net profit of 31 million yuan, an increase of 14.4% over the previous year; net profit after deducting non-return mother was 30 million yuan, an increase of 23.4% over the previous year. 2023Q3 had revenue of 219 million yuan, up 22.8% year on year; net profit from net income of $24 million, up 19.7% year on year; net profit after deducting net income of $225 million was $225 million, up 24.6% year on year.

Comment: Maintain the pace of teaching aid product development, and continue to iterate AI+ education products? 1) Maintain the pace of teaching aid product development and consolidate teaching and research service capabilities. According to information on the official account of Century Tianhong, the company has made every effort to launch a series of books such as the new “Blue Book for the College Entrance Examination” and the “College Entrance Examination General Review and Optimization Design (Second Round)”, and is also strengthening in-depth innovative research on new curriculum standards, new textbooks, and new college entrance examinations to accelerate the pace of upgrading the value-added resources of products. At the same time, the company is actively carrying out teaching and research activities. In 2023Q1-Q3, the company organized 500 teaching and research service activities nationwide, covering 23 provinces, and organized more than 300 expert teachers, making every effort to build a team of specialized teaching and research experts to explore demand in the field of teaching.

2) AI+ education products continue to iterate, and accelerated launch can be expected. According to information on the official account of Century Tianhong, Assistant Professor Xiaohong 3.0 has been released, adding industry-leading AI essay correction functions, and upgrading the skills of course plan students, covering 9 university subjects in high schools and achieving complete synchronization with textbooks. At the same time, the applet version of the product has been successfully launched, adding 6 major application scenarios to meet the various needs of daily teaching and office. In terms of interactive experience, the company has accelerated the development of multi-modal output functions such as science formulas and charts by Assistant Professor Xiao Hong to provide a multi-dimensional interactive experience, and it is expected that the product will be launched at an accelerated pace.

3) Implement cost reduction and efficiency, and stable cost rates. The 2023Q3 sales, management, and R&D expenses were 11.4%, 5.9%, and 0.5% respectively, with a year-on-year increase of +1.1/-0.7/-0.1 pct, respectively. The overall cost rate was relatively stable.

Profit forecast and valuation: Considering that the company maintains a high R&D pace and the company's 2023Q3 performance is in line with expectations, we appropriately raised the company's performance expectations. It is estimated that Century Tianhong's 2023-2025 revenue is 4.90/5.24/555 billion yuan (pre-revenue value for 2023-2025 was 4.66/497/527 million yuan, respectively), up 13.12%, 6.96%, and 5.99%, respectively; net profit was 0.44/ 0.56/62 million yuan, respectively ( (The previous value of net profit from 2023-2025 was 0.42/0.54/60 million yuan), up 23.51%, 27.23%, and 10.57% year-on-year respectively.

The valuation of the company corresponding to the current market value is 89.9x, 70.6x, and 63.9x, respectively, maintaining the “increase in holdings” rating.

Risk warning events: policy risks on the cultural supervision side; risk that the number of students will not increase as expected; increased discounts on e-commerce books on short video broadcasts; and the risk that information and data used in research reports will not be updated in a timely manner.