Event: The company drew up a stock repurchase plan to protect shareholders' rights and company value. On November 17, the company announced a plan to repurchase the company's shares through centralized bidding. It is intended to use the company's own capital of not less than RMB 200 million and no more than RMB 400 million to repurchase RMB common stock shares issued by the company through centralized bidding transactions. The repurchase limit shall not exceed RMB 8.5 per share (inclusive), not higher than 150% of the average trading price of the company's shares in the 30 trading days before the board of directors passed the repurchase decision. Stock repurchases are used to cancel and reduce registered capital, demonstrating the company's long-term confidence. This repurchase enhances the long-term investment value of the company's stock and comprehensively considers factors such as the company's financial situation, future development, and reasonable valuation level. It is proposed to use its own capital to carry out share repurchases, which will be used to cancel and reduce the company's registered capital and promote the matching of the company's stock market price with internal value.

On November 18, the company issued an announcement on changing the capital investment projects raised by the non-public offering of shares. The company plans to end the construction of an intelligent learning all-media platform and a smart bookstore operation platform, and invest 1,987 billion yuan that has not yet been invested in new projects, including digital science popularization projects, industry-education intelligent finance platform projects, digital bookstore construction projects, supply chain smart logistics park projects, and smart travel game platform projects. We believe that investing in new projects from the perspective of prudent investment and rational use of capital will help improve the efficiency of the use of raised capital, optimize the company's investment layout, and upgrade its digital strategy.

The company's performance is growing steadily. As of the third quarter of '23, the company achieved operating income of 9.78 billion yuan, an increase of 5.9% over the previous year; net profit of 980 million yuan, an increase of 18.3% over the previous year; and net profit after deducting 930 million yuan, an increase of 11% over the previous year. Looking at a single quarter, 23Q3 achieved operating income of 3.75 billion yuan, an increase of 0.5% over the previous year; net profit of 260 million yuan, an increase of 13.3% over the previous year; and net profit after deducting non-return mother's net profit of 280 million yuan, an increase of 14.3% over the previous year.

The foundation for main business development has been firmly established and consolidated to promote rapid development. In terms of cultural consumption, continue to improve the innovative distribution service system for publications on key topics and build a digital management platform for publications on key topics. It has successfully won bids for several 15 minute reading circle projects. An innovative library distribution service brand, the “Anhui 2023 Spring Library Matching Meeting” selected a total of 39.494 million yuan. In terms of education services, we will deepen the application of smart education, actively carry out various activities such as online training for smart schools, the “same class heterogeneity” competition for smart classrooms, and fun live streaming classes for the new public welfare classroom in Anhui, and promote and integrate development offline and online. Improve the education publication product system, cooperate with Beijing Normal University, the People's Education Society, etc. to explore new models of distribution of teaching aids, and obtain the qualification for distribution of textbooks for the three secondary vocational subjects of higher education societies in Anhui Province. In terms of supply chain services, the supply chain management system operates stably, achieves full coverage of supply chain business, and effectively controls business risks.

Investment suggestions: The company's cornerstone textbook distribution business is developing steadily. At the same time, the diversified business layout is in the fields of smart education, supply chain, games, etc., and the future growth trend is improving. We believe that the smart education business and game business are expected to benefit from the development of AIGC in the future and enhance the company's profitability. We forecast 2023E-2025E net profit of $9.1/11.0 billion or $1.33 billion respectively, maintaining the “buy” rating.

Risk warning: macroeconomic downturn; decline in enrolment numbers and births in Anhui Province; new business development falls short of expectations; risk of stock price fluctuations.