Incident: The company released its 2023 annual report: in 2023, the company achieved operating income of 1,717 billion yuan, a year-on-year decrease of 4.65%; net profit attributable to shareholders of listed companies was 116 million yuan, a year-on-year decrease of 7.72%; net profit without return to mother was 62 million yuan, a year-on-year decrease of 47.75%. Among them, the fourth quarter of 2023 achieved operating income of 431 million yuan, a year-on-year decrease of 8.98%; net profit attributable to shareholders of listed companies was -0.1 billion yuan, an increase of 21.54 percent year-on-year, after deducting net profit of 57 million yuan, a year-on-year decrease of 233.61%.

Performance is under pressure, and core competitiveness remains unchanged: The company's 2023 performance is under pressure due to weak consumer markets and a further reduction in discounts due to structural changes in book channels. However, the company relies on the two core competencies of “high-quality content creation” and “intelligent knowledge data”. The main advantages of the book publishing business are still stable, the profit model of the knowledge service business is basically mature, and the cultural consumption business is picking up.

Leading in the publishing industry, increasing both the scale and efficiency of publishing: In 2023, the company's market share in the overall book market was 3.25%, an increase of 0.22 percentage points over the same period last year, and the leading position is stable.

Among the segments, books on management, psychological self-help, and biography ranked first in the market, children's and natural science books jumped to second place in the market, and the rankings of literature and art increased dramatically. New books such as “The Biography of Elon Musk” and “Trust” published by the company during the year were well received. In 2023, the total number of TOP500 bestsellers in the 10 major segments covered by the company was 309, up 5.5% year on year; the number of book sales categories increased 6.3% year on year; on the basis of maintaining the largest mass book category in the country, the efficiency of Shiyang variety further increased by 0.12 to 5.18; the advantages of new media broadcasts were remarkable.

AIGC empowers and explores new forms of marketing and service: The company establishes a short video marketing professional system based on content planning and a digital distribution system based on data, while continuously improving product and marketing data models, and applying AIGC technology to improve marketing efficiency and optimize accurate delivery. In terms of B-side services, the Financial Expert Think Tank Forum is based on a “knowledge community” covering global experts to build the intellectual service influence of Chinese wisdom, Chinese solutions, and Chinese power; the information knowledge innovation service platform upgrades knowledge products with data and informatization, and strives to explore new forms of AIGC digital reading.

Investment advice: We expect the company's net profit attributable to shareholders of listed companies in 2024-2026 to reach 1.55/ 1.61/174 million yuan, an increase of 33.33%/3.96%/7.86% year-on-year, corresponding EPS of 0.82/0.85/0.91, and corresponding PE of 37x/36x/33x respectively, maintaining the “recommended” rating.

Risk warning: the risk of declining sales in physical bookstores, the risk of changes in the competitive landscape of the industry due to digital transformation, the risk of changes in tax incentives and financial subsidy policies, and the risk of intellectual property infringement.