A leading mass publishing company to promote the construction of a digital cultural power. The company was founded in February 1993 as a national outstanding publishing organization. It has a full license for books, newspapers, electronic, audiovisual and online publishing and wholesale and retail. It publishes more than 1,400 new books every year. It is one of the top 100 book publishing units in China. Its publications have won important awards in the Chinese publishing industry many times, can integrate, operate and distribute high-quality digital content, and has a certain leading edge in the field of publishing digital reading. The company is positioned to provide knowledge services and cultural consumption to the public. Its main business is book publishing and distribution business, knowledge service business, and cultural consumption business.

The company's performance was slightly under pressure in 2023, but its market share increased steadily. The overall performance of publishing companies is under pressure due to negative effects such as weak consumer markets and structural changes in book channels. However, with the company's main business advantage in book publishing, the company's share of Shiyang's overall book market was 3.25%, an increase of 0.22 percentage points over the same period last year, consolidating its leading position in the industry.

In terms of performance, the company achieved revenue of 1,717 billion yuan/-4.659% YoY, net profit of 116 million yuan/-7.72% YoY, and net profit of 62 million yuan/ -47.75% after deduction. On a quarterly basis, Q1-Q4 achieved revenue of 4.27/4.46/4.13/431 billion yuan, respectively, of +3.69%/+2.18%/-13.37%/-8.98%, and net profit to mother of 0.42/0.49/0.35/ -0.1 billion yuan, respectively, +2.57%/+0.32%/-27.82%/+21.54%. By industry, the company's general book publishing and distribution/cultural consumption business/knowledge service achieved revenue of 13.19/3.91/058 billion yuan (internal offset of -97 million yuan) in 23, respectively, -5.20%/-2.37%/+15.02% year-on-year, respectively. Apart from the growth of digital reading services, all other businesses declined.

In terms of profitability, 1) in terms of gross margin, the company's overall gross profit margin in 2023 was 34.87% /year on year +0.63 pct, mainly due to the increase in gross margin of the top three businesses (general book publishing and distribution/bookstore business/digital reading services 31.98%/26.23%/47.36% year on year, -3.09pct/+23.57pct/+5.16pct, respectively); 2) In terms of rate, the company's overall expense ratio in 2023 was 27.92%/+1.78 pct year on year, sales expenses rate 20.37% /YoY +1.25pct; management expense ratio 7.71% /YoY +0.20pct, mainly due to increased management expenses due to revenue growth in different sectors; R&D expense ratio was 0.65%/+0.15pct year over year, mainly due to the company's increased investment in supply chain, publishing, AI, etc.; financial expense ratio was -0.81% f +0.18pct yoy, mainly due to an increase in interest expenses over the same period last year; 3) In terms of net interest rate, the company's net interest rate in 2023 was 6.96%/+0.80pct year over year.

The main book publishing business is under pressure in the short term, and “physical store+e-commerce expansion” boosts the scale and efficiency of publishing through multiple channels. ① Main business performance: In 2023, the company's Shieyang variety efficiency further increased by 0.12 to 5.18, and the leading position was stable; in the segment, management, psychological self-help, and biography books ranked first in the market, and children's and natural science books jumped to second place in the market, but the company's book publishing and distribution business revenue fell 5.20% year on year to 1,319 billion yuan in 23 years, and the gross margin was -1.02 pct to 31.98% year on year, mainly due to changes in book channel discounts and pressure on book industry demand. ② Channel: Physical stores continue to be optimized and adjusted, airport stores have recovered significantly, and the standardized model of business stores has been further improved. Urban leisure stores focus on creating iconic experience spaces, and the overall floor efficiency has increased 68% year over year; in terms of online CITIC Bookstore, expanding the e-commerce matrix for new media content and constructing a “content-marketing-product” model integrating “content-marketing-product” will bring consumers a new scenario of cultural consumption experience. The company has established a three-dimensional sales network covering physical stores, platform e-commerce, self-media matrices, community e-commerce, content e-commerce, distribution platforms and institutional customers, which helps promote the company's book sales.

The shift of knowledge services to the B-side is expected to create a new performance growth curve. In 2023, the company's knowledge service business achieved revenue of 58 million yuan/year over year. The company actively expanded from a single knowledge payment to multi-scenario knowledge service, and the knowledge service profit model has basically matured, focusing on providing comprehensive, multi-scenario knowledge service solutions for government agencies and enterprises. During the reporting period, the company launched the “Enterprise Academy” benchmark enterprise visit product and launched the construction of an online learning platform. More than 2,000 training courses have been launched. The company is expected to take advantage of the resource synergy advantages of the CITIC Group system to speed up meeting enterprise needs, build a product and service system around the needs of enterprises in the industrial upgrading process, enhance brand influence, and create additional performance.

Deepening the application of AIGC technology, internal and external efforts have become a resonance trend. ① Internally: The company establishes a new smart reading ecosystem to explore new publishing models, uses AIGC to reduce costs and increase efficiency, accumulate digital assets, and actively incubate innovative projects in the fields of intelligent digital marketing and children's IP for financial translation; upgrade knowledge products and explore new forms of AIGC digital smart reading; improve product and marketing data models, and apply AIGC technology to improve marketing efficiency and optimize accurate delivery. ② Externally: At the Baidu World Conference, Baidu and Baidu jointly released the “CITIC Academy AI Reading Assistant” plug-in, collaborated with artificial intelligence Xiaobing to publish the first AI painting collection and promote the “AIGC Digital Intelligence Publishing Project”. The company actively uses AI to help reading and create works. We believe that the company actively embraces new types of productivity and explores AI application scenarios in the publishing industry, which is expected to reshape the publishing industry, accelerate the implementation of various scenarios such as data product design, data asset listing, and AIGC enabling publishing & marketing. In the context of the introduction of market value management policies for central enterprises, or redefine the valuation logic of publishing central enterprises, enhance the company's ability to control costs and increase profits in the main business.

Investment advice: As a leading domestic public publishing enterprise, the company has obvious advantages in its main business. The three-dimensional sales network is expected to continue to improve the scale and efficiency of book publishing. The endogenous extension of AIGC technology empowers multiple business scenarios, superimposes the implementation of central enterprise market value management policies, and the company is expected to boost valuation and performance. It is estimated that in 2024-2026, the company's net profit to mother will be 1.52/1.83/214 million yuan, respectively, and EPS will be 0.80/0.96/1.12 yuan respectively, corresponding to the current PE of 38/32/27 times, respectively. This is the first coverage, giving a “buy” rating.

Risk warning: Risk of policy changes, AIGC technology development falling short of expectations, risk of intellectual property protection, risk of increased industry competition.