Key points of investment

The construction of the Vientiane 100 New Digital Intelligence Framework was completed, empowering the entire publishing process (1) The digital intelligence framework was completed, and the entire publishing process was enabled from the bottom up. The company's digital intelligence strategy framework is divided into three layers: infrastructure layer, platform layer, and scenario layer. The infrastructure layer includes user data and content data, and supports data storage and processing for 10 million own users.

The platform layer consists of a book news publishing platform, a publishing knowledge base, and a Kuafu AI platform, which optimizes the entire publishing process. The scene layer covers three modules: digital reading, corporate learning, and interaction between author and reader.

(2) The Book News Publishing Platform helps monitor the use of copyright, digitize the publishing process, and build data assets. The Book News Publishing Platform covers the entire process from copyright management to book publishing and listing marketing. The platform realizes copyright-derived topic selection management through the “four banks in one” solution for copyright banks, contract banks, product banks, and question selection banks, and enhances publishing efficiency through digital upgrades.

(3) Kuafu's AI platform runs through the workflow and improves employee efficiency. The underlying architecture of the platform is CITIC Cloud, which builds a large model engine based on cloud platforms, big data platforms, etc., and is applied to the three main scenarios of publishing, user service, and content generation. It has functions such as deep knowledge deconstruction, integrated marketing, online translation, and one-click e-commerce map generation. The company has built 122 AI applications for 17 publishing scenarios, which run through every process of publishing.

(4) The company cooperated with Xiaobing Technology to create the author's digital identity through digital human and big model technology to achieve real-time communication and personalized knowledge sharing.

The book market has performed brilliantly in many fields, leading the sales list. According to the unpublished report data, management books published by the company ranked first in the market, and occupied many seats in the China Map Network economic management book list in January. Specifically, as of July 23, 2024, “One Lesson in Economics” ranked 1st, “Xue Zhaofeng's Lectures on Economics” ranked 10th, “The Origin of Wealth: How Humans Became Rich” ranked 21st, and “The Random Walking Fool” ranked 24th.

Among biographical books, according to the Beijing edition, “The Biography of Elon Musk” ranked 22nd in sales of new non-fiction books on various channels in the first half of 2024.

Among psychological self-help books, many children's books are at the top in sales. According to the Beijing publication, “Puppy Money Money” ranked 8th in the June children's shelf sales list.

The overall book market was under pressure in the first half of 2024. The teaching aid sector grew significantly, and the revenue and share of short video channels maintained a growing trend

According to Beijing Open, the overall book retail market showed negative growth in the first half of 2024. MaYang fell 6.20% year on year. Compared with the first quarter, the second quarter entered a major online store promotion period, and the overall decline in the book retail market was narrower than in the first quarter.

By category, in the first half of 2024, the Children's Code Yang had the largest share, accounting for 29.17%, with MaYang falling 1.46% year on year, followed by the teaching aid category. MaYang had the largest year-on-year increase of 8.99%; the share of Literature Code Yang was 10.09%, with MaYang falling 7.16% year on year.

By channel, the proportion of short video e-commerce in the first half of 2024 still showed a positive growth trend. MaYang increased by 18.34% year on year, but compared with previous years, the growth rate slowed down.

Profit forecast and investment rating: The company actively explores new technology to empower the publishing business, with obvious advantages in copyright resources, leading the content e-commerce business. We expect revenue of 1.886/2.064/2.317 billion yuan from 2024 to 2026, and net profit to mother of 0.122/0.138/0.157 billion yuan, respectively. Corresponding PE is 37/32/29 times, respectively, for the first time coverage, giving a “buy” rating.

Risk warning: Increased competition in the industry, the growth rate of short video channels falling short of expectations, book sales performance and life cycle falling short of expectations, failure to acquisive/renew important copyrights as scheduled, corporate governance risks, changes in user reading preferences, etc.