2Q24 results were slightly weaker than our expectations

The company announced 2Q24 results: revenue of 0.228 billion yuan, a slight decrease of 3% year on year and 1% month on month; net profit to mother of 42.49 million yuan, a slight decrease of 1.8% year over year and a decrease of 12.5% (we expect 45 million yuan), which is slightly weaker than our expectations. We believe that mainly due to weak demand in the popular book industry affecting the company's revenue side performance, the cost performance is basically stable.

Development trends

The sales volume of 1H24 long-selling books was stable, and the performance was superior to the overall market; 2Q24 yaoyang and revenue were basically the same as in the same period in 21/22. From an industry perspective, 1H24 China's book retail market fell 6.2% year on year. Demand is weak and market pressure is still obvious. We believe that part of it is also affecting the company's bibliography sales. Comparatively, the company's 1H24 paper book code/revenue increased by 4%, showing a certain alpha attribute. Looking at the performance for the second quarter of a single quarter: 2Q24, the general book distribution business code decreased by 10% year-on-year, and the absolute amount was 0.46 billion yuan/0.211 billion yuan, respectively, which is basically the same as the 2Q21/2Q22 level. Overall, the company's own sales situation is relatively stable, including:

In terms of long-selling books, Yu Hua's “Being Alive (2021 edition)”, “The Seventh Day (2022 edition)”, and Lu Yao's “Ordinary World (all three volumes) (2021 edition)” have always been at the top of the monthly bestseller list, stabilizing the company's basic performance.

In terms of new 1H24 books, the company has released a total of 82 new books, including Li Juan's “Altay's Corner (2024 edition)” (top 30 non-fictional sales in May), Yu Hua's “We Live in a Huge Gap (Extended Edition)”, “Xu San Guan's Blood Chronicles (2024 edition)”, Maijia's “Human Letter” (May Top 20 fictional sales), and Kuroyanagi Tetsuko's “Continuing Little Doudou by the Window” had good sales performance. Many titles were selected for the 1H24 new book list Top 30.

The second half of the year was rich in new books, focusing on the works of leading authors. The company reserves works by leading authors and its own IP for 2H24, including Yu Hua's “Valley Breeze” (first released on August 16), Liushen Leilei's “Tang Shi Guangming Ding” (the author expects to be published in October), and Bibi Zoo's “Let's Waste All Day Like This” (released on August 7).

Profit forecasting and valuation

Considering that the book retail market is still under relative pressure, the company's 2024/25 net profit returned to mother was reduced by 5%/8% to 0.171/0.178 billion yuan. The current stock price corresponds to 15.3x/14.6x 2024/25 price-earnings ratio. Maintaining a neutral rating, the target price was lowered by 6% to 17.85 yuan due to adjustments in profit forecasts, corresponding to 17/16 times the 2024/25 price-earnings ratio, with an upward margin of 11.2%.

risks

Book retail sales continue to be under pressure, channel discount pressure, overseas business expansion falls short of expectations, liquidity risks, loss of core editors, and increased piracy and infringement.