Incident: Century Tianhong released its 2024 semi-annual report. 2024H1 achieved total revenue of 0.163 billion yuan, up 8.9% year on year; net profit to mother was 0.008 billion yuan, up 0.5% year on year; net profit after deducting non-return to mother was 0.005 billion yuan, up 9.0% year on year. 2024Q2's revenue was 0.064 billion yuan, down 1.3% year on year; net profit to mother was 0.001 billion yuan, up 265.8% year over year.

Comment: Increase the scale of teaching and research services and promote the rapid implementation of AI+ education products 1) Upgrading key teaching aids and increasing the scale of teaching and research services. The company has made new upgrades to key product content such as “College Entrance Examination General Review Optimization Design”, “High School Simultaneous Study Case Optimization Design”, and “Ten-Year College Entrance Examination”. With a stronger R&D and writing team, the product quality has improved significantly. At the same time, the company strengthened product promotion, added product reviews, stimulated channel potential with strong attraction, strong empowerment, and strong service, and innovated teaching and research services. In the first half of the year, the company organized 275 on-site teaching and research service activities in more than 20 provinces across the country, empowering 63 customers.

2) Focus on user needs and promote the rapid implementation of AI+ education products. On the one hand, the company set up a digital publishing department to promote the establishment of a digital system, build a content resource library, and explore an intelligent teaching aid cooperation model. On the other hand, Assistant Professor Xiao Hong 4.0 was launched in February 2024, and the Essay Correction Assistant and Oral Arithmetic Correction Assistant were launched in March and May, respectively, greatly improving teachers' correction efficiency. As of 2024H1, Bushen Essay has accumulated over 19 million users. The essay community has submitted more than 0.3 million articles per month, and has accumulated more than 5 million high-quality essay materials.

3) Control expenses, and the cost rate of management and R&D has decreased. The company's 2024H1 sales, management and R&D expenses rates were 18.4%, 15.3%, and 1.3% respectively, increasing +2.3/-1.8/-0.3 pct year-on-year respectively. Among them, the increase in sales expenses was mainly due to an increase in sales expenses due to an increase in marketing and promotion expenses. The company's 2024Q2 sales, management and R&D expenses rates were 20.8%, 17.2%, and 1.4%, respectively, with a year-on-year increase of +1.2/-3.5/-0.6pct.

Profit forecast and valuation: Considering the implementation of the company's strategic plan to continue to advance the “integration of research and marketing services” and the company's 2024H1 performance is in line with expectations, we maintain our previous performance expectations. Century Tianhong's 2024-2026 operating income is 0.573/0.632/0.696 billion yuan, respectively, up 12.85%, 10.39%, and 10.08% year on year; net profit to mother was 0.054/0.065/0.077 billion yuan respectively, up 28.29 billion yuan year on year %, 18.89%, 18.73% The company's valuation corresponding to the current market value is 51.7x, 43.5x, and 36.6x, respectively, maintaining the “gain” rating.

Risk warning events: policy risks on the cultural supervisory side; risk that the number of students does not grow as much as expected; discounts on e-commerce books for live video broadcasts have increased; and the risk that the information data used in the research report is not updated in a timely manner.