Incident: The company released its 2024 interim report: in the first half of 2024, the company achieved operating income of 0.805 billion yuan, a year-on-year decrease of 7.75%; net profit attributable to shareholders of listed companies was 0.093 billion yuan, an increase of 2.25% year on year; net profit not attributable to mother was 0.091 billion yuan, an increase of 1.78% year on year. Among them, in the second quarter of 2024, the company achieved operating income of 0.403 billion yuan, a year-on-year decrease of 9.63%; net profit attributable to shareholders of listed companies was 0.055 billion yuan, an increase of 12.70% year on year; and net profit after deducting non-return to mother was 0.055 billion yuan, an increase of 10.77% year on year.

The leading position is stable. In the first half of 2024, the Chinese book retail market, Mayang, which focuses on high-quality content, fell 6.20% year on year, and the physical store channel Code Yang fell 4.05% year on year. Traditional book sales channels are under great pressure. However, the company's market share in Shiyang reached 2.68%, ranking first among individual publishing houses in the country, and its leading position is stable. In the field of segmentation, the company ranks high in various categories such as management, psychological self-help, biography, etc., to dig deeper into readers' needs and focus on publishing high-quality content.

A number of measures have been taken to significantly increase gross margin. Through measures such as digital intelligence empowerment, production optimization, and sales price control, etc., the company's gross margin of the publishing business reached 37.77% in the first half of 2024, an increase of 3.68 percentage points over the previous year, leading to a sharp increase in profit before tax.

The AIGC digital intelligence platform was upgraded to enable the entire publishing process. The company actively embraces AIGC's technological transformation. Currently, it has completed the construction of a digital intelligence framework, empowering the publishing process from the bottom up. The company monitors copyright usage through an AI platform, digitizes the book listing process, greatly improves the efficiency of the entire publishing process, constructs and accumulates data assets, and builds its second growth curve through the digital intelligence platform.

Investment advice: We believe that the company's core business is progressing steadily, and the application of AI and other related technologies is expected to help the company improve operating efficiency and achieve cost reduction and efficiency in the long term. The company's net profit for 2024-2026 is estimated to be 0.161/0.177/0.204 billion yuan, respectively, and the corresponding PE is 28x/26x/22x, 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.