Event: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 0.805 billion yuan (yoy -7.75%), net profit of 92.89 million yuan (yoy +2.25%), net profit of 91.06 million yuan (yoy +1.78%) after deducting the impact of the increase in income tax expenses after changes in preferential corporate income tax policies. Total profit before tax increased 25.80% year-on-year to 0.119 billion yuan, mainly benefiting from price control and cost reduction measures with remarkable results. Among them, 2024Q2 achieved revenue of 0.403 billion yuan (yoy -9.63%), net profit due to mother of 55.01 million yuan (yoy +12.70%), after deducting non-return net profit of 55.27 million yuan (yoy +10.77%).

The leading position is stable, and the Animation Division was established to accelerate the promotion of animation cultural and creative strategies. 2024H1 The size of China's book retail market fell 6.20% year on year. Among them, the decline in Q2 narrowed month-on-month due to the entry into the online store promotion period. The company's share of the Shiyang market reached 2.68%, maintaining the top position in the industry. In terms of segmentation, the company ranked first in the market in management, science popularization, psychological self-help, and biography categories, and ranked second in children's and lifestyle categories. 2024H1 has produced best-selling new books in various fields such as “Understanding New Quality Productivity”, “The Imperial Code Trilogy”, and “This Is China 3,” and “The Invisible Child: Poverty, Survival, and Hope in an American City” won the “Wenjin Book Award”. During the reporting period, the company set up an animation division to increase copyright investment and resource support in the field of youth literature and animation to create a new growth point. 2024Q1 ranked second in the animation book market, and the efficiency of Shiyang's variety was as high as 31.47. Currently, it has reached cooperation with Universal Studios for Minions and Kung Fu Panda derivatives, and has also obtained licenses to operate derivatives from IP such as “The Buried Flillian”, and participated in the release of the popular game “Black Myths: Goku”. The company digs deep into the needs of segmented readers and focuses on communicating the value of content.

The AIGC digital publishing platform empowers the entire publishing and distribution process and drives efficiency improvements. Since 2023, the company has cooperated with AIGC Model Technology to build a digital intelligence system, and officially released a digital intelligence development strategy in early July 2024, using the “Kuafu AIGC Digital Intelligence Publishing Platform” to achieve integrated promotion of topic selection, planning and marketing, covering 17 application scenarios and 122 AI applications, improving quality and efficiency with data-driven technology applications in 10 major links and 101 process nodes throughout the publishing process. 2024H1 gross margin/net margin increased by 3.31/0.72pcts year-on-year to 38.67%/ At 11.54%, we are optimistic that the follow-up publishing think tank will continue to make efforts to further promote cost reduction and efficiency.

The cultural consumption business positions the operation of urban cultural spaces, with online+offline collaborative operation. The company adopted a strategy of broadening channels and expanding vertical channels, continuously grasping the city's cultural ecology and the consumption needs of vertical users, and targeting the operation of urban cultural spaces. During the reporting period, CITIC bookstore physical store floor efficiency increased by more than 37% year-on-year, the cumulative reading/viewing volume of the new media matrix exceeded 100 million, and the profitability of “parallel bookstores” was greatly improved. In addition, the company continues to expand the “Super Brand Lab” program and cooperate deeply with various leading media consumer companies. 2024H2 will launch Douyin flagship stores, anime-themed stores, and operate online and offline cultural spaces collaboratively.

The knowledge service business was fully upgraded to digital intelligence services to build a new publishing ecosystem. In July 2024, the company officially announced a digital intelligence development strategy, opening up cooperation with model technology companies at the infrastructure layer; continuously upgrading the iterative book publishing platform, exaggerating the AI platform, and building a publishing knowledge base at the application scenario layer; creating a digital reading scene with CITIC Academy as the port, an enterprise learning and training scenario centered on a new learning platform, and a fictional interactive scenario containing a multi-modal knowledge IP matrix. During the reporting period, the C-end CITIC Academy app launched more than 10,000 digital products, with a cumulative total of more than 13 million registered users; the B-terminal new enterprise training platform was officially launched, corporate knowledge service revenue increased 15% year-on-year, the Xinxuan Mall business grew rapidly, and hosted the Luhai Finance Forum to step up efforts to develop the “CITIC Knowledge Gift” series of products and actively build a new integrated publishing ecosystem.

Profit forecast and valuation: Considering factors such as the overall recovery period of the publishing industry and the impact of corporate tax policies, we expect to achieve net profit of 0.159, 0.184, and 0.214 billion yuan in 2024-2026, up 36.8%, 15.5%, and 16.2% year-on-year, maintaining a “buy” rating.

Risk warning: Risk of stricter policies; risk of copyright parties not being able to renew contracts; further changes in tax incentives and financial subsidy policies.