Key points of investment

Event: The company released its semi-annual report. Overall, 24H1 revenue grew steadily, with issuance revenue growing faster; the decline in profit was better than expected (if revenue remains flat year-on-year according to the 25% income tax rate, profit should fall 25%), mainly due to the company's 24Q2 actual tax rate falling significantly. The actual tax rate for 24Q1 was 26%, while Q2 fell to 21.1%, so the overall actual tax rate for H1 was only 22.6%. The reason why the actual tax rate is less than 25% is that the 5 subsidiaries of Phoenix Media Holdings are high-tech enterprises and are subject to a 15% income tax rate; the 13 subsidiaries of Phoenix Media Holdings are small and micro enterprises, which pay taxes according to 25% of taxable income multiplied by 20%.

Core financial indicators: (1) 24H1 revenue of 7.24 billion yuan, yoy +0.8%; net profit of 1.22 billion yuan, yoy -21.5%; net profit after deducting non-attributable net profit of 1.21 billion yuan, yoy -19.8%; profit before tax of 1.61 billion yuan, yoy +0.8%; income tax of 0.36 billion yuan, actual tax rate of 22.6%. 24H1 gross profit margin 42.2%, yoy+0.5pct; sales expense ratio 11.4%, yoy+0.5pct; management expense ratio 11.6%, yoy+0.4pct; R&D expense ratio 0.2%, same as year on year. (2) 24Q2 revenue of 3.89 billion yuan, yoy -1.3%; net profit of 0.87 billion yuan, yoy -19.4%; net profit of non-return to mother 0.86 billion yuan, yoy -17.7%; profit before tax of 1.12 billion yuan, yoy +2.7%; income tax of 0.24 billion yuan, actual tax rate of 21.1% (24Q1 actual tax rate of 26.0%). 24Q2 gross profit margin 47.7%, yoy+3.4pct; sales expense ratio 11.5%, yoy+1.4pct; management expense ratio 11.5%, yoy+1.0pct.

By business: 24H1's publishing division revenue was 2.27 billion yuan, the same year on year; distribution division revenue was 6.14 billion yuan, yoy +6.5%; revenue from other segments was 0.2 billion yuan, yoy +6.4%; inter-division offsetting was -1.66 billion yuan, and 23H1 was -1.59 billion yuan. (1) In terms of publishing business, the advantages of mass publishing have been reshaped, and educational publishing is steadily improving. 2024H1, the company opened the retail market with a share of 3.01%, ranking first, with sales of over 0.04 million books. The company organized the revision and submission of the new textbook for the educational curriculum. 9 sets of 122 volumes of the new curriculum standard textbook passed the review, and actively promoted the Phoenix version of the textbook. (2) In terms of distribution business, focus on complex marketing and lean management, and improve distribution service capabilities. 24H1 Publishing Group launched more than 5,000 reading events, including several sub-brand events. The book fair sold 0.25 billion yuan. The company set up a new media operation team, opened multiple accounts, and built a live streaming business team.

Optimizing inventory management is effective in reducing inventory. (3) In terms of new business, the company increased its innovation drive, selected a number of innovative projects, and innovated assessment mechanisms. Focus on technological empowerment, promote the construction of Phoenix digital textbooks, strengthen platform construction and application, and enhance operational capabilities. Integrating internal and external resources to expand research business, generating revenue of about 18 million yuan in the first half of the year. Research activities related to vocational education companies and newspaper companies were well received by users.

Profit forecast and investment rating: The company's revenue for the first half of this year was the same as last year, but the actual tax rate was better than expected. We maintained the 2024-2026 net profit forecast of 1.88/1.98/2.15 billion yuan. The current stock price is 14/14/13 times PE, respectively. We are optimistic about the competitive advantages of the company's core business and the prospects for new business development, and maintain a “buy” rating.

Risk warning: Risk of business development falling short of expectations, risk of tax policy changes.