Event: The company released its 2024 three-quarter report. In 2024Q1-Q3, the company achieved revenue of 1.206 billion yuan (yoy -6.20%), net profit of 0.13 billion yuan (yoy +3.05%), net profit of 0.135 billion yuan (yoy +13.42%) after deducting the impact of the increase in income tax expenses after changes in preferential corporate income tax policies. Total profit before tax increased 26.2% year-on-year to 0.164 billion yuan, mainly benefiting from price control and cost reduction measures with remarkable results. Among them, 2024Q3 achieved revenue of 0.401 billion yuan (yoy -2.93%), and the month-on-month decline narrowed, net profit attributable to mother 37.25 million yuan (yoy +5.11%), after deducting non-return net profit of 43.62 million yuan (yoy +48.98%).

Q3 The month-on-month decline in the scale of Code Ocean in the industry narrowed, and IP strategic cooperation such as “Black Myth: Goku” accelerated. The size of China's book retail market fell 0.68% year on year from Q1 to Q3 in 2024Q1 to Q3. Among them, the decline narrowed month-on-month in Q3 due to the summer and school season. During the reporting period, the company was selected by China Knowledge Network's “Most Academic Influential Publishing House (2014-2023)” list, ranking first for economics degrees, fifth for history degrees, and thirteenth for political degrees. 2024Q3 has produced best-selling new books in various fields such as “Principles of Economics (comic)”, “Weird Behavior 7”, and “600 Years of Forbidden City Construction (Collector's Edition)”. The animation division increased copyright investment and resource support in the field of youth literature and animation to create new growth points. During the reporting period, the company collaborated with the popular game “Black Myth: Goku” to launch the “Black Myth: Goku” game photography exhibition” and participated in the release of “White Snake: Ukusheng: Ukusheng Art Collection”. The company digs deep into the needs of segmented readers and focuses on communicating the value of content.

AI empowers quality and efficiency, and increasing profit levels can be expected to be sustainable. Since 2023, the company has cooperated with AIGC Model Technology to build a digital intelligence system. In early July 2024, the digital intelligence development strategy was officially released, 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, increasing illustration production efficiency by 7-8 times and increasing video production efficiency by 2-3 times. The gross margin/net margin increased by 3.53/0.97pcts year-on-year to 39.19%/10.79% from 2024Q1 to Q3. 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 integrates the new cultural economy of the city. The company adopted a strategy of broadening channels and expanding vertical channels, continuously grasping the urban cultural ecology and consumer needs of vertical users, and targeting the operation of urban cultural spaces. During the reporting period, the company continued to expand the “Super Brand Laboratory” program and cooperated deeply with various leading media consumer companies. 2024H2 will launch Douyin flagship stores and anime-themed stores.

Knowledge service business cooperation expanded, and CITIC College teamed up with Sanlian Middle School to launch an annual pass and upgrade membership benefits. At the application scenario level, the company creates digital reading scenarios with CITIC Academy as the port, enterprise learning and training scenarios with knowledge new learning platforms as the core, and fictional interactive scenarios containing multi-modal knowledge IP matrices. During the reporting period, C-Side CITIC College and Sanlian Middle School launched a joint membership at a price of 686 yuan/year, expanding nearly 400 top scholars x Sanlian's original boutique humanities courses and 1000+ audiobooks based on CITIC Academy's original 10,000 products; the B-Duan Zhi New Enterprise Training Platform was officially launched, the Xinxuan Mall business grew rapidly, and hosted the Land and Sea Finance Forum to step up efforts to develop the “CITIC Knowledge” series of products to 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, 0.188, and 0.214 billion yuan in 2024-2026, up 36.8%, 18.4%, and 13.5% 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.