New Classic released its report for the third quarter of 2024. In the third quarter, the company achieved operating income of 0.185 billion yuan, a year-on-year decrease of 14.20%; net profit to mother was 0.036 billion yuan, a year-on-year decrease of 13.00%; and non-net profit deducted to mother was 0.031 billion yuan, a decrease of 20.30% year-on-year.

The company achieved operating income of 0.639 billion yuan in the first three quarters, a year-on-year decrease of 2.66%; net profit to mother was 0.127 billion yuan, a year-on-year decrease of 1.58%; and non-net profit deducted to mother was 0.113 billion yuan, a decrease of 1.55% year-on-year.

Overall results for the first three quarters were under pressure. According to unpublished data, in January-September 2024, the book retail market was down 0.68% year on year. Under pressure on the book market, the company's revenue for the first three quarters decreased by 2.66% year on year, and net profit to mother decreased by 1.58% year on year. By business, from January to September 2024, the company's three major business revenues of paper books/digital content/copyright operations were 0.588/0.031/0.014 billion yuan, respectively, down 2.36%/5.68%/5.25% year-on-year. Net cash flow from the company's operating activities decreased by 52.47% year on year, mainly due to an increase in prepaid royalties paid by the company for copyright purchases.

The gross margin declined slightly, and the expense ratio remained stable. From January to September 2024, the company's gross margin fell 1.36 pcts year on year to 47.93%. Among them, the gross margins of the three major businesses of paper books/digital content/copyright operations were 46.32%/68.88%/57.76%, respectively, down 1.84 pct/up 1.82 pct/2.05 pct year on year, respectively. From January to September 2024, the company's sales/management/ R&D expense ratio was +0.08pct/-0.61pct/-0.20pct, respectively, to 18.07%/7.10%/0.83%, respectively, and remained stable.

It is rich in copyright resources and continues to promote marketing system innovation and channel operation capability improvement. The company has exclusive publishing and distribution rights for many writers such as Garcia Marquez, Yu Hua, and Naipaul, and works closely with international organizations such as Boda, Big Apple, Carmen and Kodansha, and Penguin Landon, and has a competitive advantage in obtaining copyright. Overseas business expansion has enhanced cooperation with international copyright agencies, expanded the scope of copyright acquisition, and enhanced promotion and operation capabilities. Facing the challenge of channel differentiation, the company explores content marketing and communication methods on multiple platforms, and has omni-channel sales capabilities including platform e-commerce, short video live e-commerce, community e-commerce, and physical bookstores. With the rapid development of interest e-commerce represented by short e-commerce, the company focuses on iterative changes in sales channels, insists on starting from product content, actively expands cooperation with experts on various platforms, and formulates differentiated marketing strategies based on platform characteristics to achieve accurate access and continuous dissemination of content, promote the same frequency resonance of marketing and sales, and increase sales conversion rates.

Maintain a highly recommended investment rating. The company has rich reserves of copyright resources and continues to promote marketing system innovation and channel operation capabilities. However, due to pressure on the general book market, we slightly lowered our profit forecast. We expect to achieve net profit of 0.158/0.169/0.173 billion yuan in 2024/2025/2026, respectively, corresponding to 16.9/15.8/15.5 times PE, and maintain a “highly recommended” investment rating.

Risk warning: risk of industry policy adjustments, risk of overseas business and new business development falling short of expectations, risk of intellectual property protection falling short of expectations, etc.