Company dynamic events

1. The company released its annual report for 2020, with annual revenue of 2.061 billion yuan, an increase of 9.47% over the same period last year, and a net profit of 264 million yuan, an increase of 64.07% over the same period last year.

2. The company announced the 2020 dividend plan, which plans to distribute a cash dividend of 1 yuan for every 10 shares.

3. The company announced its quarterly report for 2021 that Q1 achieved revenue of 554 million yuan, an increase of 12.77% over the same period last year, and a net profit of 63 million yuan, an increase of 14.71% over the same period last year.

Comments on matters

The digital reading platform operated by the company has accumulated a large number of users by combining the free + payment model and optimizing the gross profit margin of the digital reading platform. in 2020, the average number of monthly active users of the company has increased to 160 million, and the per capita reading time has also been further improved. we believe that the company's successful layout in the field of free reading has played a positive role in promoting user growth and improving user stickiness. In 2020, the revenue of the company's digital reading platform fell slightly by 3.17% compared with the same period last year, mainly because the company vigorously promoted the operation strategy of the combination of payment and free, in which the revenue from paid reading decreased slightly, but the business of commercial value-added services grew rapidly. its free novel reading platform Deji Technology achieved revenue of 200 million yuan, an increase of 135% compared with the same period last year. This change in revenue structure reduced the company's channel cost and copyright cost by 19.59% and 9.33% respectively, optimizing the gross profit margin of the digital reading platform business. In 2020, the gross profit margin of the company's digital reading platform business reached 41.79%, an increase of 6.46% over the same period last year. In November 2020, the company also introduced byte jump as the third largest shareholder, which is expected to strengthen the company's ability to commercialize digital content with the help of its traffic and algorithm advantages. The company expects the volume of related transactions related to byte jump to reach 430 million yuan in 2021, a significant increase over the previous year. The volume of related transactions was confirmed to be 62 million yuan in the first quarter, and the business cooperation between the two sides is expected to be further reflected in the future.

The revenue of copyright business has increased significantly, and actively expand the distribution channels.

In 2020, the company's copyright business revenue reached 504 million yuan, a substantial increase of 92.66% over the same period last year.

By actively expanding distribution channels, the company has increased the output of copyright content to third-party Internet platforms, film and television companies and game companies, realizing the multi-dimensional value-added of its network literature copyright.

For example, after the original adaptation of the animation "Yuanlong" landed in bilibili in July, it immediately became the topic of the current season in bilibili's domestic animation zone, and topped the list of hot searches in Station B for many days in a row.

At present, the cumulative broadcast of "Yuanlong" in bilibili has reached 280 million times, and the second season of the animation will be broadcast in 21 years. Bilibili also participated in the latest round of fixed growth of the company, and the cooperation between the two sides in IP derivatives is expected to be further deepened.

Profit forecast and valuation

The company is the leader in the A-share digital reading industry, and the free + payment model is expected to further enhance the commercial value of the platform; based on the rich copyright reserves, the company has a broad imagination in the derivative realization of IP. It is estimated that the net profit of shareholders belonging to the parent company from 2021 to 2023 is 370 million yuan, 483 million yuan and 622 million yuan respectively, and the EPS is 0.84,1.10 and 1.42 yuan respectively, and the corresponding PE is 37.48,28.69 and 22.29 times. Give it a rating of "prudent overweight".

Risk hint

Industry competition intensifies; policy risk; macroeconomic downside risk; realization ability of free reading advertising is not as expected; IP derivative development is not as expected